Between April 2019 and March 2020 578,085 Suspicious Activity Reports (“SARs”) were submitted to the National Crime Agency (“NCA”) (SARs Annual Report 2020), the majority by banks. This represented an increase of approximately 20% on the 2018/2019 figure.
Historically, UK agencies have found it difficult to investigate anything other than the most egregious conduct, but with the new Account Freezing Orders (“AFOs”) regime, agencies can relatively easily obtain AFOs while they undertake their investigations. Head of Financial Crime David Savage looks at AFOs in more detail in this article.
AFOs were introduced by Part 1 Chapter 3 of the Criminal Finances Act 2017 (the “CFA”), to bolster UK agencies’ powers of investigating and subsequently recovering the proceeds of financial crime. The CFA inserted sections 303Z1 – 303Z19 into Part 5 of the Proceeds of Crime Act 2002 (“POCA”) and the AFO provisions entered into force almost three years ago, on 31 January 2018.
The civil recovery regime under section 5 of POCA complements the criminal restraint order regime, in which a defendant’s assets are frozen upon the commencement of a criminal investigation if there are reasonable grounds to suspect that the alleged offender has benefited from the criminal conduct in question.
Securing an AFO
AFOs, when granted by a Magistrates’ Court, allow the freezing of bank and building society accounts for specified periods of time, in order to “tackle money laundering, corruption and terrorist financing” and allow the relevant agency to investigate the provenance of the suspected funds for a period of up to two years.
The majority of these applications will have followed the submission of a SAR by a bank and can be made either “on notice” or “without notice”. Applications will be made without notice if there are reasons to believe that notifying the respondent (ie the bank or building society account holder) to the application would prejudice subsequent forfeiture of funds. Applications must be made in writing and may be sent to the court before which the agency wishes to make the application (s.3(1) The Magistrates’ Courts (Freezing and Forfeiture of Money in Bank and Building Society Accounts) Rules 2017 (the “Rules”)).
To obtain an AFO, all the relevant agency, (which can include HMRC, the NCA, the Serious Fraud Office (SFO) or the police), has to do is demonstrate to the court that it has reasonable grounds to suspect that funds, (for which a minimum threshold of £1,000 applies), held in a bank account represent “recoverable property” or are intended by any person for use in unlawful conduct. “Recoverable property” is defined as property obtained through unlawful conduct.
This burden of “suspicion” is significantly lower than that required to secure a restraint order under POCA; there is no need for the relevant agency to formally open a criminal investigation, nor demonstrate that the subject of the AFO has benefitted from criminal conduct. This inevitably means that the vast majority of without notice applications for AFOs will be approved; if the NCA has reasonable grounds to suspect, a court is likely to agree with that suspicion.
Forfeiting funds subject to an AFO
Obtaining an AFO is merely the first stage in recovering the proceeds of criminal activity. If having undertaken its investigation, the relevant agency is of the opinion the funds are the proceeds of crime or will be used for criminal conduct, the next stage is to seek forfeiture. There are two routes to forfeiting funds subject to an AFO:
- If the relevant agency is satisfied that the funds are the proceeds of crime or will be used for criminal conduct, it may then make an application for forfeiture. It must give at least 30 days’ notice (an Account Forfeiture Notice (“AFN”)) of this intention during which time the respondent may raise any objections in writing. If no objections are made, the money will be forfeited. If an objection is made, the AFN lapses and an application must be made for an Account Forfeiture Order (“AFOO”).
- Upon receipt of an objection to an AFN or instead of applying for an AFN, the relevant agency can apply to the Magistrates’ Court for an AFOO. To persuade a court that the money should be forfeited, the burden of proof is on the agency to show that the balance held in the account is either recoverable property or intended for use in criminal activity. There is a mechanism for appealing an AFOO.
Challenging an AFO
Any person affected by an AFO can ask the court for it to be varied or set aside. There are a number of ways in which to vary or set aside an AFO:
- Where a respondent has notice of the application, they may provide the court with a bundle of documents designed to resist the request for an AFO. Those documents should show that the relevant agency is unable, on the balance of probabilities, to demonstrate that there are reasonable grounds for suspecting that the source of the funds is illegitimate or intended by any person for use in unlawful conduct. Even if the documents do not persuade the court to dismiss the application, submissions can also be made to seek further clarifications about the agency’s case or additional evidence to support its position.
- Engage in discussions with the relevant agency in order to demonstrate that the source of the funds subject to the AFO is entirely legitimate. An AFO is designed to allow an agency time to further investigate the funds subject to the order, following a full and detailed analysis of relevant matters including:
- the source of the funds in question,
- the rationale for the transfer of those funds,
- a complete understanding as to the remitter of the funds and,
- (where complex offshore structures are involved), full disclosure as to the corporate family.
It is, therefore, open to the respondent to engage with the relevant agency with a view to securing their agreement to a full or partial release of the restricted funds by voluntarily providing information.
3. If the AFO has been granted on a with or without notice application and the relevant agency has not agreed to apply to vary or discharge the AFO, it is open to the respondent to seek to vary or set it aside under s.303Z4(1) POCA. This application must be made in writing to the court and must specify the grounds on which it is made (s.4(1) of the Rules). This may be done in number of ways, including:
- Challenge the duration of the order. While POCA permits that an order may last for up to two years, standard practice is for the applicant to seek a reasonable period of three to six months and then make a further application should more time be required to investigate.
- Demand the application, a full record of the hearing and the judgment. The ability to scrutinise the application for proper adherence by the relevant agency to the duty of full and frank disclosure may be a route to a successful challenge under s303Z4 (1) POCA. A respondent subject to such draconian financial restrictions must be afforded the opportunity to properly scrutinise the rationale for such measures and, absent a full and frank record of the judicial rationale underlying the grant of an AFO, must be able to challenge its validity.
- Provide evidence to the court regarding the provenance of the funds. In a similar vein to that identified in paragraph 2 above, it is open to the respondent to demonstrate to the court that the suspicion which justified the granting of the AFO was misplaced. By providing relevant evidence, as well as correspondence with the relevant agency showing that an attempt has been made to secure agreement that the funds are from a legitimate source and/or that they are not intended for use in criminal conduct, the court may be persuaded to agree with the respondent and discharge the AFO.
UK agencies and, in particular, the NCA and local police forces, have shown themselves increasingly eager to take advantage of this new tool, as it presents a relatively easy route to civil recovery of the proceeds of crime, rather than requiring lengthy, expensive and hotly contested criminal proceedings.
Recent cases have also shown the NCA willing to engage in a coordinated campaign of AFOs and Unexplained Wealth Orders to exert pressure on respondents to come to the table. Those who find themselves subject to an AFO or in receipt of notice of an impending application are, therefore, advised to seek expert assistance promptly to ascertain next steps.
You can find further information regarding our expertise, experience and team on our Financial Crime page.
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