INSIGHT: Account Freezing and Forfeiture Orders in the U.K.

Much has been said about the introduction of unexplained wealth orders into the Proceeds of Crime Act 2002 (POCA 2002) through the Criminal Finances Act 2017 (CFA 2017). Another important change which the CFA 2017 brought about, which has not received anywhere near the same amount of publicity, is the insertion of new provisions in POCA 2002 in relation to powers to freeze the contents of bank and building society accounts and subsequent forfeiture of those monies. Section 16 CFA 2017 inserts Chapter 3B, Sections 303Z1 to 303Z19 into Part 5 of POCA 2002. All new sections have been in force since Jan. 31, 2018.

Part 5 of POCA 2002 deals with the civil recovery of the proceeds of crime. Part 5 covers cash detention and forfeiture which is dealt with in the Magistrates’ Court (often used in money laundering prosecutions) and property freezing orders (this includes funds held in bank accounts and real property) which is dealt with in the High Court pending the outcome of civil recovery proceedings. Section 16 CFA 2017 now adds a third option.

The civil recovery regime complements the criminal restraint order regime under POCA 2002 to freeze a defendant’s assets when a criminal investigation has started in relation to an offense, if there are reasonable grounds to suspect that the alleged offender has benefited from criminal conduct.

How Does It Work?

Section 303Z1 POCA 2002 makes it possible for a senior enforcement officer (defined as an officer of Revenue of Customs, a constable, an officer of the Serious Fraud Office, or an accredited financial investigator) to apply to a Magistrates’ Court for an account freezing order if the officer in question has reasonable grounds to suspect that monies held in an account are:

• (i) recoverable property; or
• (ii) intended by any person for use in unlawful conduct.

Recoverable property is described as property obtained through unlawful conduct. Unlawful conduct is in effect criminal conduct occurring in any part of the United Kingdom (Section 241 POCA 2002). If it occurs outside the U.K., it can still be unlawful conduct if it is unlawful under the criminal law of that country and if it occurred in the U.K., it would be unlawful under the criminal law.

An application to freeze the contents of a bank or building society account can be made for all or part of the funds in the account, but the minimum balance of the account is £1,000 ($1,316)—as opposed to the £10,000 ($13,160) threshold for property freezing orders). The application can be made without notice if there are reasons to believe that notifying the bank account holder would prejudice the forfeiting of the money later. (A building society is a financial institution owned by its members as a mutual organization.)

Variation and Setting Aside of the Freezing Order

Any person affected by the order can ask the court for it to be varied or set aside, and so can the enforcement officer. Exceptions can be made for living expenses and legal expenses, which means that challenging the account freezing order can be funded privately within reason.

A freezing order cannot be in force for longer than two years.

Forfeiture of the Monies

Once an order for freezing an account has been made, an account forfeiture notice can be made by a senior officer for all or part of the bank balance if he is satisfied that the money is:

• (i) recoverable property, or
• (ii) is intended by any person for use in unlawful conduct.

The notice must confirm that the senior officer is content that one of these two conditions is satisfied. This means that unusually money which has been frozen through this procedure can be forfeited without the intervention of the court. However, if an objection is made (and it can be made by anyone, not just the recipient of the notice) it prevents the frozen money being forfeited on an administrative basis but it does not prevent forfeiture of the money through the court (see further below).

A forfeiture notice must indicate how and where objections can be sent and explain that the money will be forfeited unless an objection is received at the address provided within the specified time period. The period of objecting must be at least 30 days starting with the day that the notice is given. If no objections are received, and the notice has not lapsed for other reasons (e.g., an order is made by the court setting aside the relevant account freezing order or an application is made to court for forfeiture of the money held in the account), the money must be transferred into an interest-bearing account nominated by an enforcement officer and the account freezing order will cease to have effect.

Challenging Forfeiture

If an objection is made within the period stated for objecting (which has to be at least 30 days from the day the notice was given), the account forfeiture notice lapses and the account freezing order ceases to have effect 48 hours after the objection was made unless the enforcement officer applies to the court to vary the account freezing order or applies to the court for forfeiture of the money, then the account freezing order continues to have effect. This means that the enforcement officer has to take action if an objection is made, otherwise the account is not frozen any more. However, an objection does not prevent forfeiture of the money held in the frozen account via an application to the court.

If the money in the frozen account has been forfeited under a forfeiture notice, the forfeiture can be challenged by applying to the court for an order setting aside the forfeiture of the money or any part of it. The application must be made within 30 days starting with the day on which the original objection period ended. The court must consider if the money could be forfeited and if it is satisfied that it could not, it must set aside the forfeiture of the money or part of the money in the account, i.e. the court must decide if the frozen monies in the account, whether all or part, are recoverable property or are intended by any person for use in unlawful conduct.

Compensation

If an account freezing order has been made and none of the monies are forfeited in accordance with a forfeiture notice or a forfeiture order from the court, the court can, on application, award compensation to the person by or for whom the account to which the account freezing order applies. The court should make this order if it is satisfied that the applicant has suffered loss as a result of the making of the account freezing order and that the circumstances are exceptional. The court must make an order in the amount that it considers reasonable.

Procedural Steps

The Magistrates’ Court (Freezing and Forfeiture of Money in Bank and Buildings Society Accounts) Rules 2017 came into force Jan. 31, 2018, and sets out procedural steps for freezing applications.

It contains detailed information how to file and serve any application in relation to an account freezing and forfeiture order.

Analysis

What is the difference between these orders and unexplained wealth orders?

Unexplained wealth order applications are made at the High Court, on application by an enforcement authority. They can be made in relation to any property with a value over £50,000 ($65,800) and the respondent has to be either a “politically exposed person” as defined by the Act or there must be reasonable grounds for suspecting that the respondent, or a person connected with the respondent, is or has been involved in a serious crime. It is an order for the respondent to provide a statement setting out in detail what their interest is in the property, how the property was obtained, whether it is held by trustees and any other information as required by the order. If the respondent does not comply, the property is presumed to be recoverable property for the purposes of Part 5.

The account freezing and forfeiture option fills a gap in relation to the threshold of the balance of a bank account but moreover makes it easier for a prosecutorial authority to freeze and forfeit monies held in bank and building society accounts.

The advantage for prosecutorial organizations with the forfeiture and freezing orders is speed. A freeze application can be made to the Magistrates’ Court without the disclosure obligations which normally apply in the High Court (as would be the case for a property freezing order) and without a possible costs order if the application is denied. Furthermore, there is a lower standard of proof test which applies in comparison to the criminal restraint route. The standard of proof that the prosecution must satisfy is that there are reasonable grounds for suspecting that the monies in the account are recoverable property or intended to be used in unlawful conduct on the balance of probabilities as opposed to the higher criminal standard of proving beyond reasonable doubt. For the prosecuting authority, they also have the advantage that once a freezing order has been obtained, the monies can be forfeited administratively if no objections are made.

A further advantage is that the civil recovery provisions can be exercised in relation to property (the contents of a bank or building society account) whether or not any proceedings have been brought for an offence in connection with the property. It is anticipated that particularly in cases where a Suspicious Activity Report (SAR) has been logged by, for example a bank, prosecutorial organizations will make use of this new route.

Is the Magistrates’ Court equipped to deal with a possible onslaught of account freezing order applications which may well involve high value and complex matters? In cases where the application is contested, these applications could create a large volume of additional work for the already overburdened Magistrates’ Courts.

It remains to be seen how case law will develop in relation to this new tool and what the impact will be on those who are subject to these applications. An individual who is faced with an account freezing order should carefully consider the basis upon which the order is sought. Despite the lower evidential threshold, the enforcement officer still needs to set out (the reasonable grounds which exist to justify the suspicion) that the money held in the bank or building society account is recoverable property or is intended to be used in unlawful conduct. Even though it is not necessary to identify conduct of a particular kind or that it relates to a specific offence, (the suspicion of) unlawful conduct of some kind has to be established. In the absence of actual ongoing criminal proceedings and uncertainty as to what disclosure obligations exist, we are likely to see a number of challenges to these applications/orders being made.

Author Information

Marleen Bouwer is a solicitor at Byrne and Partners LLP in London. She is a lawyer in the firm’s criminal and regulatory team with experience in defending a variety of fraud and white collar crime matters. Bouwer represents clients both pre and post charge in relation to investigations of money laundering, corruption, insider trading, and (tax) fraud. In addition, she represents clients facing extradition and is familiar with mutual legal assistance requests. She has previous experience in commercial/insurance litigation. Bouwer is a native Dutch speaker.