Supporting Chinese living, studying, and doing business in the UK – mitigating risk of committing business crime (Part 1) - Account Freezing Orders

Account Freezing Orders (AFOs) have become one of the most widely used tools by UK enforcement agencies to restrain funds suspected of being linked to unlawful conduct. In recent years, there has been a marked rise in cases involving Chinese being targeted by UK law enforcement agencies, frequently resulting in the imposition of AFOs.

AFOs are often made with little or no notice and we have seen Chinese workers / students puzzled when their accounts are frozen. For Chinese living, studying, or investing in the UK, it is increasingly important to understand not only how these orders operate, but also how common their Chinese financial habits may inadvertently trigger scrutiny.

1. What is an Account Freezing Order ("AFO")?

AFOs were introduced by the Criminal Finances Act 2017, which added sections 303Z1–303Z19 to the Proceeds of Crime Act 2002 (POCA). They form part of POCA's civil recovery tools and allow enforcement agencies such as His Majesty's Revenue and Customs ("HMRC"), the National Crime Agency ("NCA"), the police and the Serious Fraud Office ("SAO") to apply to the magistrates' court for an order prohibiting withdrawals or payments from a bank, building society, e‑money or payment institution account for up to two years.

An application for an AFO can be made where there are reasonable grounds to suspect that the funds are either recoverable property or intended for unlawful conduct.

Under POCA, property is 'recoverable property' if was obtained through unlawful conduct. It is not necessary for the authorities to show the property was obtained through a particular kind of unlawful conduct but rather it was obtained through unlawful conduct of some kind.

For example, where suspicious transactions have been flagged by a financial institution and there is no satisfactory explanation for the source of those funds, it is not necessary to show those funds come from specific unlawful. It would be sufficient for enforcement agencies to apply for an order on the basis that it is suspected the funds come from unlawful conduct, i.e. money laundering, as the source of funds are unknown, for example using commonly used social apps to arrange currency swaps.

As AFOs are a civil order, the court decides the issue on the balance of probabilities, that is, is it more likely than not the funds have been obtained through unlawful conduct.

The purpose of an AFO is to preserve the funds in the account while the enforcement agency investigates the origin and source of the funds.

2. What are the implications of having an Account Freezing Order placed on your account?

Once an AFO is granted, any account subject to the order cannot be accessed (with limited exclusions) for the duration of the order. This could cause severe financial and reputational issues. As the order could be for a period of up to two years, this would cause considerable disruption to the account holder's daily life.

It is possible to apply to the court for provision in order to enable a person to withdraw funds to meet reasonable living expenses or to carry on a trade, business, profession or occupation, however by the time this has been obtained, lasting financial and reputation damage could have already been caused.

It is also possible to apply for an exclusion to meet reasonable legal expenses but only if the court decides it is 'desirable' for the person to be represented in proceedings.

There will also be a requirement to provide substantial financial evidence to the enforcement agency showing a detailed transactional history of the funds, including a full explanation of the source of the funds and source of wealth for anyone involved in the flow of funds. This is often proved to be difficult when the transactions are through several layers of payment platforms and/or swaps.

If the enforcement agency is satisfied the funds are recoverable property, an application for an Account Forfeiture Order can be made for the funds to be permanently seized. Again, this application would be decided on the balance of probabilities.

3. Can an AFO be challenged?

An application for an AFO can be challenged, or an application to discharge an existing order can be made where:

• The reasonable grounds to suspect the funds are recoverable property are based on a misunderstanding of transactions

• There has been a misinterpretation of cultural practices

• The funds derive from a legitimate source

• The length of the order sought is disproportionate

To effectively challenge an AFO, comprehensive financial information will need to be provided to evidence that funds are from a legitimate source.

4. Crypto Wallet Freezing and Forfeiture Orders

In addition to traditional bank accounts, UK enforcement agencies now have specific powers to freeze and recover cryptoassets. Crypto Wallet Freezing Orders ("CWFOs") were introduced by the Economic Crime and Corporate Transparency Act 2023 ("ECCTA"), which added sections 303Z20 to 303Z35 to POCA.

CWFOs allow enforcement agencies to apply to the magistrates’ court to freeze crypto wallets where there are reasonable grounds to suspect that cryptoassets held in the wallet are either recoverable property or intended for use in unlawful conduct.

These powers apply broadly to:

• Cryptoassets held in exchange accounts via exchange platforms

• Wallets controlled via private keys (including self-hosted wallets)

• Cryptoassets held by UK-connected custodians or service providers

A CWFO prohibits the making withdrawals or payments from the crypto wallet or using the crypto wallet in any way. CWFOs can be granted for a period of up to 3 years.

POCA also enables enforcement agencies to seize cryptoassets, including transferring into a crypto wallet controlled by the enforcement agency initially for a period of 48 hours, which can be extended for a period of up to 3 years by a magistrates' court.

Once assets are seized or frozen, enforcement agencies may apply for a forfeiture order, enabling the permanent forfeiture of cryptoassets without the need for a criminal conviction.

5. Can CWFOs be challenged?

As with AFOs, CWFOs can be challenged. This includes where:

• The reasonable grounds to suspect the cryptoassets are recoverable property are based on a misunderstanding of transactions

• Information is obtained through intelligence, rather than being evidence-based

• The assets derive from a legitimate source

• The length of the order sought is disproportionate

However, successful challenges typically require:

• Detailed blockchain transaction records

• Exchange account histories

• Evidence of lawful acquisition (e.g. trading gains, mining, or legitimate transfers)

• Clear explanations linking wallet addresses to the account holder

6. Specific risks for those living, studying, or doing business in the UK

Chinese may face a heightened risk of being subject to an AFO due to methods relied on to move funds internationally:

• Using informal money transfer channels such as "fei qian"

• Using Chinese messaging apps to arrange currency swaps

• Unconnected third-party deposits into their UK bank accounts

• Using online currency swaps and crypto payment platforms

• Currency swaps among friends or student communities in and outside of China

The inherent risks involved in these methods of moving funds is that they operate outside regulated financial institutions, transactions are not easily traced, they involve unknown third parties, they are at risk of being abused by organized crime groups, and it is almost impossible for anyone subject to an AFO to provide satisfactory financial evidence to enforcement agencies on the source of funds.

7. What steps can be taken to mitigate the risk of committing business crime?

There are steps that can be taken to reduce the risk of transactions being flagged as suspicious, or where such transactions are unavoidable, having documentation readily available to challenge any banking restriction quickly and effectively:

• Keeping detailed, translated documentation of any international transactions

• Avoiding large cash deposits and using regulated institutions for remittances

• Notifying your bank prior to any high-value transfer, providing information on source of funds

• Responding promptly to any queries from your bank

• Seek professional legal advice when the accounts are frozen or being asked to assist with any transactions

8. Conclusion

AFOs are powerful tools that can cause considerable inconvenience, not to mention financial and reputation harm. For Chinese living, studying, or investing in the UK, the risk could not arise from any wrongdoing but from cultural and financial practices that UK authorities may misinterpret under strict anti-money laundering rules. Understanding how AFOs work, the cultural practices that attract scrutiny, and the mechanisms for preventing, challenging, or revoking an AFO is therefore essential for protecting lawfully obtained wealth.

Howard Kennedy's Business Crime and Regulatory team has considerable experience representing clients subject to freezing and forfeiture orders and understanding of Chinese cultural and financial practices providing expert advice on law enforcement powers under criminal and civil POCA regimes to support Chinese living, studying, or doing business in the UK in a compliant manner.