Introduction

POCA aims to deprive criminals of the financial benefits of their illicit activities.  AFOs are a key mechanism within this framework, enabling the state to freeze and subsequently confiscate property derived from criminal conduct. It is important to note that the AFO regime, although dealt with in the Magistrates Court, is a civil law mechanism.  Applications are often made by agencies on a fairly trigger-happy basis, often on the basis that they do not understand a company’s business model or are suspicious of a particular movement of funds which can be easily explained. In this article I will look at the legal foundation upon which orders can be made and how such applications can be practically resisted.

The Legal Framework

Account freezing orders were introduced into POCA by the Criminal Finances Act 2017 and are contained within Part 5 of the Act, which deals with civil recovery. The power to make an account freezing order is found in section 303Z3 POCA. The application is made to the Magistrates Court by an enforcement authority, typically the National Crime Agency, HMRC, the police or the Serious Fraud Office. 
 
The statutory test for initially freezing the funds is whether there are reasonable grounds for suspecting that money held in a bank or building society account is recoverable property, or is intended by any person for use in unlawful conduct. “Recoverable property” takes its meaning from s304 POCA and, in short, refers to property obtained through unlawful conduct. The test is one of reasonable suspicion, not proof, and the court is not required at this stage to determine whether the funds are in fact criminal. The order may be made ex parte (without notice), and may last for up to two years in total. It has the effect of prohibiting withdrawals or dealings with the account subject to such exceptions as the court allows.
 
The statutory framework anticipates that an account freezing order is an interim, investigative measure. While it is in place the enforcement authority is expected to pursue enquiries to determine whether the funds are properly recoverable. POCA expressly allows for variation of the order to permit reasonable living expenses, legal costs, or the carrying on of a trade or business, provided that such variation does not undermine the purpose of the order. The court’s role throughout is supervisory, ensuring that the freezing of funds remains proportionate and justified in light of the ongoing investigation.
 
Following the freezing of the funds the enforcement authority may seek to permanently deprive the account holder of the frozen funds by applying for a forfeiture under section 303Z14 POCA. The forfeiture application is also made in the Magistrates Court but the statutory test is materially different and significantly higher. The court must be satisfied, on the balance of probabilities, that the money is recoverable property or is intended to be used in unlawful conduct. Unlike the freezing stage, mere suspicion is insufficient. The court must make a substantive finding, based on the evidence, that the statutory definition is met.
 
Taken together, the statutory scheme reflects a deliberate two-stage process. The freezing power under section 303Z3 is designed to act quickly on reasonable suspicion to prevent dissipation of funds, while the forfeiture power under section 303Z14 requires the enforcement authority to cross the evidential threshold necessary to justify permanent deprivation of property. Below I will look at the evidential considerations and defences that can be deployed in respect of resisting either type of application.

Evidential Considerations

As outlined above the prosecution must establish the necessary link between the property and the alleged criminal activity.  This often involves complex financial investigations and the presentation of evidence relating to the respondent's funds.  Respondents can factually challenge the applicant's evidence through cross-examination, expert testimony, and the presentation of their own evidence.  Critically, they can challenge the reliability and credibility of the prosecution's financial investigations. Often in challenging applications I will pursue a dual strategy of outlining why the funds are legitimate from the point of view of the respondent while simultaneously supporting this with objective independent evidence from third parties and experts such as tax experts and forensic accountants. Each AFO case is unique and legal advice should be sought on the specific evidential considerations that apply to the factual matrix of the particular case before the Court.

Key Defences

There can be no definitive list of challenges to AFO applications but the below are general thematic defences that can often be used to successful challenge applications.

Challenging whether the funds are recoverable property  

A fundamental defence is to argue that the property in question was not obtained through unlawful conduct. This might involve demonstrating legitimate sources of income, legitimate business activity, inheritance, or gifts.  A clear evidential trial of documentary exhibits and witness testimony is crucial in supporting this defence.  For example, the respondent might provide evidence of legitimate business activities that explain the source of the frozen funds.

Severing the Link between Property and Criminality  

Even if the respondent has criminal convictions or association, they can argue that the specific property targeted by the AFO was not derived from crime.  This requires meticulously examining the prosecution's evidence and demonstrating alternative, lawful explanations for the acquisition of the specific funds that are sought to be frozen.  The timing of the acquisition fo the funds, an audit trial of the funds, and any legitimate transactions surrounding it are all relevant factors.

Challenging the reasonableness of suspicion

The initial freezing of the funds is undertaken on the basis of suspicion on behalf of the applicant. This suspicion must be reasonably held. It is open for a respondent to challenge whether a suspicion is properly and reasonably held. If the suspicion is based on unreasonable supposition or is fanciful or improperly held then the order can be challenged or set aside under s303Z8.

Proportionality Arguments

Even if the link between the property and criminal activity is established, respondents can argue that the AFO is disproportionate in all the circumstances.  This involves considering the impact of the AFO on the respondent and their family.  Article 1 of Protocol 1 of the European Convention on Human Rights (ECHR)  protects the right to peaceful enjoyment of property, and disproportionate AFOs can breach this right.  Arguments based on proportionality often involve demonstrating the hardship that would be caused by the forfeiture.

Procedural Irregularities

Defects in the application process, such as failures to provide adequate notice, disclose relevant evidence, or comply with procedural rules, can form the basis of a defence. This can be particularly effective if it can be shown that the applicant has not compiled with their duty of candour to the Court or has materially misled the Court.

Innocent Third-Party Interests

POCA recognises the rights of innocent third parties who may have an interest in the property subject to an AFO.  A person who acquired an interest in the property in good faith and for valuable consideration without knowledge of the unlawful activity can apply to the court to exclude their interest from the AFO.  This defence requires demonstrating a legitimate and untainted interest in the property.

The Practical Implications of challenge

Successfully deploying a defence against an AFO inevitably requires significant work. It is often advisable to seek specialist legal representation to maximise the chances of success.  The complexity of financial investigations and the civil standard of proof can make it a challenge for respondents to effectively challenge the prosecution's case.  It is therefore essential to ensure that any response to such applications or any applications to set aside such orders are supported by plausible evidence and properly drafted pleadings.

Conclusion

AFOs are a powerful tool for criminal investigators, but I have found that they are not always applied fairly and proportionately.  The defences outlined in this article can be deployed to ensure that AFOs are not used to unjustly deprive individuals and companies of their funds.  Continued scrutiny of the application of POCA and robust legal representation for respondents are essential to maintaining the balance between effective asset recovery and the protection of funds that are legitimately held. 
 
Quentin Hunt is a specialist Account Freezing Order Barrister who has been dealing with AFO cases since the inception of the legislation. He accepts instructions both through solicitors and directly from members of the public or companies. 
 
If you face AFO proceedings you may require specialist legal assistance. You can contact Quentin for a free, no obligation conversation about how he can assist in your case.