04 Apr 2024

Account Freezing Orders: Proceeds of Crime Recovery without Prosecution

Being served with an Account Freezing Order (AFO) is an understandably concerning prospect. Significant sums of money are locked away overnight leaving the affected party in a very difficult financial situation with little clarity as to why it has happened or what can be done about it. Unsurprisingly, the instinctive reaction is to want to engage early with the relevant law enforcement agency to provide a frank and unfettered explanation of precisely why they have it all wrong. Sometimes, that is the best course of action. Nevertheless, all too regularly, it can land an individual in hotter waters.

The Criminal Finances Act 2017 (the CFA 2017) gave prominent rise to the use of AFOs. Before then to prevent dissipation and then recover funds in a bank account, a law enforcement agency would have to, firstly, begin a criminal investigation against an individual and then persuade a Crown Court judge that the targeted monies were a criminal benefit to obtain a restraining order. If the law enforcement agency then wanted to recover those monies, it was required to engage in expensive and uncertain Crown Court litigation to prove beyond reasonable doubt that criminal wrongdoing had taken place, from which a benefit had been obtained. Then, confiscation proceedings could commence.

Fast forward to the AFO era. The CFA 2017 has allowed for the circumvention of that entire process. Now, law enforcement agencies can apply ex parte to a magistrates’ court to freeze an account simply if they are suspicious that it contains monies obtained through unlawful conduct (the test for an AFO). Thereafter, all they have to do to recover the monies is satisfy the same court that they are more likely than not to be recoverable property (the test for forfeiture). It is proceeds of crime recovery without prosecution and, as it applies to the account and not the monies within, without needing to define the extent of the proceeds. It applies to everything held within the account. To risk a tired cliché, the AFO was a game changer.

With the bar set so low for law enforcement agencies, successfully challenging an AFO requires voluntarily providing a comprehensive explanation of the funds as early as possible to dispel suspicion. The aim is to demonstrate to the law enforcement agency (or, failing that, a magistrates’ court) that the frozen account does not contain recoverable property. Without doing so, forfeiture becomes a procession. The problem with this approach arises when there are competing interests.

Firstly, whilst an explanation may absolve an individual of suspicion with the applying law enforcement agency, it may pique the interest of another. To illustrate with an example, say the police apply for an AFO suspecting money laundering. The affected party may have a legitimate justification as to why that suspicion is incorrect but the explanation requires a concession to tax related irregularities. Information sharing is commonplace between law enforcement agencies in this jurisdiction. It is highly likely that the explanation would find its way from the police to HMRC, in doing so triggering an investigation into the individual’s tax affairs. This is an event unlikely to have occurred under the previous restraint order system.

Further, there is a rising trend of UK enforcement agencies applying for AFOs where an individual holds monies in the UK, but faces criminal investigation overseas. The very fact of the foreign investigation means that it will take very little for the UK enforcement agency to satisfy the requisite level of suspicion for an AFO to be obtained. To provide a detailed account for the monies may be at odds with the defence strategy in the foreign jurisdiction. At that stage, the affected party has a decision to make: either, i) put forward an explanation and risk that it undermines his/her position in the overseas investigation, or ii) prioritise the overseas investigation, fail to challenge the AFO and likely forfeit the monies. It is, of course, possible that the explanation in this jurisdiction does not make it into the hands of the overseas prosecutor. However, Mutual Legal Assistance requests are commonplace in this age of cross-border investigations and so that is not a presumption to be relied upon.

It has become clear over the last few years that there can be an additional hidden cost when it comes to deciding whether to challenge an AFO. The right against self-incrimination can be significantly eroded where a parallel criminal investigation exists. In such circumstances, a coordinated cross-border approach between an individual’s criminal defence team is crucial.

In 2018, David Corker predicted that the introduction of the Criminal Finances Act 2017 (the CFA 2017) would give prominent rise to the use of AFOs. He foresaw that AFOs were a tool designed to monetise Suspicious Activity Reports. His reasoning was that the powers inferred under the CFA 2017 meant that it was now possible to freeze an account on mere suspicion alone. He anticipated that, in some circumstances, AFOs and subsequent forfeiture proceedings would remove the requirement for a successful Crown Court prosecution before recovery of potential criminal proceeds could take place. It was a significant lowering of the standard of proof required for criminal proceeds recovery and a streamlining of the process. As this article has explained, it turn out, he was right.

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