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Jonathan Lennon provides a practical perspective for those advising clients on the wrong end of an Account Freezing Order.
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 me; 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  EWCA 3168 (Admin)) – as was required in other civil recovery cases – was specifically rejected in a the leading cash forfeiture case of Angus v UKBA  EWHC 461 (Admin). The provisions are the same – Part 5 of POCA – thus the case law is all there but is frequently overlooked. 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.
But this article will not deal with any of those possible challenges, or the tactical options available in defending AFO cases. First of all, the solicitor needs to know how the case is to be funded – assuming that all the money is tied up by the AFO.
There is an express power to grant an exclusion from the AFO for purpose of reasonable legal expenses (s303Z5)). This provides that such an exclusion specifies the total amount and ‘is made subject to the same conditions as would be the required conditions under s286A’ (s303Z5(5)(c), my emphasis).
Section 286A is the part that deals with variations to Property Freezing Orders (PFO) in High Court civil recovery claims. In High Court civil recovery cases there is an established procedure for ensuring that Respondents do not spend the frozen money (frozen under the PFO) defending the action unless they have no other available means. A sophisticated and detailed process is now well established in such cases. But care needs to be taken here.
Section 303Z5 is confusing, as all s286A does is give the Lord Chancellor the power to make rules to specify the ‘required conditions’ in civil recovery proceedings – i.e. to achieve a variation for legal expenses in such cases – per s286A(1). Section 286A(2) qualifies s286A(1) by setting out that the ‘required conditions’ may e.g. restrict who receives payment, assess expenses etc. Section 286A does not actually create any ‘required conditions’ at all, despite the wording of s303Z5, creating something of a statutory nonsense.
The 2005 Regulations
Even without the statutory wording issue there is a limit to how much reference to s286A can directly assist in AFO cases in the Magistrates’ Court. But s303Z5 does specifically refer to the s286A ‘required conditions’ so it is worth considering what might be meant by that. As explained the conditions are not contained in s286A, but in the regulations made under the section. Those regulations are the Proceeds of Crime Act 2002 (Legal Expenses in Civil Recovery Regulations) 2005.
The regulations deal with a number of practical matters, including the rates that may be charged by solicitors and counsel; e.g. a ‘standard case’ is one where a solicitor of at least 8 years standing may charge £187.50 + 20% London uplift, or £225 ph + 20% uplift for London weighting for a so called ‘higher hourly rate’ case. There is no guidance on how to decide if the case is ‘standard’ or ‘higher’ – that issue alone could be the subject of an article.
The ‘required conditions’ in the regulations require that each variation (to a PFO) must deal with the legal costs by ‘stage’ – i.e. from X date to Y date, and set out what the maximum cost will be. That is then part of the Order itself – at least in a PFO case.
Then there are further ‘required conditions’ which relate to the release of the money to the lawyer. This is to the effect that the lawyer may bill every two months and if the bill is not agreed as reasonable then at least 65% must be released and the rest can be argued by assessment. However, having one’s own costs (as opposed to opposition contested costs) assessed by a Magistrates’ Court is not an option.
The 65% provision is a good example of where the reliance in s303Z5 to s286A is a nonsense. It simply does not ‘fit’. But it may help – the general theme of the Regulations made under s286A is to get figures agreed, get lawyers paid efficiently and have the Court arbitrate on costs issues and generally ensure that fairness prevails. Extrapolating that to the AFO process then the Court can be told that it has its powers to make its own conditions under s303Z5(4) and should apply that discretion with the helpful parts of the civil recovery procedures in mind. It would be difficult to argue that the 2005 Regulations are not appropriate guide, given the mandatory requirement in s303Z5 that the s286A conditions must apply.
Thus, the reference to the High Court provisions is both confusing and helpful. Confusing because the High Court mechanisms/pay-rates etc just do not apply in the Magistrates’ Court. Helpful, on the other hand, because s303Z5 ‘leans’ on the High Court process as effectively a guide to how it should be done and generally ensures the lawyers do get paid and thus their clients effectively represented.
How the release of monies are actually applied on the ground seems to vary depending on who the Applicant is. No doubt in time there will be some conformity, but in the meantime a solicitor advising his client on how to access his/her assets from by an AFO, in order to pay for any challenge to it, or to defend against a forfeiture application, must be ready to face the possibility of a preliminary battle.
Statement of Assets
This may be the first preliminary issue. The police may take the view that the AFO should not be varied for legal expenses unless and until the Respondent has shown that he/she has no other free assets in which to pay for the legal advice.
This would be entirely consistent with the approach in the civil courts. In purely civil cases it has long been the case that it is for the defence to show that there are no funds available to him/her to defend the claim, other than those frozen by the Court; see e.g. the Court of Appeal in The Ostrich Farming Corporation Limited v Ketchell  EWCA Civ 2953. This has been followed in the criminal sphere in the case of e.g. Restraint Orders; Serious Fraud Office v X  EWCA Civ 1564.
This will mean that the solicitor then has first of all to prepare a Statement of Assets in order to get access to the frozen monies. That could be complicated and time consuming. Even though this is no part of the requirements under the 2005 Regulations, if this hurdle is raised, it would have to be complied with given the case law on this area generally, and specifically in PFO cases. How though does the solicitor get paid for drafting the initial Statement of Assets and inevitably giving some initial advice as he/she does so?
If the National Crime Agency is the Applicant then the Agency may well point to the civil recovery process because the NCA is the agency in High Court civil recovery claims and are well versed in variations to PFOs for legal expenses. The NCA may thus refer to the CPR Practice Direction on Civil Recovery. This is no part of s286A and has no direct application in AFO cases. But the use of established rules on how to go about using challenged assets for legal fees can be useful if there are issues. The Practice Direction, for example, provides that in the case of a PFO there will always be a non-means tested initial variation of £3000 plus VAT for legal advice – that is to draft the Statement of Assets and make the application for further access to the frozen sums. Thus, the solicitor can at least start the ball rolling and be paid for it.
So, if the Applicant refuses to release monies from an AFO, until it is proven that the Respondent has no free assets to pay for legal advice, then it would very difficult for them to argue that £3000 should be released to fund that process given that the whole AFO variation regime ‘leans’ on the civil recovery processes.
Once completed the police of course might suggest that the Statement of Assets is not accepted – they do not believe that your client has no other funds available to him outside of the AFO. What then? That attitude may pose a problem, not for the Respondent, but for the Applicant. In PFO cases there is effectively a presumption in favour of an exclusion in cases where there is some doubt that the Respondent may be lying and have other free assets available; see e.g. SOCA v Azam  1 WLR 3800. Suspicion is not enough, and the Respondent cannot be asked to prove a negative.
The solicitor may not be dealing with the NCA, but instead dealing with a police force that makes no mention of the Civil Recovery Practice Direction and may never have heard of it. This may be fine, depending on what the Applicant’s attitude is to the release of funds for legal expenses. I am aware of at least one case where a police force agreed to a legal expenses exclusion without even asking for Statement of Assets. It seems that the whole regime is something of a hit and miss process, depending on which agency has obtained the order. If a solicitor, advising a client on this issue, is facing difficulty with the Applicant in getting a variation, then praying in aid the scheme set out under the 2005 Regulations and the related CPR PD would be a powerful argument – but the risk is that the solicitors would find themselves limited to the hourly rates set out in the Regulations.
It may be that the solicitor has it easy, if the Applicant is relaxed about a variation to the AFO for legal fees and matters may be agreed even in a disputed case. But if that is not the case, then there are a number of options available to the solicitor which would require some grappling with the intricacies of the similar processes in High Court civil recovery. The upside is that engaging the Applicant with those arguments, at the very earliest stage, lets the opposition know that digging in their heels will simply lead to more and more costs being lost from the ‘pot’ – as long as the solicitor and client are prepared to seek orders from the Court.
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