The Criminal Finances Act 2017 has resulted in civil law proceedings dominating Proceeds of Crime law. In a blog, Andrew Katzen and Olivia Dwan analyse this trend, and ask what it means for practitioners and targeted individuals.
+++++
The past twenty five years have seen significant change to the way proceeds of crime law operates in England and Wales. Once dominated by criminal proceedings, this area of law is now primarily enforced using civil remedies.
The main drivers of this shift are the Proceeds of Crime Act 2002 and the Criminal Finances Act 2017, both of which introduced different tools to enable enforcement agencies to make use of civil powers in these matters.
But while enforcement agencies’ take up of their new powers under civil law was slow at first, it has recently gained speed, with Account Freezing Orders (AFOs) proving particularly popular.
This blog examines how civil powers have come to dominate the freezing and forfeiture of assets; sets out what this means for legal representatives working in the area; explores how clients can best position themselves to respond to AFOs; and does some crystal ball gazing for the future of this important area of law.
Civil powers in Proceeds of Crime
Civil enforcement first gained prominence in proceeds of crime recovery with the Proceeds of Crime Act 2002 (POCA 2002), which introduced both Civil Recovery Orders (CROs) and Cash Detention Orders (CDOs).
CROs enable law enforcement agencies to confiscate criminal property (including real as well as personal property) without first achieving a criminal conviction. Enforcement needs only show the relevant property is – on the balance of probabilities – ‘recoverable’ (meaning obtained through unlawful conduct).
Here, in a nutshell, is the attraction of civil proceedings for law enforcement agencies: in order to effect recovery they need only prove their case to the civil standard of proof, rather than the higher criminal one.
However, a major drawback with CROs has been that they are exercisable only in the High Court which has complex procedural requirements and a sophisticated judiciary. This may explain the relative dearth of CROs.
CDOs allow law enforcement to seize cash it suspects was obtained through unlawful conduct or intended for use in unlawful conduct; and apply for an order detaining it for up to two years whilst it is investigated. The cash could ultimately be forfeited.
CDO proceedings are to the balance of probabilities and are heard in the Magistrates Court.
How did POCA 2002 impact asset recovery?
POCA 2002’s impact was measured in a Home Office document produced in 2017.
The Asset Recovery Statistical Bulletin 2011/12 to 2016/17 provides a snapshot of asset recovery activity over the five financial years from 2011/12.
It shows how, over the five years in question, roughly 20% of recovered cash was done so using civil powers. This compares to the 80% of cash recovered using criminal proceedings (that is confiscation orders made following a criminal conviction)
The bulletin also shows how, over the five years in question, there had been a slight (and relatively steady) increase in amount of proceeds of crime recovered (from £170m recovered in 2011/12 to £201m in 2016/17).
Then came the Criminal Finances Act
Fifteen years after POCA 2002 came the Criminal Finance Act 2017, which introduced a range of new civil enforcement measures, the most significant of which being Unexplained Wealth Orders (UWOs) and Account Freezing Orders (AFOs).
UWOs require targeted individuals to explain the nature and extent of their interest in property above the value of £50,000. If no satisfactory explanation is provided, the enforcing agency can apply for Civil Recovery Order in respect of the relevant property.
UWOs can only be granted by the High Court. In order to obtain one, the agency must show it has reasonable grounds for suspecting property was obtained through unlawful conduct. UWOs are usually preceded by Interim Freezing Orders, to ensure that the relevant property cannot be disposed of before a final order is made.
AFOs stop withdrawals or payments from a specific bank account. They are designed to enable the authorities to investigate an account before ultimately applying for an Account Forfeiture Order to seize suspect money.
In order to obtain an AFO the enforcing agency must show a Magistrates’ Court that it has reasonable grounds to suspect that the funds in an account were obtained through unlawful conduct or are intended for use in unlawful conduct. The court can grant an order for up to two years.
AFOs may be obtained without notice, meaning the the first time an account holder realises their account has been targeted may be when their bank card stops working.
The impact of Criminal Finances Act 2017
The CFA 2017 had yet to receive Royal Assent at the time the Home Office’s first Asset Recovery Bulletin was published. But in September 2022, the Government department published its second bulletin, this time for the six years from 2016/17. The impact of CFA 2017 is obvious.
Two things stick out in the data. The first is that in 2021/22 – the most recent year for which data is available – proceeds of crime worth a total of £354m were recovered by law enforcement. This is over £150m more than was recovered five years prior.
The second stark difference between the two bulletins is the dramatic shift in the proportion of monies recovered using civil, as against criminal, powers.
The latest data shows a steady ramping up in the proportion (and amounts) of money recovered using civil powers over the six year in question. In 2017/18 enforcement recovered a total of £41m using civil powers. By 2021/22 this had quadrupled to £191m.
This exponential increase in the use of civil powers created an ‘inflection point’ in 2020/21 after which (and for the first time since records began) civil powers became the dominant method of recovering the proceeds of crime.
In the financial year 2021/22 – the most recent year for which data is available – a total of £191m was recovered using civil proceedings. This compares to £154m recovered using criminal proceedings.
We can see that the former dominance of criminal proceeds in POCA matters has been overturned. We are now in a POCA environment in which civil, rather than criminal, proceedings are enforcement’s preferred means of recovery.
How to respond to an AFO
When the CFA 2017 was passed into law, the media focussed its attention on UWOs, which gained the soubriquet ‘McMafia Orders’ after a then popular television programme about Russian criminality.
But UWOs have not lived up to their promise – something that is probably due to the exacting requirements of High Court litigation. Instead it is AFOs which have proven the much more popular means of recovery for law enforcement.
But just because AFOs are popular with law enforcement, it does not follow that they are effective.
The Home Office data shows how, in the most recent year for which data is available, law enforcement froze a total of £131m using AFOs. The same year’s data shows law enforcement recovering much less than this: a total of £115m.
It is unclear whether the two figures of £131m and £115m refer to monies in the same targeted accounts. But they indicate the existence of a £16m disparity between amount of money frozen, and amount eventually seized.
The data indicates that it is far from inevitable that someone whose accounts are frozen under an AFO will lose all the money in them. As lawyers who specialise in AFO matters, this has been our experience too.
Tactics are key to successfully resisting an AFO. Some will fight and successfully challenge the AFO or defeat an application for forfeiture. We know from experience that it is possible to resist an AFO in this way.
However, anyone considering a challenge to an AFO should be aware that the legal costs of doing so may not be recoverable, even in the event of victory. This fact means that, for some clients, there is a delicate financial equation to consider with the dilemma being: is it worth resisting?
In these cases, some form of negotiation with law enforcement may be a more cost effective solution. Doing thiscan result in a proportion of the frozen money being released to its owner more swiftly – and more economically – that through litigation.
An expert legal team can also help clients make tactical decisions on issues which can prove crucial in these matters, such as when to fight a freezing order, and whether challenge its length.
What next for POCA?
Proceeds of crime law is different now to 25 years ago. Not only is more money being recovered; but the field is dominated by civil powers in a way it wasn’t before POCA 2002 came into force.
The attraction of civil powers such as AFOs and CDOs to law enforcement should be obvious: they are an easier (and therefore cheaper) means to effect cash recovery than criminal prosecution. For this reason alone we should expect enforcement agencies to make even greater use of their relatively new civil powers.
Of the new civil tools, AFOs (and the forfeiture orders which can follow them) have proved the most popular with law enforcement.
We should expect the exponential growth in AFO usage to continue. But even as it does, it remains far from inevitable that someone whose account is frozen will lose all the money in it.
There is a significant gap in amounts of money frozen, and the amounts that are eventually seized. Individuals targeted with these orders should seek expert legal advice to help them successfully navigate what can be a complex area of law.
