The National Crime Agency ("NCA") estimates that £190bn of money from criminal conduct is held in accounts with connections to the UK. As part of the Government's overarching aim to tackle this issue and cut money laundering, Account Freezing Orders ("AFOs") were introduced by the Criminal Finance Act 2017. These arguably draconian orders have drastically altered the powers of law enforcement agencies to prevent the dissipation of funds that they believe have been obtained unlawfully.
What is an AFO?
An AFO is an order made by a Magistrates Court to freeze funds in a bank account belonging to an individual or company. Relevant agencies, including police, H.M Revenue and Customs ("HMRC"), the NCA, and the Serious Fraud Office ("SFO") can apply to freeze bank accounts when:
- The balance exceeds £1,000; and
- There is reasonable suspicion that the funds are either the proceeds of criminal conduct or intended for use in unlawful conduct.
The objective of AFOs is to make the UK a hostile environment for those seeking to benefit from proceeds of crime. Accounts in question can be frozen for up to two years in order to allow an investigation to be conducted and applications can be made without notice if there are grounds to believe that notifying the respondent would risk dissipation of the funds.
'Reasonable suspicion' – a low threshold?
The threshold of 'reasonable suspicion', which is required when applying for an order sits at an extremely low standard. This inevitably means that the majority of applications for AFOs are approved since the relevant authority only has to demonstrate that it has reasonable grounds to suspect that the funds represent recoverable property, or are intended for use in unlawful conduct. There is no need for there to be an associated criminal conviction or even an investigation underway.
The low standard and high success rate may be concerning given that loss of access to funds can be extremely troublesome, not only financially but also reputationally. An AFO could be extremely disruptive for an account holder, especially given that the order may be made for up to two years. An AFO can however be varied to include the provision of reasonable living expenses, the carrying on of any trade, or a release to meet legal expenses.
Current and future relevance of AFOs
The Home Office has recently released statistics on asset recovery and there has been a surge in the use of AFOs as part of the drive to tackle proceeds of crime. In 2019/2020, £208m covering 812 bank and building society accounts were frozen using AFOs. This number has increased from £94.9m in 2018/2019 raising an interesting question. Are AFOs assisting the Government in achieving its aim of disrupting criminal networks, preventing further funding of crime, and depriving people of their proceeds of crime? To date, HMRC has failed to prosecute any case in which an AFO has been obtained since their inception in 2017. As such, there is a counter-argument to suggest an over-utilisation of AFOs due to the low threshold required to obtain them.
Either way, for now, it seems that we will see more and more of these draconian orders in financial crime investigations. HMRC as one authority has already indicated that they are going to utilise AFOs for investigations into the abuse of funds made available through Covid-19 legislation. Looking further ahead, the AFO scheme is yet to be fully scrutinised by the High Court and when it is, there may well be adjustments to how these orders are utilised. It is clear that the relevant authorities have taken to using these orders to assist in their investigations and for now, they are here to stay.