Aziz Rahman outlines the sweeping new freezing and forfeiture powers given to the authorities by the Criminal Finances Act.

The Criminal Finances Act 2017 (CFA) grabbed the headlines when, in January this year, the provisions enabling Unexplained Wealth Orders came into effect. There was also the new offence of failure to prevent tax evasion.

But one aspect of the Act which has not received much attention could prove to be an extremely effective instrument for the authorities: the introduction of Account Freezing Orders (AFRO’s) and Account Forfeiture Orders (AFOO’s).

Section 16 of the CFA amended the Proceeds of Crime Act 2002 (POCA). It 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.

Part 5 of POCA 2002 deals with the civil recovery of the proceeds of crime. It covers cash detention and forfeiture, which is a Magistrates’ Court matter, and High Court civil recovery, including Property Freezing Orders.

But s16 of CFA 2017 now adds a third option – the targeting of money in accounts. 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.

Forfeiture

The freezing of the account is the first stage of the process. The second stage is forfeiture. There are two routes for the police 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: criminals don’t always deal in cash and they are as likely to keep their assets in bank and building society accounts as anyone else would.

But it is a development that gives magistrates a huge amount of power and could place many individuals in a seriously difficult position. After all, seizing a large amount of cash that a person had on them, and then asking that individual to explain how they came to have it, is a logical line of questioning – a line of questioning that the person should be able to answer. Yet freezing a bank account and asking the account holder to explain the source of all its contents and describe the reasons for transactions that may date back months, if not years, could be considered an unrealistic demand. It is a concern that Parliament, for some reason, believes that the Magistrates’ Court is the appropriate forum for these new powers.

Variations and Limitations

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 can the enforcement officer. 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 in High Court civil recovery claims. In other words, the same process that is already in place for variations to PFO’s will apply to the new AFRO’s.

Experience tells us that the National Crime Agency (NCA) will be likely to object to any variation for legal expenses. A cynic would say 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 assets 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 in fact 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; but 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.

We anticipate that s16 will become a very widely used tool in the near future.