Account Freezing Orders – Court makes €1.9 million Forfeiture Order
Chambers and Partners, 2019
The introduction of Account Freezing and Forfeiture Orders (under the Criminal Finances Act 2017) has significantly boosted the powers of law enforcement agencies’ to disrupt and seize funds efficiently and expeditiously, without requiring a prosecution or criminal conviction.
We are seeing a dramatic increase in their deployment as part of the drive to tackle illicit finance and the suspected proceeds of crime.
We regularly advise HNW individuals, PEPs and their family members or close business associates targeted by such orders. The sums involved can be substantial and swift action is usually advisable to ensure an order is challenged and the money in question is not ultimately forfeited as part of a wider investigation.
Relevant agencies, including regional police forces, the Serious Fraud Office (SFO) and the National Crime Agency (NCA), can apply to freeze bank and building society accounts where balances exceed £1,000 if the funds are suspected to be either the proceeds of criminal conduct (allegedly committed anywhere in the world) or intended for use in unlawful conduct. A magistrates’ court may grant the order whereby the account(s) in question is frozen for up to two years in order to allow an investigation to be conducted into the provenance of the money in the account.
Similar powers can be exercised in respect of cash: law enforcement agencies may seize cash suspected of being derived from or to be used in unlawful conduct, and must apply to the magistrates’ court within 48 hours of seizure for permission to detain it, again for up to two years.
Given the very low threshold of reasonable suspicion, these orders are relatively straightforward and easy to obtain.
At the conclusion of, or indeed at any point during, the period of cash detention or account freezing, the authorities may apply for the relevant sums to be forfeited. Although there is a higher evidence bar to be satisfied, crucially there is no requirement for a criminal conviction to have been obtained against any party (or even a criminal investigation to have been opened), and the courts routinely make forfeiture orders.
We have extensive experience of:
We understand that the loss of access to funds can be highly disruptive and, in some cases catastrophic - financially as well as reputationally. Yet we recognise that the need for swift action should be tempered by a careful and considered strategy.
When challenging a freezing or detention order, or appealing a Forfeiture Order, the burden of proof is on the applicant and even though the civil standard – the balance of probabilities – applies, in practice it is necessary to demonstrate with compelling evidence the “clean” origins of the money. This may take some time to assemble.
It can also be important to guard against adverse implications for third parties that may arise through any challenge to an order.
An Account Freezing Order (AFO) freezes specified funds in a bank or building society account by preventing any account holder, signatory or beneficiary of the account from making withdrawals or payments for a maximum period of two years. It is a civil order made by a magistrates’ court where there are reasonable grounds to suspect all or part of the funds in the account are “recoverable property”: either the proceeds of crime or intended for use in unlawful conduct. An AFO can be granted in respect of any bank or building society account, whether it belongs to an individual or a business, with a credit balance of at least £1,000 (or its sterling equivalent) and failure to comply with the terms of the order may result in proceedings for contempt of court.
An AFO allows law enforcement authorities such as the police, the SFO and the NCA to investigate the origins and destinations of money paid in and out of the account in order to determine if the funds should be forfeited (permanently retained by the Treasury) or if a wider criminal investigation should be initiated. An application for an AFO will often be triggered by a report made by the account provider to the NCA where it becomes suspicious of how an account is being used (a Suspicious Activity Report or SAR).
The relevant law enforcement agency submits a written application to the magistrates’ court and a date for the hearing will be set. At the hearing, the court will consider whether the grounds for granting the order have been met. At this first stage it is a low threshold – merely a “reasonable suspicion” on the part of the applicant agency that the funds in the account are recoverable property - and applications are routinely granted. Copies of the order are then served on all identifiable parties affected by it; the account holders, the account provider and those with beneficial interests in the funds.
In most cases the affected parties will be unaware of the steps being taken until after the AFO has been granted and their accounts frozen. This is because the court will agree to an ex parte or without notice application at the request of the law enforcement authority if satisfied that putting the parties on notice would prejudice any subsequent application to forfeit the funds (in other words there is a risk the funds would be dissipated). In cases where the affected parties are already aware of an investigation it may be possible to make representations to the applicant agency to pre-empt a without notice application.
The court may vary an AFO (either when it makes the order or on later application by either the applicant agency or an affected party) to allow exclusions to the prohibition on making withdrawals and payments from the account. Such exclusions may allow for reasonable living expenses or to carry on any trade, business, profession or occupation. When considering whether to vary an AFO or to make exclusions, the court must be mindful that the primary purpose of the AFO regime is to preserve funds for future forfeiture proceedings. Courts will therefore be careful to ensure the funds are not dissipated unnecessarily and so any application to vary an AFO must be supported by compelling evidence demonstrating there is no other way the expenses can be met. Clear lines of communication with the law enforcement authority in this regard will also be crucial.
The court may also vary an AFO to allow for the payment of reasonable legal expenses in respect of the AFO proceedings. An application for such a variation will be essential in many cases because there is no public funding available for cases of this type.
Any person affected by an AFO can apply to the court at any time for the order to be varied or set aside. This includes not only the account holder(s) but also third parties with an interest in the funds that are frozen. The court may exercise its discretion to set aside an AFO as it sees fit. It may be possible to demonstrate that the information provided by the law enforcement authority in its initial application – particularly if it was made without notice to the affected parties - was incorrect or incomplete and that there are no reasonable grounds for suspecting the funds are recoverable. However, persuading any court of this is a difficult task and for there to be any prospect of success an application must be supported by detailed and cogent evidence about the provenance and intended use of the frozen funds.
Notice of an application to vary or set aside an AFO must be provided to all parties to the original order who will be given an opportunity to make representations themselves.
An AFO does not prohibit payments into an affected account, but the applicant law enforcement agency may apply to the magistrates’ court to extend the scope of the AFO so that it covers any monies deposited after the order was first made.
Once the law enforcement agency has completed its investigation or is satisfied it has sufficient evidence linking the funds in the frozen account to criminal conduct, it may apply for all or part of the funds to be forfeited. This can be done in two ways; the issuance of an Account Forfeiture Notice or the grant of Account Forfeiture Order. Please see below for further details. Once forfeited the funds are transferred by the bank to an interest bearing account specified by the law enforcement agency and are ultimately passed to the Treasury’s Consolidated Fund.
Where it is believed that forfeiture is unlikely to be contested, a law enforcement agency may issue an Account Forfeiture Notice. The notice is served on the recipients of the original AFO explaining the intention to forfeit all or part of the funds in the frozen account on the basis that the agency is satisfied the funds are the proceeds of crime or are intended for use in unlawful conduct. The notice must set out the amount to be forfeited, the period of time in which any objection must be made (a minimum of 30 days) and the address to which any objections must be sent. If there is no objection within the time limit, the funds are automatically forfeited. This process is known as administrative forfeiture because it may be done without the need for a court hearing.
An objection to an Account Forfeiture Notice should be lodged with the law enforcement agency within the time limit set out in the notice. The law enforcement agency must then apply to the court within 48 hours either to extend the period of the original AFO or to ask the court to make a Forfeiture Order.
It is possible for an affected party to apply to the magistrates’ court to set aside forfeiture retrospectively, even if no objection was raised beforehand (or within the time limit). Any such application should be made within 30 days of the expiry of the time limit for objecting to the original Account Forfeiture Notice, as above, but in exceptional circumstances the court may allow an application to be made even later. The court will then consider if a Forfeiture Order should be made or if the funds should not be forfeited at all, in which case the funds – and any interest accrued since forfeiture - will be released.
Rather than issuing an Account Forfeiture Notice, the law enforcement agency can instead apply for a Forfeiture Order. All the affected parties must be notified of such an application and it will be heard in open court. For the order to be granted, the magistrates’ court must be satisfied that the funds in the account represent the proceeds of crime or are intended for use in unlawful conduct. The standard of proof remains the balance of probabilities and there is no requirement for a criminal conviction to have been obtained against any party, but the threshold for forfeiture is higher than for the making of the AFO: the court must now be satisfied the funds are in fact the proceeds of crime rather than just accepting that the applicant agency has reasonable grounds for suspicion. Well-prepared and detailed representations at this stage are vital in order to persuade the court not to order forfeiture.
Any party to the proceedings can appeal the court’s decision on a forfeiture application. The right of appeal is to the Crown Court and notice of an intention to appeal must be within 30 days from the date of the Forfeiture Order. The Crown Court has the discretion to make any order it considers appropriate, and if the appeal against a Forfeiture Order is successful it may order the release of all or part of the funds (plus interest).
The law enforcement authority can appeal the decision of the court to not grant a Forfeiture Order. The appeal must be made to the Crown Court, again within 30 days of the magistrates’ court decision. As soon as the magistrates’ court declines to grant the Forfeiture Order the original AFO will cease to be effective, however the law enforcement agency may apply for the AFO to remain in place for a further 48 hours to allow time to consider whether or not to appeal. If the agency decides to appeal the decision then the AFO will remain in place pending the outcome of the appeal.
An account holder, signatory or beneficiary to the account may apply to the court for compensation where an AFO has been granted and the funds frozen but none of the money was subsequently forfeited. The court may order compensation if it is satisfied the applicant suffered loss as a result of the AFO and that the circumstances are exceptional.
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