Earlier this week in an article about Anti Money-Laundering risk in the property sector I broke down the figures from the National Crime Agency’s Financial Investigation Unit (NCA) (FIU) report into Suspicious Activity Reports and Defence Against Money-Laundering (DAML) requests for the period 2018/19.
In highlighting that £55m of the £131m restrained/seized/frozen by UK law enforcement after DAML requests had come as a result of Account Freezing Orders (AFOs), I commented:
‘The FIU report is the first one where the provisions of the Criminal Finances Act 2017 have had a significant impact on the headline figures’.
Two days later the NCA announced it had accepted a settlement offer of £190m with a Pakistani national following the imposition of nine AFOs. Breaking down the 2019/20 report in a future post will be very interesting
NCA’s £190m settlement following nine AFOs
What originally caught the eye about the £190m settlement agreed was that it included the proceeds of the sale of a London property worth £50m.
Also of note were the public responses of the NCA and the individual who agreed to the settlement: the NCA acknowledged the existence of an investigation and a settlement; and the individual acknowledged the existence of a settlement with NCA but stressed its civil nature and the lack of any finding of guilt.
But why did the NCA choose the AFO option here over a restraint order under s41 of the Proceeds of Crime Act 2002 (‘POCA’)? A restraint order could have encompassed the property (although not forced its sale) whereas an AFO could not (because housing in not defined as property for AFOs).
The key to understanding its choice is the missing word in the NCA statement: ‘criminal’.
AFO vs s40 POCA Restraint order
The grant of a restraint order under s41 POCA against an individual is dependent on there being:
- a criminal investigation opened;
- reasonable grounds to suspect the individual has benefitted from criminal conduct ; and
- adherence by the applicant to the duty of full and frank disclosure (i.e. the UK law enforcement agency must put forward any evidence that weighs against the imposition of restraint order)
To obtain an AFO all that UK law enforcement has to do is show a magistrate that it has:
- reasonable grounds to suspect that funds (over £1,000) held in a bank account are the proceeds of unlawful conduct.
AFO – the NCA’s weapon of choice
It is unsurprising then that the AFO has seemingly become the favoured option for the NCA: no need to formally open a criminal investigation, nor show the subject of the AFO benefitted from criminal conduct; and with the settlement that followed (in other instances it will be through a Forfeiture Order) no need to have to charge an individual with a criminal offence, have a contested trial and conduct confiscation proceedings.
But doesn’t the principle of full and frank disclosure apply to AFOs?
The short answer is yes: because AFOs are ex parte civil orders, the duty of full and frank disclosure applies, just as it does for s41 POCA Restraint Orders.
The duty was pithily summarised by Hughes LJ at para. 191 in Re Stanford International Bank Ltd (in Receivership)  3 WLR 941:
‘…In effect a prosecutor seeking an ex parte order must put on his defence hat and ask himself what, if he were representing the defendant or a third party with a relevant interest, he would be saying to the judge, and, having answered that question, that is what he must tell the judge.’
Unfortunately the idea that UK law enforcement are being sufficiently scrutinised by magistrates when they apply for AFOs and meeting the standard set out by Hughes LJ appears unlikely.
This negative conclusion is based upon the continued failure of UK law enforcement to adhere to this duty in ex parte applications under a wide range of mature statutory regimes – see Re Stanford (SFO and civil freezing orders) Golfrate (Metropolitan Police and PACE search warrants); Chatwani (NCA and PACE search warrants); Tchenquiz (SFO and CJA 1987 search warrants) and Newcastle United (HMRC and PACE search warrants). The same can be said for private prosecutors – see Zinga (Metropolitan Police & Virgin Media and PACE search warrants).
An approach to challenging an AFO: demand the application, a record of the hearing and the judgment
s3(3) of The Magistrates’ Courts (Freezing and Forfeiture of Money in Bank and Building Society Accounts) Rules 2017 entitles those subject to AFOs to be in receipt of the application.
In practice this will almost always be post-hearing because of the likelihood that the applicant UK law enforcement agency will have chosen to make its application ex parte. But being able to scrutinise the application for proper adherence by the applicant to the duty of full and frank disclosure is essential for any challenge (either variation or set aside) under s303Z4 (1) POCA.
Encompassed in that scrutiny should be a demand for a full note of the hearing. It being a civil ex parte application the guidance of Pumfrey J in Cinpres Gas Injection v Melea Ltd  EWHC 3180 (Pat) applies:
‘…the defendant must know if it is not present at the hearing what case it has to meet. There should therefore be a full note and the normal practice is to enforce this desirable state of affairs by requiring the party obtaining interim relief without notice to give undertakings to reduce the allegations made before the judge into a witness statement to be served as soon as practicable upon the respondent.’
Recent criticism of court decision making in ex parte applications (Tchenguiz and Newcastle United in particular) has also focused on the poverty of detail in judicial recording. It must be right that those whose financial affairs are interfered with in such a heavy handed way, by an applicant satisfying a very low threshold, should be in a position to understand the basis on which a court decided to grant an AFO and in the absence of a proper judicial record challenge its validity.