Account freezing orders
February 2019 | SPECIAL REPORT: CORPORATE FRAUD & CORRUPTION
Financier Worldwide Magazine
February 2019 Issue
2018 saw the first trickle of applications by enforcement agencies for the freezing of bank accounts and subsequent forfeiture. It is likely that 2019 will see an exponential rise in such applications and practitioners should be fully prepared to assist any parties who may face such proceedings.
Account Freezing Orders (AFO), along with the much publicised Unexplained Wealth Orders are the latest tools in the arsenal to fight fraud and organised crime, or rather to assist in the recovery of illegitimate assets. Both were introduced by virtue of the Criminal Finances Act 2017 which inserted various sections into the Proceeds of Crime Act 2002.
In an increasingly digital environment, this new legislation has been created to tackle issues which arise from investigating fraud, the funding of terrorism and alleged breaches of economic sanctions with a view to recovering the funds – not necessarily to bring criminal charges. Largely, those issues relate to necessity for speed and efficiency amid what are often complex investigations.
Essentially the legislation takes the existing powers which allow for the seizure of cash and transposes those powers to allow for an application for the seizure of the contents of a bank account.
Such an application may therefore be made where an enforcement officer has reasonable grounds for suspecting that money held in an account maintained with a bank or building society is recoverable property or is intended by any person for use in unlawful conduct.
This is identical to the test set out for the seizure of cash and the values are also the same – a minimum of £1000 and no maximum.
The authors of the legislation therefore clearly considered that the AFO would be an extension of the existing ability to seize cash. However, in practice, the freezing of an entire bank account is more akin to the more well-known restraint order (RO) and has far wider consequences than simply seizing cash.
However, unlike the RO, which is sought in the Crown Court during a criminal investigation, the AFO is sought in the Magistrates Court and a criminal investigation may not have been commenced or even envisaged – there is, of course, no bar to bringing one.
One might expect that if you are applying for an AFO, in the absence of a criminal investigation, the test might be slightly higher. For example, in an application for a RO where there is a criminal investigation, but one that has not concluded, the test is whether there is a reasonable cause to believe that the defendant has benefited from a crime.
With the AFO, however, it is simply a matter of whether or not a magistrate (lay bench or judge) has reasonable grounds to suspect that the contents of the account, either wholly or in part, constitutes recoverable property.
The difference between suspicion and belief is significant, of course, and with the lower threshold being used in the lower courts we can certainly expect a significant rise in these applications. After all, if an enforcement officer has reasonable grounds to suspect, then why should the court not share those suspicions?
Contesting the applications
Given the low threshold, the applicant, having submitted a bundle to the court in advance, will always be on the front foot. Contesting these applications will be a challenge and if sought on an ex-parte basis one would expect it to be granted. However, if on notice then submissions can, of course, be made, even if only to seek further clarification or evidence.
The majority of these applications will inevitably be made on the basis of a Suspicious Activity Report (SAR) which would have been raised initially by the bank. The account is likely to be suspended for the standard moratorium period of 31 days. It may, therefore, be the case that the applicant is facing some pressure to obtain a further period of time so that an investigation may continue.
An application may be made at any time by either the applicant or any affected party to set aside or to vary the AFO.
Investigation and forfeiture
There will be an investigatory period, if the court grants the application, and the account may be frozen for a maximum of two years. In practice, the applicant will seek a reasonable period of three to six months and then make a further application should more time be required.
If the applicant enforcement officer is satisfied that the funds fulfil the test then they may make an application for forfeiture. The applicant must give at least 30 days’ notice – an account forfeiture notice – of such an intention during which time the respondent may raise any objections.
If there are objections then the matter will be listed for a final determination by the court after hearing the evidence. The test for forfeiture increases at this stage to the court being satisfied that the funds are either recoverable property or are intended for use in criminal activity.
An AFO may be made against any account held by any person or legal entity. Unlike most POCA Restraint Orders, the AFO is targeted at a specific asset and, therefore, if there are funds available elsewhere then there would be no restriction on the use of those other funds for legal or living expenses.
However, if the account, which is the subject of the AFO, is the only source of funding in the UK then there will be an issue as there is no public funding available for such litigation.
The remedy for this is to apply for an exclusion. An exclusion can be made for both legal and living expenses. Essentially, it allows the court, upon hearing evidence, to set aside a portion of the funds in the frozen account to meet such expenses. Only reasonable legal expenses will be allowed and the rates limited to those set out in the Proceeds of Crime Act 2002 (Legal Expenses in Civil Recovery Proceedings) Regulations 2005.
To seek an exclusion the applicant and court need to be satisfied that there is no recourse to any other available funding.
Given the low threshold, speed and relatively low cost of applying to the magistrates’ court, we may see a dramatic rise in the use of the AFO. More enforcement agencies are looking at civil recovery as a possible alternative to lengthy and expensive criminal proceedings where they may have to wait years for a confiscation order. If the AFO is uncontested then the funds may be forfeited in a matter of months.
Additionally, it is clear that the government has introduced this legislation as a deterrent to wealthy foreign nationals or politically exposed persons (PEPs) residing in the UK who may not have obviously legitimate means. The AFO and Unexplained Wealth Order have been designed to provide the authorities with the right tools to investigate individuals with questionable income and wealth.
John Hartley is a partner at Hodge Jones & Allen Solicitors. He can be contacted on +44 (0)20 7874 8489 or by email: firstname.lastname@example.org.
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