When the Criminal Finance Act 2017 (CFA 2017) came into force, the introduction of Unexplained Wealth Orders (UWOs) caught the public attention with headlines describing the new power to seize the suspected proceeds of crime as "McMafia Orders". However, in practice few UWOs have been successfully obtained and another power introduced under the CFA 2017 to disrupt money laundering has been far more impactful – the Account Freezing Order (AFO).
AFOs allow law enforcement authorities to directly seize money that is suspected of having been obtained by unlawful conduct and freeze bank accounts for up to two years. Prior to these powers coming into effect, the police and other regulatory bodies had few options available to them to seize money directly without first having to charge the person concerned.
The AFO is intended to provide time for law enforcement to investigate the source of the suspected funds, while preventing their disposal in the meantime. Where an AFO has been made, an Account Forfeiture Order may then follow, which allows all or part of the frozen funds to be forfeited to law enforcement.
Low evidential threshold for obtaining an AFO
To obtain an AFO, the applicant (which can include HMRC, the NCA, the SFO or the police) only has to demonstrate to the court that it has reasonable grounds to suspect that funds 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.
The low evidential threshold required to obtain an AFO inevitably means that the vast majority of without notice applications for AFOs will be approved – if an agency has reasonable grounds to suspect then a court is likely to agree with that suspicion. The evidence bears this out, with HMRC reporting this year that 95% of their AFO applications have been granted by the courts.
The ease with which AFOs can be obtained has fuelled their increasing use by a range of different law enforcement agencies. The majority of AFO applications will have followed the submission of a SAR to the NCA and the NCA has therefore been the agency to have utilised AFOs the most, catching the headlines in 2019 by securing AFOs on eight bank accounts containing a total of £100m.
However, one of the most significant developments has been their increased use of AFOs by the police. In October this year it was reported that the City of London Police had obtained their largest account forfeiture order to date when Du Toit & Co LLP, a South African law firm operating from UK offices and Xiperias Ltd, A Cypriot registered company, both agreed to forfeit €34 million on the basis that the funds were the proceeds of unlawful conduct carried out by others, of which they had neither knowledge nor suspicion.
This case marks the first time that the CPS has used powers under POCA to appear in court on behalf of the police in an AFO and could signal a growing willingness by law enforcement authorities to use AFOs in targeting both companies and individuals suspected of facilitating money laundering. With this in mind, the SFO's renewed focus on stripping the proceeds of crime from those it investigates and prosecutes is also likely to see an increased use of AFOs by the agency.
Forfeiture does not always follow a freezing order
However, behind the headlines of how many AFOs have been obtained lies another story – the number of Account Forfeiture Orders which are subsequently obtained. It was reported this year that although HMRC had obtained 151 AFOs during the past 12 months, resulting in a total of £26m in assets being frozen, over £10m of frozen funds were also returned – suggesting that the order was discharged or HMRC were unsuccessful in applying to forfeit the assets.
Although AFOs are almost always granted at first instance due to the low evidential threshold required and the application being made without notice, the ease with which they are obtained does not, by any means, ensure that a forfeiture order will follow, as demonstrated by nearly half of the assets frozen by HMRC being subsequently returned.
An AFO can be challenged by any affected person, either in resisting the application at first instance or subsequently having the order set aside or varied. However, the higher barrier to obtaining an Account Forfeiture Order – where the Court must be satisfied that the frozen money represents the proceeds of crime – means that contesting this stage of the proceedings often provides the best prospect of success.
The past year has demonstrated that an increasing number of individuals and companies are likely to experience the personal and business disruption caused by AFOs – often becoming aware of the AFO only after the order has been granted. However, all hope should not be lost at this stage as there can be a reasonable prospect of successfully discharging an AFO or preventing forfeiture if the right strategic approach is applied.
Those who find themselves in this situation are, therefore, advised to seek expert assistance promptly to ascertain next steps. If you have any questions or would like more information about how DWF can support you, please contact Euros Jones or Alex Gorst.