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The increasing popularity of the Account Freezing Order (AFO)25th February 2021 Business Crime
The Account Freezing Order (AFO) was introduced by the Criminal Financial Act 2017, which brought into force new powers under Sections 303Z1 to 303Z19 of the Proceeds of Crime Act 2002 (POCA). We explore why the AFO has, since its introduction, become an increasingly popular tool used by authorities to freeze and seize funds held in bank accounts where past or future criminal activity is suspected.
What is an AFO?
An AFO is, as the name suggests, an Order made by a Magistrates’ Court which serves to freeze funds in a bank account or building society belonging to an individual or company. The application will be granted by the Court and an Order made (often without notice) where there is suspicion that funds originate from unlawful conduct, or that they are intended for use in unlawful conduct. You can find out more about the AFO here.
Funds in an account can be frozen for a period of up to 2 years, allowing the authorities to investigate the provenance of the funds and whether they, as suspected, originate from or are intended to be used in unlawful conduct.
What are the alternatives? – Restraint Orders and Unexplained Wealth Orders (UWO)
Prior to the introduction of the AFO, investigating authorities relied upon Restraint Orders which, under section 41 of POCA, can be applied for to prohibit a specified person from dealing with any realisable property held, whether in a bank account or other assets. For a Restraint Order to be granted, under section 40 of POCA, a criminal investigation must be underway or there must be reasonable grounds to suspect that an individual has benefitted from criminal conduct.
Authorities seeking to freeze funds in a bank account may also consider making an application for an Unexplained Wealth Order (UWO). However, the application for an UWO must be made to the High Court and the minimum value of property held must be in excess of £50,000.00. An UWO will be granted by the High Court where an individual is ‘reasonably suspected’ of involvement or connected to a person involved in serious crime. If the Order is made, it obliges the individual to explain how property was obtained. The UWO has hit headlines in recent years due to the figures involved (the first reported UWO followed a £16 million Harrods shopping bill), however their scope is limited and focus on individuals with ‘unexplained’ fortunes and extravagant lifestyles.
Why are AFOs increasingly popular?
The main aim of the introduction of the AFO was combatting economic crime. With an estimated £190 billion of money from criminal conduct suspected to be held in accounts within and connected to the UK, it is unsurprising that attempts to fight economic crime and the array of legislative tools to do so have increased in recent years. There are a number of benefits to the AFO, in comparison to the alternative mechanisms available as described above. We set out below why authorities are increasingly making applications for AFOs, rather than relying on the traditional criminal restraint provisions of POCA.
Who can apply for an AFO?
The availability of AFOs to a number of authorities no doubt contributes to its rise in popularity. An AFO can be applied for by agencies such as the police, the Serious Fraud Office (SFO) and the National Crime Agency (NCA). However, the AFO is available to a wide group of bodies, which can include government departments, professional regulators such as the FCA, local authorities and bodies such as Transport for London. The AFO is being widely utilised by authorities as a preliminary part of investigations and subsequent prosecutions. In particular and more recently, in the prevalent “Encrochat” investigations, where the imposition of a Restraint Order would also be available. In the investigations revolving around encrypted devices, the AFO appears to have been favoured in a number of cases, evidencing the evolving landscape and approach to account and asset freezing.
The threshold for an AFO
It is relatively easy for authorities, such as the SFO of the NCA, to successfully apply for an AFO from the Court. The AFO is a civil recovery mechanism (Part 5 of POCA) and the civil standard of ‘balance of probabilities’ therefore applies when the court determines if an Order should be made.
Provided there are over £1,000.00 in an account, the enforcement officer dealing with the case can apply to the Magistrates’ Court for an Order if there is a suspicion that funds derive from unlawful conduct or are intended for use in unlawful conduct. The ‘suspicion’ is considered on the civil standard; namely, there must be a suspicion on the balance of probabilities.
For the Court to make an AFO, there is no need for there to be an allegation that a criminal offence has occurred, and in fact there is no need for the actual account holder to be involved in suspected unlawful conduct. In contrast, where an application is made for a Restraint Order, there must be reasonable grounds to suspect that the account holder has benefitted from the funds, or a criminal investigation must be underway (section 245A(5) of POCA). The comparatively low bar inevitably means that the majority of applications for AFOs are approved by the Court.
The reporting requirements of authorities are another significant difference between Restraint Orders and AFOs. In cases in which a Restraint Order has been imposed, there is a requirement for a progress report to be provided to the Court regarding the investigation and the Restraint Order will be discharged if proceedings are not started within a reasonable period of time. In contrast, there is no reporting requirement once an AFO is made, albeit the Court must consider the proportionality of the length of the AFO, in particular if the maximum duration of two years is sought.
In summary, the AFO threshold to be met by authorities applying to the Court is low and, as such, orders are routinely granted. The AFO however provides a powerful tool for authorities and can prove an easy route for the recovery of funds where lengthy criminal proceedings are not required.
AFOs as a negotiation tool
Owing to the fact that AFOs and subsequent forfeiture applications can be made without the need for criminal proceedings, AFOs are arguably a powerful negotiation tool for authorities and also provide the opportunity for suspected individuals to engage with authorities at an early stage of what may become a criminal investigation. By way of example, in 2019 the property tycoon Mr Malik Hussain was made subject of an AFO over assets in the sum of £140 million due to funds suspected to have derived from bribery and corruption overseas. Following the AFO being granted by the Court, an out of court settlement was reached between Mr Hussain and the NCA in which his £50 million property and £140 million held in frozen accounts was forfeited. In this case, the NCA obtained by way of forfeiture significant sums of money without the need for lengthy criminal proceedings, whilst Mr Hussain avoided inevitable criminal proceedings and a potential criminal conviction. The non-conviction based approach provides a relatively straightforward route for authorities to obtain suspected criminal proceeds. In certain cases, the individual suspected may also consider early engagement and negotiation following the imposition of an AFO a favourable option.
The future of the AFO
AFOs are increasingly common and a powerful tool used by a number of agencies to freeze funds suspected to represent criminal proceeds. It is reported that for the period 2019 to 2020, £209 million was frozen using AFOs. Undoubtedly, these figures will continue to rise, not least due to the ease at which the Orders can be applied for and as the Government continue in their endeavours to “make the UK a hostile environment for those seeking to move, hide and use the proceeds of crime and corruption”. Despite the low threshold for the Court to make an AFO, the Orders once made impose draconian financial restrictions and specialist legal advice must always be sought by anyone subject of an AFO.
If you or someone that you know is subject of an Account Freezing Order, robust legal representation from the earliest stage is essential. For further information about the comprehensive service our lawyers can offer if you are concerned about the imposition of an AFO, the author of this blog, Business Crime and Regulation partner, Sam Healey can be contacted on 0345 241 5305 and firstname.lastname@example.org.