Roger Sahota writes for the IBA on Account Freezing Orders

Extracted below is BSQ Partner Roger Sahota’s article on Account Freezing Orders for the International Bar Association’s Criminal Law Bulletin.

New UK legislation paves the way for increased non-conviction-based asset seizures.

On 17 April 2018, new provisions came into force, which allowed state investigative agencies to apply for an account freezing order (AFO) under paragraph 303Z3(2) of Part 5 of the Proceeds of Crime Act 2002 (POCA 2002). An AFO may be granted in the lower courts, that is, where a magistrates’ court is satisfied that reasonable grounds exist for suspecting that money held with a bank or building society of a value over £1,000 is ‘recoverable property’, or that it is intended to be used in unlawful conduct. ‘Recoverable property’ is defined in POCA 2002 as ‘property obtained through unlawful conduct’.[1] These provisions mirror those for the seizure, forfeiture and detention of cash under Part 5 of POCA 2002.

The threshold test (ie, reasonable suspicion that the property represents the proceeds of criminal conduct) for the granting of an AFO under the first limb is extremely low.[2] In the case of the National Crime Agency (NCA) v AB,[3] an AFO was granted by the magistrates’ court on the basis of two-year-old BBC news reports taken from the internet, which documented the conviction of a close relative of the account holder in another country on corruption charges. There was no suggestion in that case that the account holder was involved in serious crime or corruption.

NCA officials have indicated that a ‘significant’ number of AFO applications are being prepared.[4] AFOs are therefore likely to be widely used in financial investigations as political pressure grows for law enforcement agencies to be seen to be taking steps to tackle financial crime. In particular, it is now relatively straightforward for the authorities to obtain an AFO after a bank or financial institution makes a ‘suspicious activity report’ regarding a credit balance in a bank account.

Against this context, it is no accident that the new AFO regime has been designed to dispense with many of the safeguards or pre-conditions that had to be met before a bank account restraint order could be obtained under the old POCA regime. These included: requirements for a criminal investigation or prosecution to be underway; and proof of a risk of dissipation of assets before an application was made to the Crown Court rather than a court of summary jurisdiction. Moreover, a deliberate decision was taken to invoke the POCA 2002 Part 5 definition of ‘recoverable property’ rather than the Part 7 concept of ‘criminal property’, which applies to money-laundering offending (ie, a person’s benefit from criminal conduct[5])and is much harder to prove.

The effect of an AFO is that funds held in a bank account can be frozen for an initial period of up to six months, which can then be extended on a six-monthly basis up to a maximum of two years. At the end of the two-year period, there will be a hearing where the court can consider if the monies held should be recovered by the state at a forfeiture hearing. Forfeiture will be ordered where, on the balance of probabilities, the court is satisfied that the money held in the account is derived from criminal conduct.

On a related note, similar provisions are now also in effect allowing for the seizure and forfeiture of listed assets, that is, personal or moveable property, defined in POCA 2002, 303B(1) as precious metals, precious stones, watches, artistic works, face-value vouchers and postage stamps, which are said to be the proceeds of unlawful conduct[6] or intended for use in such conduct.

Freezing orders are highly invasive measures. Given the enormous sums that could conceivably feature in an AFO, it is anticipated that applications for forfeiture under the new regime will provide fertile ground for vigorous legal challenges by way of a judicial review.

Unexplained wealth orders

Practitioners will be familiar with unexplained wealth orders (UWOs), which are deployed in many other jurisdictions. The Criminal Finances Act 2017 (CFA 2017) has introduced these provisions in England and Wales by way of amending POCA 2002.[7] The new legislation requires individuals suspected of involvement or association in serious criminality who hold property valued over £50,000,[8] which appears to be disproportionate to their known income, to explain the origin of their assets to the High Court. If the enforcement authority is not satisfied that the property was acquired through lawful conduct, litigation in the High Court can commence to recover the property further to the civil recovery provisions of Part 5 of POCA 2002. The test for recovery requires showing that the respondent's property represents ‘recoverable property’ and the applicable standard is the ‘balance of probabilities’.

This new Act specifically targets respondents who fall under one of these categories: politically exposed persons; individuals for whom there are reasonable grounds to suspect that they have been involved in serious crime (either in the United Kingdom or elsewhere); or anyone connected to such individuals.

To obtain a UWO, the authorities must show reasonable grounds for suspecting that the known sources of the respondents’ lawfully obtained income would have been insufficient for the purposes of enabling the respondents to obtain the property.[9]

The UWO regime has international reach – it can apply to individuals and companies that are not resident in the UK and that hold property outside the jurisdiction. Pursuant to section 362J of POCA 2002, if a UWO is granted, the property can be frozen and the respondent must provide information and documents specified by the court within a set period.[10] Moreover, section 362E of POCA 2002 stipulates that providing a statement that is false or misleading in a material way, either knowingly or recklessly, is an offence.

At the time of writing, despite the fanfare, only two applications for a UWO have been reported and both have been brought by the NCA.[11] The UK government has estimated, in an impact assessment appended to the legislation, that they anticipate 20 UWO applications on an annual basis. Experience suggests that the limited usage and complexities inherent in making applications under the POCA 2002 Part 5 civil recovery regime means that a far lower number of UWOs may transpire in reality.[12] In the meantime, lawyers advising high net-worth individuals and companies holding property in the UK who may have cause for concern about these new provisions should keep a close eye on developments in the field.

Notes

[1] Proceeds of Crime Act (POCA) 2002, s 304.

[2] The term ‘suspicion’ denotes ‘a degree of satisfaction, not amounting to belief, but at least extending beyond speculation’. UK’s Joint Money Laundering Steering Group Guidance Notes 2006.

[3] Unreported, Westminster Magistrates Court, May 2018. The author acts for AB.

[4] Ibid, statement made in the course of submissions in open court by counsel for the NCA.

[5] POCA 2002, s 340(3).

[6] POCA 2002, ss 241 and 241A.

[7] Section 1 of the Criminal Finances Act 2017 inserts new provisions to the Proceeds of Crime Act 2002 at sections 362A to 362I.

[8] POCA 2002, s 362B(2)(a)-(b).

[9] POCA 2002, s 362B(3).

[10] POCA 2002, s 362C(4).

[11] The orders relate to two properties, one in London and one in the southeast of England and both are thought to be owned by a PEP. Director for Economic Crime at the National Crime Agency Donald Toon commented that: ‘Unexplained wealth orders have the potential to significantly reduce the appeal of the UK as a destination for illicit income. They enable the UK to more effectively target the problem of money laundering through prime real estate in London and elsewhere. We are determined to use all of the powers available to us to combat the flow of illicit monies into, or through, the UK.’ See www.nationalcrimeagency.gov.uk/news/1297-nca-secures-first-unexplained-wealth-orders.

[12] Former Director of the UK Serious Fraud Office David Green told Reuters that UWOs were an ‘extremely useful tool’ but the SFO would not use them until it had the right case. See www.reuters.com/article/uk-britain-fraud/uk-fraud-prosecutor-combs-through-cases-for-signs-of-unexplained-wealth-idUKKBN1FK2QI.