Legal

Account Freezing, Forfeiture Orders: A Hidden Cause for Concern?

Hannah Laming and Diana Czugler, 17 June 2019

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Should UK law enforcement authorities suspect that money is derived from, or will be used for, criminal activities, they have a potentially devastating tool at their disposal: Account Freezing and Forfeiture Orders. This article asks what risks these powers pose.

The UK authorities’ ability to freeze and seize assets suspected as being the proceeds of crime sounds like a necessary force amid stories about illicit funds. In a jurisdiction that is supposed to take due process of law seriously to avoid miscarriages of justice, it must be troubling that such powers could be used if a person is suspected, rather than convicted, of wrongdoing. That is certainly the tack taken here by Hannah Laming and Diana Czugler at Peters & Peters, a law firm describing itself as a commercial litigation and business crime boutique. 

Laming is a partner with significant expertise in business crime. She advises on serious fraud, corruption, private prosecutions, internal investigations, FCA regulatory issues (civil and criminal) and economic sanctions. Czugler is an associate in the business crime department. She has experience in acting for clients in a wide range of white collar, regulatory and general crime matters. This news service is pleased to share these views; although it does not necessarily endorse all views of guest contributors and invites readers to respond. Email us at tom.burroughes@wealthbriefing.com

Should UK law enforcement authorities suspect that money is derived from, or will be used for, criminal activities, they have a potentially devastating tool at their disposal: Account Freezing and Forfeiture Orders (“AFFOs”). Whilst AFFOs have received far less media attention than Unexplained Wealth Orders (“UWOs”), they are a serious cause for concern. Only two UWOs have been granted in the UK to date, and yet there has been a significant surge in AFFOs in recent years. Comparatively easy to obtain and hard to discharge, AFFOs pose a very real threat to individuals with liquid assets held in the UK.

Account Freezing Orders
AFFOs - more precisely, Account Freezing Orders (“AFROs”) and the ensuing Account Forfeiture Orders (“AFOs”) - were introduced into UK law in April 2018 by the same legislation as UWOs. An AFRO is a court order that prohibits every person operating the bank or building society account subject to the order from making withdrawals or payments. Therefore, whilst AFROs do not prohibit the making of further deposits, they effectively freeze the credit balance of the account as at the date of the order (subject to certain statutory exceptions concerning reasonable living and legal expenses).

Whilst they are rarely reported in the press, AFROs have been employed by various UK regulators over the last year – including police forces, the Serious Fraud Office, HM Revenue and Customs and the National Crime Agency. These applications can be triggered in a number of different ways. Commonly, a suspicious activity report (“SAR”) by a financial institution will bring the matter to the authorities’ attention; for example, in relation to suspicious activities including repeated large deposits from a single source, accounts being used to pool funds and extremely high levels of expenditure or inconsistent transactions. Suspicious activity may also be raised through public-private initiatives to share information in other ways; for example, through the UK’s Joint Money Laundering Intelligence Taskforce (“JMLIT”), which has been endorsed as a primary tool in the UK’s fight against cross-border money laundering since its launch in 2015. 

AFROs are routinely applied for without prior notice to the account holder and can be granted in respect of multiple bank accounts simultaneously, and for any bank accounts operated by an authorised deposit-taker that has its head office or a branch in the UK holding £1,000 or more; thus allowing UK regulators to cast their net wide.

The evidential thresholds for making the AFRO application and granting the order are low; all that is required for an application is for the relevant enforcement officer to have reasonable grounds for suspecting that the money held in the account has either been obtained through, or intended for, unlawful conduct. The court can then make the order if it is satisfied that the same legal test is met.

Difficulties challenging AFFOs
AFROs can be granted for a period of up to two years to allow the enforcement authorities to investigate the underlying unlawful conduct allegations and to provide the court with regular updates. Thus, persons whose accounts are frozen can find themselves unable to access their financial resources for a significant length of time.  

Anyone affected by the order can apply at any time to set it aside. The court must be presented with material that would shift its initial assessment of the low evidential burden being satisfied by the authorities. This places the onus on the applicant to collate and advance such material and, in effect, reverses the burden of proof.

If wealth has been derived from sources outside of the UK and may therefore have been held in complex structures, often designed to conceal ultimate beneficial ownership, this can present challenges. Additionally, any positive case put forward may fuel the authorities’ investigation, which, in turn, could turn into a formal criminal inquiry against the person subject to the AFRO. Sometimes, the authorities will not apply to renew an order and, consequently, it will lapse.

Account Forfeiture Orders 
However, in numerous cases, the authorities will then apply for an AFO. AFO applications are made on notice, thus giving the subject an opportunity to challenge them in court. However, the threshold for evidential burden to be satisfied before forfeiture is ordered is, once again, extremely low - the court may, at its discretion, order forfeiture if it is satisfied either that the money has been obtained through, or is intended for, unlawful conduct. If so, the monies will be forfeited immediately upon the AFO being granted.

Overseas focus 
There are numerous examples of circumstances where the authorities may apply for an AFRO but there appears to have been a focus on monies entering the UK from overseas. 

The first, most obvious example is where an individual who has been linked to criminal activity, perhaps in the media, seeks to bring money into the UK using the bank account of a third party.

A second example is where an individual resident overseas has legitimate money that they wish to invest in the UK but do so in a way that either transgresses the law in their own jurisdiction or advertently (on their part) results in the involvement of illicit monies further along the transaction chain. For example, AFROs have been used by the authorities to clamp down on the use of the Chinese underground banking system. A recent case involved utilising student accounts to bring monies into the UK from China. This can give rise to several issues. The initial movement of monies may breach Chinese currency controls that place strict limits on the amount of money a Chinese national can send overseas and can make it difficult for wealthy individuals to make substantial investments, including property purchases, in the UK.

As the Chinese state has made it clear that they consider evasion of currency controls to be a criminal offence, any monies entering the UK that may breach such controls are vulnerable to the account freezing and forfeiture provisions. In addition, because the monies may not be transferred directly, the payments into the UK bank account may have an illicit source, increasing the risk of an AFRO. 

Third, some individuals use UK-based Money Service Businesses (“MSB”) to transfer monies for perfectly legitimate reasons. However, in the UK, it is unlawful to engage in MSB activities without registering with HMRC or the FCA. If individuals/entities engage in these activities without appropriate registration, they may be committing an offence, which makes monies being transferred by those businesses vulnerable to AFRO applications. Those availing themselves of MSBs to move funds should therefore ensure that they are using reputable service providers who have the appropriate registration.  

Impact and consequences
Often in cases where AFROs are imposed, there is no incentive for the respondent to apply to set aside the order, or defend any subsequent application for forfeiture, as they may have no beneficial interest in the monies and doing so may simply increase the risk of their own criminal liability. Whilst the beneficial owner can apply to set aside the order, this can be challenging if they are an overseas resident, or where the UK authorities’ focus is on the illicit activity of the recipient or the MSB itself.

Those transferring monies into the UK using informal systems should be conscious of the increased vulnerability to funds being frozen or forfeited. Care should be taken to ensure that monies are not transferred in breach of local laws on currency control or capital transfer, and if an MSB is used, checks should be carried out to ensure that they are properly registered.  

AFROs can often be the precursor to a criminal investigation. Those who find themselves affected by one should therefore obtain legal advice before engaging in any discussions with the authorities. AFFOs have so far remained largely under the radar but, with devastating repercussions, they are certainly a hidden cause for concern.

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