The Criminal Finances Act 2017 continues to bite…

The Criminal Finances Act 2017 (the “Act”) created significant new tools for UK investigators, as well as strengthening and expanding existing powers.¹ Whilst commentators have focussed principally on the introduction of Unexplained Wealth Orders (“UWOs”), there has been less coverage on the new powers that the Act inserted into the civil recovery regime.² The civil recovery regime is used to investigate and, where appropriate, seize and forfeit money and assets which are believed to have been obtained through unlawful conduct (“Recoverable Property”).

Chapter 3 of the Act and the new civil recovery powers

Prior to the implementation of the Act, investigators had limited powers under the Proceeds of Crime Act 2002 to freeze high value assets including jewels and precious metals, real estate, and cash in bank accounts, if they suspected those assets were Recoverable Property. In order to recover that property, the burden was on the investigator to prove on the balance of probabilities (i.e., that it was more likely than not), that the property was obtained through unlawful conduct.

Investigators had additional powers in relation to physical cash over the value of £1,000 which allowed them to seize the cash if they believed it was obtained through, or intended for use in unlawful conduct. Investigators could apply to court to forfeit the cash, and whilst the legal burden remained upon the investigator, the inherent suspicion surrounding possession of a significant amount of unexplained cash effectively placed an evidential burden on the owner to prove that the money was lawfully obtained.

Chapter 3 of the Act introduced new civil forfeiture powers similar to the cash forfeiture powers for a much broader range of property:

1. The meaning of “cash” for the purpose of the cash forfeiture powers was expanded to include gaming vouchers, fixed-value casino tokens and betting receipts.⁴

2. Civil forfeiture powers were introduced for “listed assets”, which are defined as:

a. Precious metals;

b. Precious stones;

c. Watches;

d. Artistic works;

e. Face-value vouchers; and

f. Postage stamps.⁵

3. Civil forfeiture powers were introduced for money held in building society or bank accounts where the balance in the account exceeds £1,000.⁶

1. Detention

If an investigator has reasonable grounds to suspect that a Listed Asset (or multiple Listed Assets) are either Recoverable Property or intended for use in unlawful conduct, then it may seize the assets provided their aggregate value is over £1,000. The investigator can detain the Listed Assets for up to 48 hours.  After that, court authorisation is required to continue to detain the Listed Assets for up to two years whilst their provenance is investigated; a decision is made whether to bring charges; or until any related criminal proceedings have concluded. 

The person from whom the property was seized can apply to the court for the release of the property, but they must satisfy the court that the conditions of detention no longer apply.

2. Forfeiture Orders

If, having concluded their investigation into the property, the investigator is satisfied that the Listed Assets are either Recoverable Property or intended for use in unlawful conduct, they can apply to the court to forfeit the property on that basis. Although it is not specifically articulated in the Act, the presumption is that if an investigator fails to apply to the court for a forfeiture order before the expiration of the maximum period of detention (2 years), the investigator’s power to detain the property lapses and the property must be returned to the person from whom it was seized, subject to any application from any other person with a claim to the property.  

Money in Bank Accounts

1. Account Freezing Orders

If an investigator has reasonable grounds to suspect that money held in a bank account (or building society) is Recoverable Property or intended for use in unlawful conduct, they may apply to court to freeze the bank account, provided the balance in the account exceeds £1,000. The investigator can apply without notifying the account owner if they believe that notification would prejudice any subsequent application to forfeit the money. If the court is satisfied that there are reasonable grounds to suspect that the money in the account is Recoverable Property or intended for use in unlawful conduct the court can freeze the account for up to 2 years. 

At any time the investigator or any person affected by the account freezing order can apply to court to vary the order (for example to allow the account holder to make withdrawals from the account to meet reasonable living expenses) or to set the order aside. 

2. Account Forfeiture Notices

If, having investigated the funds, the investigator is satisfied that the money is either Recoverable Property or intended for use in unlawful conduct, they may give a notice for the purpose of forfeiting the money (“Account Forfeiture Notice”), allowing a period of no less than 30 days for any party to object to the forfeiture of the funds in the account.  If no objection is made within the objection period then the money is forfeited. Any person affected by the automatic forfeiture of money pursuant to an Account Forfeiture Notice can apply to the court to set aside the forfeiture, but they must satisfy the court that the money is neither Recoverable Property nor intended for use in unlawful conduct.

Alternatively, if any party does file an objection, then the investigator has 48 hours from receipt of the objection to either apply to court to extend the account freezing order, or apply to court for an account forfeiture order, failing which the account freezing order lapses and ceases to have effect. 

3. Account Forfeiture Orders

An investigator can apply to court for an Account Forfeiture Order at any time during which an Account Freezing Order is in place. The court may make an Account Forfeiture Order if it is satisfied that the money is either Recoverable Property or intended for use in unlawful conduct. Any party to those proceedings who is affected by the court’s decision can appeal, provided they do so within 30 days of the court’s decision. 

In the event that the court makes an Account Freezing Order but the money is subsequently released without forfeiture, there are provisions allowing the person by or for whom the account is operated to claim compensation if they have suffered loss as a result of the Account Freezing Order.

SFO v Afzal and Others

In this case, the SFO launched a criminal investigation in 2006 into a suspected mortgage fraud, which culminated in the indictment of two individuals, Saghir Afzal (“SA”) and Ian McGarry (“IM”), for various offences. A third individual, Nasir Afzal (“NA”) absconded to Pakistan and a warrant remains outstanding for his arrest. In 2010 and 2011, IM and SA pleaded guilty to fraud and, following their convictions, the court made confiscation orders against them. IM paid his confiscation order in full. SA failed to pay his confiscation order was sentenced to an additional 10 years imprisonment in default.

In March 2019, years after SA and IM had been convicted, the SFO successfully applied to the court to forfeit £1.52 million in bank accounts which the SFO said constituted the proceeds of the sale of two Birmingham properties bought by NA with the proceeds of the fraud. Earlier this month, the SFO obtained a forfeiture order for £500,000 worth of jewellery bought by NA for his former partner, originally seized from her safety deposit box in September 2015. The forfeiture order was made with the agreement of NA’s former partner.⁷

Conclusions

The Afzal case shows that, despite the obstacles some investigators have encountered whilst flexing their new UWO powers,⁸ the suite of investigation powers that the Act introduced continue to prove powerful tools in the effort to recover the proceeds of unlawful conduct. The case offers a clear example of how investigators can and do use the various investigatory tools in their armoury to deprive individuals of the suspected proceeds of their unlawful conduct, even in circumstances where they are unable to prosecute.

It also offers up a warning. If as a High Net Worth individual (or a trustee) you are unable to demonstrate the legal provenance of your high value assets then, irrespective of any criminal prosecution, you could find yourself litigating in the courts to keep them.

How Dechert can help

If you are concerned that your assets may be vulnerable to seizure then please contact one of our experts. Dechert has extensive criminal and civil litigation experience and regularly advises individuals and corporates in the context of complex and high-value regulatory and criminal investigations.

Dechert can:

• Assist with proving the legal provenance of high value assets;
• Advise and represent parties with any interest or involvement in civil recovery proceedings; and
• Assist with managing any adverse publicity.
   

If you have any questions or you want to discuss the issues in this alert with one of our experts, please contact Caroline Black on 020 7184 7543; Timothy Bowden on 020 7184 7598, or Laura Manson on 020 7184 7861.

Footnotes