Diamonds are (not) forever: NCA keeps up pressure on unexplained wealth
The Serious Fraud Office (SFO) secured the return of £1,522,756.72 through new powers introduced under the Criminal Finances Act 2017, namely the Account Freezing Order (AFO) and Forfeiture Order. This was the first time the SFO has used these powers, but follows fast behind a similar order obtained by the National Crime Agency.
Coupled with the NCA’s use of the seizure powers of Unexplained Wealth Orders to recover £400,000 earlier this year (see our related blog Diamonds are (not) forever: NCA keeps up pressure on unexplained wealth), and budget increases for the SFO’s Proceeds of Crime Division, it is clear that across the enforcement agencies investigators are making good on their promise (see our related blog Unexplained Wealth Orders: What we know one year on) to focus on recovering the proceeds of crime.
In broad overview, the new powers allow investigators to freeze bank accounts, and courts to seize their contents. These powers are activated – respectively - when the investigator reasonably suspects, or the court is satisfied, that the money in the account is the result of, or is intended to result in, crime.
In this case, the individual forfeited all funds held in their UK bank account. The forfeited money came from the sale of two properties in Birmingham, which the individual bought with the funds from a series of long firm frauds. Long firm fraud involves making a large number of small purchases from suppliers, to establish a reputation and credit rating, before placing much larger orders and disappearing with the goods.
The new freezing and forfeiture powers were inserted into the Proceeds of Crime Act 2002 (POCA) by the Criminal Finances Act 2017 (CFA). Functionally, they closely follow the existing cash detention and forfeiture regime but apply to money held in bank or building society accounts. Under s.303Z1 of POCA, where an enforcement officer has “reasonable grounds” for suspecting that money held in an account is either intended for use in unlawful conduct or is “recoverable property”, the officer may apply to the court to freeze the account. Under s.304(1) of POCA "recoverable property" is property that is obtained through unlawful conduct, meaning the order applies where there is a reasonable suspicion that the property has either been gained through or intended to be used in crime.
Unlawful conduct extends to any conduct occurring anywhere in the world that is both criminally unlawful in the UK and either; a crime in the relevant jurisdiction or indictable and a gross human rights violation.
The frozen account can then form the basis of a Forfeiture Order, under s.303Z14 of POCA. Here the test is one of satisfaction, whereby if the court is “satisfied” that the money held in the frozen account is indeed, as the enforcement officer suspects, intended for use in unlawful conduct or recoverable property, the court can order it forfeit. In which case, the money is transferred to a nominated enforcement account, after which according to the SFO, “the money recovered will be returned to the Treasury and invested in public projects”.
There are a number of crucial caveats and extensions to the above that are more likely to concern an unwilling respondent. Firstly, “satisfied” in this context equates to the civil standard rather than the criminal burden of proof. The court need only be certain on the balance of probabilities - effectively certain that something is more likely than unlikely - to make a Forfeiture Order. While the subject of the order in this case was a convicted fraudster, this is not a pre-requisite of the order: the contents of an account can be declared forfeit without criminal conviction. For the initial AFO the standard is less exacting still, the court needs to be “satisfied” - again certain it is more likely than not – only that there are reasonable grounds to suspect that the money held in an account is recoverable or intended for unlawful conduct.
Secondly, an AFO, “prohibits (the respondent) from making withdrawals or payments from the account”. However the suspicion that triggers the order need only apply to a “part (of indeterminate size) of the credit balance of the account”. A suspicion over, say, £2,000 can it seems freeze a multi-million pound account. Though the AFO is subject to exclusions – (for instance to allow an account holder to “carry on any trade etc.”) – these exclusions must only be exercised with “a view to ensuring so far as practicable that there is no prejudice to the taking of any steps… to forfeit money that is recoverable property”. In other words a suspicion over an indeterminate figure can freeze a multi-million pound account.
Finally, though of particular poignancy in light of the above, AFO’s can be secured without notice to the account holder where notice would “prejudice the taking of any steps under this Chapter”. As above this might include removing any money at all, raising questions as to when this would not be relevant.
Taken together and at its highest, this could imply that where it is more likely than not that one could reasonably suspect an account contains an indeterminate sum (that is either intended to be used in or is the result of unlawful conduct) the entire account (regardless of balance) can be frozen without the account holder being aware until it is done. To release any part of the account, the account holder must apply to vary the order. During this variation hearing the court must be satisfied that no part of what it will release could prejudice any recovery actions. This appears to require a respondent to establish to some degree of certainty that any money it wants released is traceably legal both in origin and destination.
While in this first SFO case both the criminal conduct of the respondent and amount of profit they made from it were established at trial, the attitude of the courts to future cases when this is not so will be of huge interest. As this is a developing area of law, the question of how the courts interpret each part will dramatically impact how these orders work in practice. From the initial evidence, both the SFO and NCA seem willing to test the extent of their new powers, meaning the answers could come sooner rather than later.
For potential respondents, the immediate disruption likely to ensue from an AFO means that these developments cannot be ignored, and practitioners will need to follow such developments closely. Alongside the orders cited here, the Criminal Finance Act 2017 also inserted the Account Forfeiture Notice into POCA, whereby a frozen account is automatically declared forfeit if no objection is received within 30 days of the notice issue. How this works remains untested, but could clearly have an even greater disruptive impact.
Those with concerns that they might be of interest to the NCA, SFO or other agencies should seek specialist legal advice.
Nicola Finnerty is a partner in the criminal litigation team. She has experience of fraud, corruption (including the Bribery Act) and cartel matters, financial compliance, money laundering, asset seizure and confiscation cases, through to sexual offence cases, drugs, murder and offensive weapon crimes.
This blog was co-authored by Jack Kiffin in the Criminal Litigation team.
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