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Volume XII, Number 272

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Account Freezing and Forfeiture Orders: is the FCA waking up to its investigative powers?

The author and editors would like to thank Eben Kurtz for her contributions to this post.

On 21 April 2022, the U.K.’s Financial Conduct Authority (“FCA”) secured its first Account Forfeiture Order (“AFO”), a tool used for asset recovery under Part 5 of Proceeds of Crime Act 2002 (”POCA”), for a sum of £2,000,000 against the company QPay Europe Limited. Please find the FCA’s press release on the case here.

Until now, these powers, granted by the Criminal Finances Act 2017, have mainly been used by the National Crime Agency, regional police forces, and His Majesty’s Revenue and Customs (“HMRC”). However, because the FCA stated in their recently published three year strategy that they plan to use their “enforcement and intervention powers more actively”, these measures should now be firmly on the radar of the compliance teams and MLRO’s of FCA regulated entities.

Enforcement statistics obtained from the FCA by our White Collar & Government Investigations team in response to a Freedom of Information Act request (“FOI”) show that the FCA is using its civil forfeiture powers. The figures below were provided by the FCA on 16 August 2022 provide the number of freezing and forfeiture orders obtained by the agency:

Account Freezing Orders (“AFrO”)

The number applied for by the FCA under POCA

7

The number granted to the FCA under POCA

7

Account Forfeiture Orders

The number applied for by the FCA under POCA

7

The number granted to the FCA under POCA

1

This data informs us that seven AFrOs have been granted to the FCA and that seven AFOs have been applied for, and therefore that there are potentially more account forfeiture orders in the pipeline. While we do not know if the AFrOs are being contested by respondents, this information sheds light on the FCA’s intention to use this asset recovery tool more frequently.

Furthermore, the fact that the FCA has applied for the same number of AFrOs as AFOs may suggest that the FCA is carefully selecting the cases they bring – i.e. they only seek AFrOs if they are confident it could lead to a successful forfeiture.

What is an Account Freezing Order (“AFrO”)?

Law enforcement agencies can apply to the Magistrates’ Court, without notice, to freeze funds in bank and building society accounts where the balance exceeds £1,000. To grant the AFrO, the court must have reasonable grounds to suspect the funds are either

  • the proceeds of crime or

  • likely to be used for crime.

The threshold for obtaining an AFrO is relatively low. An application may be made, for example, after receiving intelligence from a suspicious activity report about unusual activity on an account that is suspected of being linked to money laundering. There is no need for there to have been an associated criminal conviction or even an investigation. The standard of proof is a civil one based on the “balance of probabilities”, rather than the more onerous criminal standard of proof of “beyond reasonable doubt.”

The Magistrates’ Court may grant an AFrO and freeze the account for a maximum duration of two years, which allows the law enforcement agencies, or FCA, significant time for an investigation into the nature and origin of the funds before deciding whether to apply for forfeiture. This is an advantage for law enforcement agencies as it increases the timeframe they have to investigate suspicious activity reports.

What is an Account Forfeiture Order (“AFO”)?

At any point while the AFrO is in force, the authorities may apply for the relevant sums to be forfeited to (taken by) law enforcement. To grant an AFO, the court must be satisfied that the money is obtained through unlawful conduct (“recoverable property”) or it is intended for use in unlawful conduct.

Although there is a higher evidence threshold to be satisfied than for AFrOs (i.e. the court must be satisfied, rather than merely having reasonable grounds to suspect), significantly there is still no requirement for there to be a live criminal investigation or a criminal conviction against any party.

AFOs are also sought and granted in the Magistrates’ Court. This has been subject to scrutiny as the applications may be granted by a lay panel of Magistrates who are unfamiliar with POCA. In addition, the relatively low evidential threshold has resulted in this court hearing an increasing number of these applications.

Under the Asset Recovery Incentivisation Scheme, enforcement authorities benefit directly from the forfeited funds – generally around 50% of the funds recovered under POCA are distributed to enforcement authorities.

How do I challenge AFrOs/AFOs?

For individuals or businesses, the low threshold for obtaining an AFrO creates a risk that uncommon but legitimate banking transactions may result in them being deprived of access to their own legitimate funds.

Once a notice of forfeiture is issued, the account holder, or anyone else affected by the order, has 30 days to object. Where the Magistrates’ Court grants an AFO the aggrieved party has a right of appeal to the Crown Court. Again, there is a 30-day period within which the appeal must be made.

When challenging an AFrO, or appealing an AFO, the burden of proof is on the law enforcement agency as the applicant and the civil standard applies – the “balance of probabilities”. In practice, it is necessary for the respondents or an interested party to demonstrate with compelling evidence that the origin of the money is legitimate, which can be a time consuming process.

It is possible to either resist an application or to have an order set aside or varied. As stated earlier, the threshold for obtaining an AFO is higher and, in some cases, where the account holder can withstand the disruption caused by the freezing of the funds, the optimal strategy may be to prepare for that stage of proceedings.

Takeaway  

AFrOs and AFOs are increasingly being used by law enforcement agencies as an asset recovery tool, now including the FCA. As shown by the data reflected in the response to the FOI request, it is worth monitoring the FCA’s growing interest and usage of these significant asset retrieval powers – and importantly how businesses are prepared to respond if such applications are made against your bank accounts.

© Copyright 2022 Squire Patton Boggs (US) LLPNational Law Review, Volume XII, Number 264
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About this Author

Director

Ben Ticehurst is an experienced litigation and regulatory lawyer specialising in government investigations and white collar, with a global focus to his practice.

Ben represents corporates and senior business executives advising on compliance, investigations and high stakes cross-border fraud, bribery and corruption, and other white-collar litigation. His experience as an investigations and white-collar specialist sees him successfully represent clients in cases brought by the UK and global law enforcement agencies.

He...

+44 20 7655 1374
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