I’m frozen! The rise of the Magistrates’ Court freezing order
Having had a slow uptake by Public Authorities, in the last six months account freezing orders (“AFO”) have started to come in thick and fast. The main culprits for this rise; HMRC, the SFO and NCA of course.
The much-feared Criminal Finances Act 2017 amended the Proceeds of Crime Act 2002 (“POCA”) to insert Chapter 3B entitled, “Forfeiture of money held in bank and building society accounts” into Part 5 of POCA. The Application for an AFO is made pursuant to ss303Z1. It can be made by an “enforcement officer” (if they are a Senior Officer, or authorised officer) where the officer has reasonable grounds for suspecting that money held in the account is recoverable property or intended for use in unlawful conduct.
However, the test to make an Application for an AFO is found in ss303Z3(2) of POCA. It relevantly states:
(2) The relevant court may make the order if satisfied that there are reasonable grounds for suspecting that money held in the account (whether all or part of the credit balance of the account)—
(a) is recoverable property, or
(b) is intended by any person for use in unlawful conduct.
“Recoverable Property” is the heading for Chapter 4, Part 5 of POCA. Section 304 of POCA defines it as:
(1) Property obtained through unlawful conduct …
That phrase is then further refined by reference to ss242 of the POCA as follows:
242 “Property obtained through unlawful conduct”
(1) A person obtains property through unlawful conduct (whether his own conduct or another’s) if he obtains property by or in return for the conduct.
(2) In deciding whether any property was obtained through unlawful conduct—
(a) it is immaterial whether or not any money, goods or services were provided in order to put the person in question in a position to carry out the conduct,
(b) it is not necessary to show that the conduct was of a particular kind if it is shown that the property was obtained through conduct of one of a number of kinds, each of which would have been unlawful conduct.
Unlawful Conduct is also a further refined phrase pursuant to ss241(1) of POCA as, “(1) Conduct occurring in any part of the United Kingdom is unlawful conduct if it is unlawful under the criminal law of that part.” Importantly, the Court when considering “Unlawful Conduct” must decide, pursuant to ss241(3) of POCA, on the balance of probabilities whether it is proved that, “any matters alleged to constitute unlawful conduct have occurred” or whether it is proved, “any person intended to use any [property] in unlawful conduct”.
An “account is operated”, for the purposes of ss303Z1(3)(b) if the person is an account holder, signatory or beneficiary.
What rules govern AFOs?
It is little known that the Magistrates Court introduced a raft of rules which surround both AFOs and cash forfeitures (the previously existing provisions). The rules that govern AFOs are found in The Magistrates’ Courts (Freezing and Forfeiture of Money in Bank and Building Society Accounts) Rules 2017 (“the Rules”). These can be an important procedural tool when faced with AFOs. This is because AFOs are civil in nature. Accordingly, there are strict compliance obligations imposed on parties to the litigation in respect of rules, practice directions and directions of the Court. Any technical breach can have disastrous consequences for unaware Public Bodies, providing a small ray of hope for those who find their accounts in the freezer.
By way of example if the Public Body has to give notice, and purports to do so by electronic communication (see Rule 11), it may be ineffective notice if the intended recipient had not previously indicated in writing to the person giving the document that they are willing to accept service of documents for the purposes of the rules by electronic means. They must also first ask the intended recipient whether there are any size limitations to their agreement to accept by service (for example the format that documents are received in, or the number of pages of the document). Furthermore, sending documents electronically will be deemed to be received the following day if sent after 4.30pm.
One can well imagine a situation where a Public Body, unaware of these requirements (as, from anecdotal evidence, is known to have happened) has left notification of a hearing and service of various documents until the day before the expiration of the AFO and then serving the relevant information by email, without consent, after 4.30pm. This type of procedural non-compliance can, and should, result in technical arguments that the Magistrates’ Court should not remedy the Public Bodies failures and the AFO be lifted. Such an approach is consistent with Court of Appeal (Civil Division) and Supreme Court authority (see for example Barton -v- Wright Hassall LLP  UKSC 12 and BPP Holdings Ltd -v- Revenue and Customs Commissioners  UKSC 55).
AFOs have a familiar feel, mirroring the already well utilised cash forfeiture provisions. In 2018, after their introduction, no funds were seized using the new powers, although bank accounts were frozen. In 2019 this trend has changed dramatically. The Asset Recovery Statistical Bulletin, published by the Home Office in September 2019, suggests that AFOs have been used to cover in excess of 650 bank accounts and covering £110M.
Most recently hundreds of thousands of pounds have been frozen by HMRC in connection with various revenue based criminal offences. The effect of this is that even before a conviction in a Criminal Court (and even if ultimately acquitted) for any revenue offence, if the Commissioners can satisfy the legal test, the amounts will be forfeited (having already been frozen). This sudden uptick in AFOs is extremely concerning given that the safeguards ordinarily in place for Defendants in criminal trials simply do not exist (hearsay being admissible without Application needing to be made to adduce it and a lower standard of proof to name but two matters).
Another matter of significance is that freezing injunctions, typically associated with High Court proceedings with a very serious degree of scrutiny, have been transformed into, what appear to be much easier to obtain, AFOs which have a much lesser degree of scrutiny. This is because the Applications can, and are on occasion, placed before lay-people sitting in the Magistrates’ Court, without detailed legal knowledge and assisted only by Legal Advisors who had, certainly up until relatively recently, not had to deal with Applications of this sort. It may also be asked whether those same Magistrates, charged with considering the legal test and failing to receive much by way of legal training, do not feel some pressure to make the order when faced with an officer requesting a AFO over sums in the hundreds of thousands or tens of millions of pounds.
This is a rather dangerous path and questions must be asked as to how it could be that the jurisdiction to grant freezing injunctions, typically reserved for senior judicial members, has now effectively been passed to lay-people in a Magistrates’ Court with limited legal training.
Clients should seek early advice if an AFO is granted over their account so that a strategy can be prepared early on to resolve the issue. AFOs can be varied or set aside after making pursuant to ss303Z4 and rule 4 of the Rules.
Joshua Carey is an experienced tax lawyer with significant experience in tax related litigation including business crime (tax frauds in particular). He also has significant experience at trial in Cash Forfeiture and AFOs before the Magistrates Court.