BLOG: Account Freezing Order and Account Forfeiture Orders

Jonathan Lennon and John Carl Townsend look at the practical challenges of Account Freezing Order and Account Forfeiture Orders

The Criminal Finances Act 2017 grabbed the headlines when it was first introduced as a Bill and when it came into force.  Unexplained Wealth Orders were heralded as a great new tool in the battle to seize the proceeds of crime.  The new corporate offence of failing to prevent tax evasion was welcomed as a refreshing change of tact to focus on greedy corporates.  In reality, however, like many shiny new criminal offences or investigative tools, they have ended up as a bit of a damp squib; they have hardly been used.  Disappointing but not surprising.    

However, the same cannot be said for another change that the 2017 Act made to the Proceeds of Crime Act 2002 (POCA).  Section 16 inserted Chapter 3B into Part 5 of POCA – the civil part of POCA; ‘Forfeiture of Money Held in Bank and Building Society Accounts.’  This is modelled on the cash forfeiture provisions, also in Part 5.  Unlike cash   cases however it is not uncommon for account freezing orders to freeze hundreds of thousands if not millions of pounds.  

Whether this money represents the proceeds of crime will never be an easy assessment when complicated corporate money transactions, often going back many years are involved.  Quite what Parliament was thinking when it decided that the right Court to deal with such complex financial cases was the Magistrates’ Court is beyond us; it will simply lead to an escalation in costs as the Magistrates’ Court is ill-equipped to deal with such cases, leading inevitably to appeals to the Crown Court, or as case-stated appeals to the High Court.

What is often not understood by Applicants, at least initially, is that there is a whole body of pre-existing case law in Account Freezing Order (AFO) and cash cases; it is the case law on High Court civil recovery actions under POCA.  For example, the notion that the carrying of cash was inherently suspicious and therefore the Applicant did not have to prove any background offending (per Moses J in Muneka v HMRC [2005] EWCA 3168 (Admin)) – as was required in other civil recovery cases – was specifically rejected in the leading cash forfeiture case of Angus v UKBA [2011] EWHC 461 (Admin).  The point is that the provisions are the same for the High Court process as the Magistrates’ Court process and they must, therefore, be applied in the same way.  There is thus a plethora of High Court civil recovery cases that can be utilised in the Magistrates’ Court – but for some reason, they are rarely referred to.  For example, cash or bank account cases alleging money laundering and/or tax evasion can all be positively attacked by the defence at an early stage with specific Part 5 High Court case law – but only where the defence at least are aware of the case law in this area.  

Why the Civil Route, Why not Prosecution?

There are two major steps that POCA took in taking the profit out of crime.  First, Part 5 of POCA was dedicated to the civil part of POCA and created the High Court civil recovery regime.  Secondly, to bring civil actions, and show the world that it was serious, the Government created the Assets Recovery Agency.  Its stated purpose was to strip the profit out of crime.  If, for some reason, a criminal could not be prosecuted then at least he or she could have the proceeds of his or her criminal offending removed by a High Court order called a Civil Recovery Order.  The ARA did not last long.  Civil Recovery actions can be issued by all the major prosecution agencies but in reality, it is only ever the National Crime Agency (NCA) that does.  Over the years we have seen more and more of these claims being made and over the years Part 5 be ‘beefed up’ – and that, of course, includes the effective extension of the cash forfeiture regime to include bank and building society accounts.  But it is not just the NCA that starts the process in the case of AFOs.  Police forces routinely now take out AFOs as does HMRC.  

The reason is simple.  It is cheap and quick.  The burden of proof is lower as only the civil standard applies.  No one goes to jail, but at least the criminal is stripped of his or her ill-gotten gains and to boot there is an incentive under the Home Office Asset Recovery Incentivization Scheme whereby the Home Office and the operational agencies that bring the cases each receive a share of the proceeds of crime that are secured by way of either confiscation or forfeiture.  

Then there is the question of costs.  Defence solicitors must be astute to ensure that they advise their clients about the rule in R (Perinpanathan) v City of Westminster Magistrates’ Court [2010] 1 WLR 1508.  This was a cash forfeiture case and it is authority for the proposition that in the Magistrates’ Court, even where the Applicant loses, there should be no award of costs against the Applicant.  The Court of Appeal found that, there having been no resistance to continued detention, the police had no choice but to make a formal forfeiture application and the police should not be punished for carrying out its public duty acting in a reasonable manner.  This aspect alone can make a huge difference to the authorities attitude towards starting forfeiture proceedings – for those defending it should mean that, where appropriate, resistance is made to detention applications, and the police are e.g. asked to investigate certain matters that the defence put forward – if they do not and then lose the application then the Perinpanthan rule will be more difficult to rely upon.  The rule is sometimes mistakenly taken as a solid rule of thumb that costs orders cannot be made against applicants in forfeiture cases.  That is not the case. In fact, the court retains a discretion to award costs pursuant to s.64 of the Magistrates’ Court Act 1980 where appropriate.

Definition of an AFO

An account freezing order is an order that, subject to exclusion, prohibits each person by or for whom the account to which the order applies is operated from making withdrawals or payments from the account. An account is said to be operated by or for a person if the person is an account holder or a signatory or identified beneficiary in relation to the account: s.303Z1(3)(a) and s.303Z1(3)(b). Schedule 1 to the Interpretation Act 1978 is clear that references to person, “…includes a body of persons corporate or unincorporate.” Schedule 2 s.4(5) states that:

“The definition of ‘person’ so far as it includes bodies corporate, applies to any provision of any Act whenever passed relating to an offence punishable on indictment or on summary conviction.”

The Application

It is a requirement that the officer applying for an AFO must fall within the definition of an enforcement officer pursuant to s.303Z1(6) POCA. They must also be authorised by a senior officer as defined at s.202Z2(4). Pursuant to s.303Z1(1) an enforcement officer can apply for an AFO is they have reasonable grounds for suspecting that money held in an account is recoverable property or is intended by any person for use in unlawful conduct.

It is important to recognise that the initial application will be made ex parte and that the respondent to the order will only become aware of the AFO once they have been served with notice. The respondent is, of course, entitled to apply for variation or discharge, as explained below, but POCA does not impose the same duties of full and frank disclosure etc. that will be familiar to those that are engaged in applications for High Court freezing orders or Restraint orders before the Crown Court. That being said, it is almost certain that the higher courts will expect AFO applicants to adopt that approach to ensure procedural fairness.

The Test

Firstly, the Court must be satisfied that the credit balance of the account is at least £1,000, as that is the minimum amount specified at s.303Z8(1) to justify the imposition of an AFO.

The test to be applied by the court on an application for an AFO is whether the court is satisfied on the balance of probabilities that there are reasonable grounds for suspecting the money is recoverable property or intended by any person for use in unlawful conduct. It is important to note that as an AFO is asserted to be in rem as opposed to in personam relief, many of the usual safeguards are absent.

Recoverable Property

“Recoverable property” is defined by s.304(1) of Part 5 POCA, as property that is obtained through unlawful conduct. Unlawful conduct is defined at s.241 as conduct that is unlawful under the criminal law in the following circumstances:

(1) Conduct occurring in any part of the United Kingdom is unlawful conduct if it is unlawful under the criminal law of that part

(2) Conduct which—

(a)    occurs in a country or territory outside the United Kingdom and is unlawful under the criminal law applying in that country or territory, and

(b)    if it occurred in a part of the United Kingdom, would be unlawful under the criminal law of that part, is also unlawful conduct.  

(2A) Conduct which—

(a)    occurs in a country or territory outside the United Kingdom,

(b)    constitutes, or is connected with, the commission of a gross human rights abuse or violation (see section 241A), and

(c)    if it occurred in a part of the United Kingdom, would be an offence triable under the criminal law of that part on indictment only or either on indictment or summarily, is also unlawful conduct.

(3) The court or sheriff must decide on a balance of probabilities whether it is proved—

(a)     that any matters alleged to constitute unlawful conduct have occurred, or

(b)    that any person intended to use any cash or property in unlawful conduct.

In the consideration of “unlawful conduct”, practitioners should refer to the decisions in Angus v United Kingdom Border Agency [2011] EWHC 461 (Admin), as referenced earlier in this article, and Fletcher v Chief Constable of Leicester Constabulary [2013] EWHC 3357.

Maximum Term

An AFO can be made for up to two years and will automatically come to an end once that period has expired.

Variation and Discharge

An AFO can be varied by an enforcement officer or any person affected by the order on application to the court. Variations can include the provision of reasonable living expenses, the carrying on of any trade or a release to meet legal expenses (s.303Z5).

Forfeiture Order

During the currency of an AFO the applicant can apply for an Account Forfeiture Order. There are two methods to achieve this. The first is that the applicant serves notice on an interested party, but this is only appropriate where it is believed that there will be no objection to the application. The second and more common method is for the applicant to apply for forfeiture and seek directions for a full forfeiture hearing.

Notice of Forfeiture

It is a requirement that the notice of forfeiture must be served on the respondents in compliance with the Home Office Regulation. The respondent will then have 30 days from the day after service of the notice to object. That period can be extended where a party is able to explain the reason for the period elapsing; s.303Z12. It is then for the respondent to the forfeiture application to satisfy the court that the order should not have been made in respect of all or part of the money. If the respondent fails to object, the applicant can apply for the money to be forfeited (s.303Z14).

Appeal

An appeal against the making of an Account Freezing or Forfeiture order is to be made to the Crown Court. There is a 30-day time limit for appeal. In the event that the appeal is successful the owner of the account can apply for compensation from the investigatory body.