Industry must be clear on AFOs

Industry must be clear on AFOs

Since January 31 2018, UK law enforcement has had a number of new powers at its disposal, introduced into the Proceeds of Crime Act 2002 by the Criminal Finances Act 2017.

These provide UK law enforcement with potentially ground-breaking new powers to freeze and recover the alleged proceeds of crime.

While there has been significant focus on unexplained wealth orders, lesser known provisions, which involve the freezing and forfeiture of money held in bank and building society accounts, will most likely prove of most relevance and concern to financial institutions and bank account holders.

Article continues after advert

This also signals a change in approach by UK law enforcement, with civil recovery set to become the new norm.

These new powers were introduced to counter a number of obstacles that UK law enforcement faced in recovering funds held in ‘suspicious’ accounts, where the funds were either alleged to be derived from, or intended for use in, unlawful activity.

Although financial institutions can administratively suspend and/or close suspicious or high-risk accounts, the subsequent freezing and forfeiture of these funds by law enforcement was not straightforward.

In criminal cases, this required the prosecution to succeed in persuading a Crown Court to restrain the assets and, after a successful criminal prosecution, secure a confiscation order. In civil recovery, this was dependent on the enforcement authority commencing civil recovery proceedings in the High Court and the value in the accounts being above £10,000.

Regulatory burden to increase

So, what does this mean for financial institutions?

While the new provisions are modelled on the cash seizure regime, they arguably go much further and will increase the regulatory burden faced by financial institutions.

The new provisions allow an officer – for example an Serious Fraud Office officer or an accredited financial investigator – to apply for an account freezing order from a Magistrates’ Court if they have reasonable grounds to suspect that the funds in an account maintained by a bank or building society are recoverable property: either obtained by unlawful conduct or intended for use in unlawful conduct.  

The account must hold at least £1,000. A ‘bank’ is defined as an ‘authorised deposit taker’ – that is, a person with permission under the Financial Services and Markets Act 2000 to accept deposits – otherthan a building society, thathas its head office or a branch in the UK.  

However, the new legislation is unclear as to whether the account to be frozen must in fact be maintained by a UK branch. 

The application for the AFO must be made by a senior officer at a Magistrates’ Court and can be made without notice in circumstances where this would prejudice the forfeiture of the funds. This would appear to provide law enforcement with a wide discretion as to whether to inform the account holder in advance of the application being made.