Colette Kelly Partner, Criminal and Regulatory Solicitor
Account Freezing Orders and Account Forfeiture Orders
In a recent case before Westminster Magistrates’ Court, a District Judge has lifted an anonymity order protecting the identity of a couple, known presently as X and Y, who are challenging an application by the National Crime Agency ( NCA) for an account forfeiture order ( AFO ). The District Judge has granted a seven-day “stay” on naming the couple to allow them to seek a judicial review of the decision. If unsuccessful, the couple will be named.[1]
The NCA is seeking an AFO in relation to funds held by the couple said to be in excess of £6.5 million. A number of companies involved in transferring funds to them have been identified as involved in what has come to be known as the Azerbaijani Laundromat, where the Azerbaijani ruling elite were accused of laundering nearly $3 billion.
The couple, who are contesting the AFO application, had initially sought for the forfeiture hearing to be held in private and argued that lifting anonymity would interfere with other proceedings.
The District Judge in giving her ruling stated that there is a “public interest in informed public debate” about account forfeiture orders. Further that “such debate is stimulated and enhanced by the identities of the parties being revealed… and, in accordance with the usual principle of open justice the public has a right to know who they are”.
What are Account Freezing Orders and Account Forfeiture Orders and how do they work?
The Criminal Finances Act 2017 (CFA) gives law enforcement agencies and partners ( this includes the Police, NCA, HMRC and SFO) capabilities and powers to recover the proceeds of crime, tackle money laundering, tax evasion and corruption, and combat the financing of terrorism.
It is the most significant legislation concerning white-collar crime since the Proceeds of Crime Act 2002 (POCA).
As well as introducing Unexplained Wealth Orders and a further corporate “failure to prevent” offence relating to the failure to prevent the facilitation of tax evasion, it introduced Account Freezing Orders (AFrO) and Account Forfeiture Orders (AFO) in January 2018. These applications for AFrOs and AFOs are civil proceedings made to and granted by a Magistrates’ Court.
Account Freezing Orders
An AFrO gives law enforcement agencies the power to freeze funds held in bank and building society accounts if the court is satisfied, on the balance of probabilities, that there are reasonable grounds to suspect that
- the funds in the account are the proceeds of crime
- or are intended for use in unlawful conduct
The threshold for AFrOs is a low one. The relevant agency simply has to demonstrate suspicion that funds (£1,000 or more)held in an account(s) represents recoverable property (defined as property obtained through unlawful conduct) or are intended by any person for use in unlawful conduct.
It is not necessary for a criminal investigation to have started or for there to have been any convictions.
An AFrO can be made for a maximum period of two years and will automatically end once that period has expired. During the period of the AFrO, the funds in the account(s) are frozen, preventing their disposal whilst the relevant agency investigates the provenance.
AFrOs are quicker, cheaper and more effective for relevant authorities than a protracted criminal investigation and prosecution for money laundering or obtaining a freezing injunction in the High Court, which are scrutinised intensively. They are used to forfeit large sums of money without having to prosecute anyone and prove their guilt to the criminal standard.
Account Forfeiture Orders
Following an investigation, the relevant agency may apply for an AFO, if satisfied that all or part of the funds represents the proceeds of crime or, are intended by any person to be used for criminal conduct. This allows for all or part of the funds in the account(s) frozen under the AFrO to be forfeited to the relevant agency.
There is an incentive under the Home Office Asset Recovery Incentivization Scheme whereby the Home Office and the relevant agencies that bring the cases each receive a share of the proceeds of crime that secured by way of either confiscation or forfeiture.
Whilst the threshold in applying for an AFO is higher than for AFrOs, they are used to forfeit large sums of money without having to prosecute anyone and prove their guilt to the criminal standard.
The relevant agency must give at least 30 days’ notice of its intention to apply for an AFO during which time the Respondent can raise written objections. If no objections are made, the funds were be forfeited. If there are objections, then the relevant agency must make an application for an AFO to the Magistrates’ Court.
The burden of proof rests with the relevant agency to satisfy the Court, on the balance of probabilities, that the funds in the accounts are either recoverable property or intended for use in criminal activity.
Can AFrOs and AFOs be challenged?
Any affected person can challenge AFrOs. In the first instance, it is vital to engage in direct correspondence and discussions with the relevant agency in order to demonstrate with supporting evidence that the source of the funds is entirely legitimate. Variations can include the provision of reasonable living expenses, the carrying on of any trade or a release of funds to meet legal expenses.
If the relevant agency does not agree to apply to vary or discharge the AFrO, an application can be made to the Magistrates’ Court to seek to vary or set it aside
The decision to grant an AFO can be appealed 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(s) can apply for compensation from the investigatory body.
How we can help
We understand the significant disruption the loss of access to funds can cause. It is important to seek expert and strategic advice promptly. Our expert team is able to assist in this eventuality and can be contacted via their contact details below.
Colette Kelly
Partner, London
T +44 (0) 20 4542 4957
colettekelly@incegd.com
Annette Fong
Head of Compliance Solutions, London
T +44 020 74810010
AnnetteFong@incegd.com
Alex Ktorides
Partner, London
T +44 (0) 20 7759 1584
alexktorides@incegd.com