Account Freezing Orders: what individuals and businesses need to know

Account Freezing Orders (“AFOs”) have become an increasingly common mechanism deployed by UK law enforcement agencies under the Proceeds of Crime Act 2002 (“POCA”) ¹ to temporarily freeze funds held by account holders with UK financial institutions (including payment service and e-money providers). An AFO is a court order that allows UK law enforcement agencies to investigate the provenance of the frozen funds and, if appropriate, seek to recover them on the basis that they were obtained from unlawful conduct or are intended for unlawful use.

AFOs can result in balances held by the account holder (the minimum amount of £1,000 ² and there is no maximum amount; in some cases, AFOs can affect upwards of tens of millions) to be frozen for prolonged periods of time. This can have a series of consequences such as impacting individuals’ access to crucial funds, or businesses’ ability to meet their operational costs.

It is important to note that whilst account holders may learn of AFOs when they receive a worrisome letter from the police, an AFO involves a civil recovery investigation and not a criminal one. However, failure to engage (or the wrong sort of response) can result in the funds being forfeited, and/or the opening of a criminal investigation. Both can have adverse consequences on the account holder subject to the AFO.

This article will outline, amongst other things, the background and decision making of the typical law enforcement agency applying for an AFO, as well as some practical considerations which may be of note for anyone affected by an AFO.

 

1. Background to an AFO

An AFO can arise when a UK financial institution (which may be a bank, a building society, or a payment service or e-money provider) detects unusual transactions or account activity, unexpected large cash deposits or potential fraud, leading to the bank temporarily freezing the affected account (and, sometimes, the holder’s other accounts with that financial institution). This is typically when the account holder first notices that they have restrictions, often through their online banking portal or mobile banking app, especially when they are unable to receive inbound or make outbound payments from their account.

In the background, the financial institution will typically submit a Suspicious Activity Report (“SAR”) to the National Crime Agency (“NCA”)’s UK Financial Intelligence Unit, which analyses and forwards the contents of the SAR to a local law enforcement agency (e.g. a local police force) (the “Investigating agency”). This may have a specific geographic connection to the account holder (via their registered details with the financial institution) or suspected victims of crime. Alternatively, the NCA may refer the matter to a specialist national agency (such as HMRC, where the issue relates to tax).

Once the investigating agency receives the allocated SAR, then they may begin to request further clarifications from the account holder as to the provenance of the funds in question. In conjunction, alternatively, or subsequently, it also may lead the agency to apply for an AFO under section 303Z1³ of POCA at their local magistrates’ court.

As outlined in section 303Z3 of POCA,⁴ an AFO can last for up to a period no greater than 2 years. In practice, however, it is common for an investigating agency to apply for an AFO up to a period of 6 – 12 months and have the AFO extended consequentially up to a period no greater than 2 years. This allows a law enforcement officer to undertake investigations to establish whether there is enough evidence to support their initial suspicion.

Unlike criminal investigations, these ‘frozen funds’ investigations are intrinsically linked to civil recovery proceedings (found under Part 5 of POCA) and need not involve an allegation against specific people (albeit these could arise). The standard of proof for forfeiture of the funds is the balance of probabilities (the likelihood being greater than 50%).⁵ For an AFO to be granted by the Magistrates’ Court, there need only be reasonable grounds for suspecting that the money is recoverable property⁶ (obtained through unlawful conduct) or intended to be used in unlawful conduct. Although in theory the burden of proof is on the applicant, in practice an AFO often shifts the burden onto the account holder to prove otherwise.

 

2. What to expect in practice

If the investigating agency contacts you first

After the investigating agency is allocated the SAR for further investigation, but prior to an application for an AFO, the agency may, in some circumstances, write to the account holder notifying them that the bank has blocked access to the account(s) and requesting further information (with documentary evidence) in support of why the funds do not derive from unlawful conduct. Even if the blocked account holder responds, the investigating agency may still apply for an AFO from the magistrates’ court to allow a further period of time to investigate the derivation of funds in the account to support the initial suspicion.

How the AFO court application works

The investigating agency can apply for an AFO without notice (ex parte) at the magistrates’ court in circumstances where notice of an AFO application would prejudice the agency’s application to forfeit the funds that they suspect is recoverable property.⁷ This effectively enables the agency to apply in secret to the magistrates’ court, ostensibly so that funds cannot be dissipated (i.e. moved, withdrawn or emptied) before the freeze takes effect. Whilst financial institutions often block suspected funds temporarily, agencies may not consider this sufficient.

However, it is more common for AFOs to be made on notice to the account holder. Should an AFO application be granted by the magistrates’ court, the investigating agency will provide a copy of the granted AFO to the account holder and their respective financial institution which will outline the amount held in the account and the relevant period for which the funds in the account will be frozen.

Within the AFO application, a section for the “Grounds for suspicion” includes the grounds the investigating agency may have in suspecting whether the funds held in the account are recoverable property (and/or intended for use in unlawful conduct). This part of the application should contain the most relevant information to aid understanding of why an AFO has been made against the account holder. In some instances, this part of the application can be enclosed as a separate supporting document, where the agency will outline their case in greater detail.

It is important to note that the investigating agency has a duty of candour where AFOs are obtained without the presence of the responding party or if the responding party was not represented in the subsequent hearing⁸ (which is often the case). The duty of candour is a common law duty requiring (in the context of AFOs) the investigating agency to place all relevant facts before the court when making an application for an AFO, even those that may undermine their application. In the instances where the account holder has engaged with the investigating agency’s enquiries and such information has not been put forward to the magistrates’ court, this may amount to a procedural errors by the investigating agency.

The immediate impact of AFOs on personal and business finances

Given the prolonged period of time which funds can be frozen for, an AFO can have severe consequences for individuals who do not have access to funds which they hold, or for businesses which can have an impact on their day-to-day trading activities, payroll and ability to make payments to suppliers, potentially threatening their operational viability.

The account holder may seek to vary the order pursuant to the exclusions set out in section 303Z5 of POCA.⁹ An exclusion may enable the account holder to meet their reasonable living expenses or to carry on any trade, business, profession or occupation which the AFO is having a severe impact on. Additionally, the exclusions may also be relied upon by the account holder to permit the payment of reasonable legal expenses, including those incurred as a result of the AFO.

Challenging an AFO

An application can be made by any person affected by the AFO to set it aside per section 303Z4¹⁰ of POCA which (if granted) effectively discharges the AFO. This typically requires evidence to be put forward by the account holder subject to the AFO of the legitimate provenance of funds. The investigating agency can make the application itself when the investigation determines that the frozen funds are not recoverable (and not intended for use in unlawful conduct).

Whilst the discharge of an AFO signals the conclusion of the matter, it is not uncommon for financial institutions to be slow and cautious when receiving set-aside orders, resulting in undue and prolonged continued restrictions of the account.

 

3. Broader consequences of an AFO

Account closure and ‘de-banking’

Even if an AFO is set aside, it is not uncommon for financial institutions to close the account holder’s account held with them (commonly referred to as ‘de-banking’), often as a result of a soured relationship between the account holder and the financial institution and/or a general inclination for “over-compliance” (due to the wide net of severe penalties and liabilities imposed by UK money laundering laws).

Cifas Marker

The Credit Industry Fraud Avoidance System (“Cifas”) is a fraud prevention membership organisation which manages the largest database of (alleged) fraudulent conduct which financial institutions sign up to, to share intelligence and information about individuals (and companies) they suspect of being involved in forms of financial crime (such as fraud and money laundering). Many, if not most, financial institutions are members of Cifas and can request that a ‘marker’ be added to its database, which could prevent the account holder opening bank accounts with other financial institutions.

You are generally able to find out whether there is a Cifas marker against you by making a Data Subject Access Request (“DSAR”) to Cifas: https://www.cifas.org.uk/dsar or with the financial institution itself.

However, there are general exceptions¹¹ under the Data Protection Act 2018, specifically the crime and taxation exception, which impacts the rights of a data subject’s access¹² to request copies of their personal data (in this case, by Cifas or a financial institution), to the extent that the applications of such provisions would likely prejudice, among other things, the prevention, investigation, or detection of crime.

It is important to note that information relayed by the financial institution to Cifas may be inaccurate should the financial institution have relied on inaccurate information as the basis for Cifas issuing a marker (or, arguably, may become so if the AFO is set aside).

Account Forfeiture Notices

In instances where the investigating agency is satisfied that there are reasonable grounds for suspecting that money held in an account with a bank is recoverable property (outlined above) or if the account holder has not engaged with the police enquiries, the investigating agency may apply for

an Account Forfeiture Notice (“AFN”)¹³ which allows them to forfeit money held with a financial institution (subject to there being no objections from any party within 30 days).

There are potential risks of objecting to an AFN, insofar as it results in a contested hearing that may have a personal or reputational risk associated with it. There are separate provisions, outlined in POCA, which detail the procedure in challenging an AFN.

Criminal investigation

Whilst AFOs are used as part of a civil recovery mechanism, they can also trigger or feed into a criminal investigation. This is because the grounds of which an AFO can be obtained for the purposes of civil recovery can be the same underlying suspicion to support a financial crime investigation.

 

4. Why AFOs are increasingly used

AFOs have become more commonly used by investigating agencies, in part due to the Home Office's Asset Recovery Incentivisation Scheme ("ARIS").¹⁴ ARIS is a scheme under which enforcement agencies more broadly receive a proportion of the value (e.g. funds) they recover through civil recovery and forfeiture mechanisms under POCA, including account forfeiture. In the case of AFOs, once the funds have been successfully forfeited, the lead agency involved in the matter can receive 50% of the forfeited funds (more than in criminal confiscation). Civil recovery proceedings are considered to be attractive for law enforcement:

• as a relatively quick and cost-effective process compared with full criminal and confiscation proceedings;
• (in the case of AFOs and other summary freezing provisions) because they require only a magistrates’ court order based on reasonable grounds for suspicion; and
• because any resulting forfeiture of the frozen funds (whether it be an administrative forfeiture by AFN or contested order) would feed into the ARIS revenue stream that funds the wider operational capability of an investigating agency.

 

5. Why early advice matters

AFOs serve as a critical and cost-effective tool in the wide armoury of powers available for investigating allegations of financial crime but can have a range of consequences on the account holder during the period of which the funds are frozen (and if they are subsequently forfeited). An AFO is a civil recovery tool, not a criminal charge or finding, but it can have immediate and serious practical and financial consequences. The threshold for obtaining one is low, and forfeiture can be granted if the magistrates’ courts are satisfied (that funds have been obtained through unlawful conduct or are intended to be used in unlawful activity) to the lower (civil) standard of proof in these proceedings. While the AFO is in force, individuals may lose access to money needed for living expenses and businesses may struggle to operate. Failing to engage can increase the risk of forfeiture, de-banking, a Cifas marker and a criminal investigation. Early, informed engagement with a specialist lawyer is critical to protecting both your funds and your reputation.

 

1. ^{Amendment brought by the Criminal Finances Act 2017}
2. ^{https://www.legislation.gov.uk/ukpga/2002/29/section/303Z8}
3. ^{https://www.legislation.gov.uk/ukpga/2002/29/section/303Z1}
4. ^{https://www.legislation.gov.uk/ukpga/2002/29/section/303Z3}
5. ^{As opposed to “beyond a reasonable doubt” as the standard of proof in general criminal proceedings.}
6. ^{https://www.legislation.gov.uk/ukpga/2002/29/section/30}
7. ^{https://www.legislation.gov.uk/ukpga/2002/29/part/5/chapter/3B/crossheading/freezing-of-bank-and-building-society-accounts}
8. ^{Re Stanford International Bank Ltd [2010] 3 W.L.R. 941 (in the context of a criminal confiscation, but the case makes clear the general principle of the duty of candour)}
9. ^{https://www.legislation.gov.uk/ukpga/2002/29/section/303Z5}
10. ^{https://www.legislation.gov.uk/ukpga/2002/29/section/303Z4}
11. ^{https://ico.org.uk/for-organisations/uk-gdpr-guidance-and-resources/exemptions/a-guide-to-the-data-protection-exemptions/}
12. ^{Article 15 of UK GDPR: https://www.legislation.gov.uk/eur/2016/679/article/1}
13. ^{https://www.legislation.gov.uk/ukpga/2002/29/part/5/chapter/3B/crossheading/account-forfeiture-notices-england-and-wales-and-northern-ireland and https://www.legislation.gov.uk/ukpga/2002/29/part/5/chapter/3B/crossheading/forfeiture-orders}
14. ^{https://www.gov.uk/government/statistics/asset-recovery-statistics-financial-years-ending-2019-to-2024/user-guide-to-asset-recovery-statistics}