Aziz Rahman of Rahman Ravelli outlines the importance of the newly-created overseas production order, the requirements for obtaining one and their limitations.
A PRACTICAL GUIDE
With account freezing orders having been used for the first time, Aziz Rahman of Rahman Ravelli examines their effectiveness and considers why they may come to be used frequently.
The National Crime Agency (NCA) announced in February that it had used account freezing orders (AFOs) for the first time to seize more than £400,000 from three UK bank accounts. Just three weeks later, the National Economic Crime Centre (NECC) used AFOs to apply to freeze 95 student accounts suspected of being used to launder money. And last week the Serious Fraud Office (SFO) used an account freezing order to secure the forfeiture of more than £1.5M from the bank account of an individual convicted of fraud.
It would be a surprise if we do not see more use of AFOs in the very near future. Their appeal to law enforcement agencies is clear: they give the authorities the chance to target wealth linked to suspected criminality that is held in bank and building society accounts.
When the Proceeds of Crime Act 2002 (POCA) came into force, the part that received the most fanfare was not the sections relating to money laundering but Part 5 – the part of the Act that introduced the concept of High Court civil recovery. It was Part 5 that covered the forfeiture of cash that is suspected to be the proceeds of unlawful conduct. And while Part 5 has grown in importance since the Act came into effect, the amendments introduced under Criminal Finances Act 2017 (CFA) arguably made it even more significant.
CFA received particular attention for its introduction of unexplained wealth orders (UWOs). But what the CFA also introduced – although they received less attention at the time than UWOs - was account freezing orders (AFROs) and account forfeiture orders (AFOOs). Section 16 of the CFA inserted sections 303Z1 to 303Z19 into Part 5 of POCA 2002. This created powers to freeze the contents of bank and building society accounts so that, just as with cash, they could be forfeited in the same way – with a forfeiture order.
Reasonable Grounds for Freezing
As a result, it is not just cash that can be the subject of summary seizure. Money in the bank can now also be seized. Section 303Z1 of POCA makes it possible for a senior enforcement officer – an HM Revenue and Customs officer, police officer, Serious Fraud Office (SFO) officer or accredited financial investigator - to apply to a Magistrates Court for an AFRO.
The officer can do this if he or she has reasonable grounds to suspect that monies held in an account are either recoverable property (defined in Section 304 of POCA as property obtained through unlawful conduct) or intended by any person for use in unlawful conduct. The minimum balance in the account is £1,000 and the application will usually be made be made without notice.
Freezing of the Account
The freezing of the account is the first stage of the process. The second stage is forfeiture. There are two routes that the police can follow to pursue forfeiture. The first route involves an account forfeiture notice being given by the police to the person affected. This will explain that the money is set to be forfeited and will specify a period of time for any objection to that process (s303Z9 (4)). If there is no objection then the AFOO application will be made to the Magistrates Court, with forfeiture being the inevitable result. The second route is where it is known that there will be a challenge or where objection is made under the notice. Then the court will issue directions in the same way that the court does already for cash forfeiture proceedings.
It could be argued that s16 of CFA is simply the law catching up with the modern world: those suspected of criminality do not always deal in cash and are as likely to keep their assets in bank and building society accounts as anybody else. But s16 is certainly a development that gives magistrates a huge amount of power and could place many individuals in a seriously difficult position. This is because seizing a large amount of cash that a person has on them and then asking that individual to explain how they came to have it is a logical line of questioning – and a line of questioning that the person should be able to answer. But freezing a bank account and asking the account holder to explain the source of all its contents and describe the reasons behind some or all of the transactions – many of which may date back months or even years – could be considered to be unrealistic. Parliament’s reasoning that the Magistrates Court was the appropriate forum for these new powers is a concern.
Challenges to the Procedure
We often find that in cash forfeiture proceedings there is very little reference to High Court civil recovery case law: there is a tendency to treat the two things as entirely different as one action is in the High Court and the other is in the Magistrates Court.
But the statutory provisions are just the same; see e.g. Angus v UK Border Agency  EWHC 461 (Admin). In that case, which was a cash forfeiture, the High Court made it crystal clear that Part 5 of the Act did not distinguish between High Court civil recovery actions and magistrates cash forfeiture and, therefore, the true test for forfeiture was for the UK Border Agency to prove (to the civil standard) that the seized cash was the proceeds of some identifiable kind of crime. It is not enough just to say it is probably the proceeds of crime. The same will be true for AFOOs.
There are also potential challenges to the AFRO itself: applying principles from the higher courts and the stringent demands they put on applicants in ex parte applications to tell the court everything that they would expect the defence to say if they were present. The applicant for the AFRO must, to all intents and purposes, put on the ‘defence hat’ – see m Re Stanford International Bank Ltd (in Receivership)  3 WLR 941 per Hughes LJ. A failure to do so may leave the applicant vulnerable to a challenge regarding the validity of the application.
An AFRO cannot be in force for more than two years. And an individual who is the subject of an order can ask the court for it to be varied or set aside (as above), as can the enforcement officer.
Funding Legal and Living Expenses from an AFRO
Exceptions can be made for living expenses and legal expenses (s303Z5), which means that challenging the AFRO can be funded privately. But this is where many solicitors will run into difficulties.
The section enabling variations for legal expenses refers to s286A of POCA – the part that deals with variations to Property Freezing Orders (PFOs) in High Court civil recovery claims. In other words, the same process that is already in place for variations to PFOs will apply to the new AFROs. Experience tells us that the NCA will be likely to object to any variation for legal expenses. A cynic would take the view that this is done to try and freeze the respondent out of being able to defend him or herself. The s286A referred to is in fact just a provision enabling regulations to be enacted. Those regulations are the Proceeds of Crime Act 2002 (Legal Expenses in Civil Recovery Regulations) 2005. Before any money can be released from the frozen account for legal expenses, the applicant will have to demonstrate that he/she does not have free assts held outside of the AFRO that could be used to pay the legal bills.
For that reason the NCA is likely to insist that a statement of assets must be drafted that addresses the respondent’s means and for which there will be an initial variation of a maximum £3,000 plus VAT for that purpose. Whether any more can be released will depend on the statement. This figure of £3,000 comes from the Practice Direction to Civil Procedure Rules on Civil Recovery. On the face of it, this does not actually apply to the magistrates court proceedings. We expect there may well be challenges in this area.
There can be little doubt that s16 of the CFA gives the authorities great power; enabling them to act on any of the thousands of Suspicious Activity Reports generated each year by banks and building societies. And it looks exceedingly likely that s16 will be in very frequent use in the very near future.