A short guide to Account Freezing Orders
Our Regulatory team provide a short guide to Account Freezing Orders.
What is an Account Freezing Order?
An Account Freezing Order (AFO) is a civil injunction order, the effect of which is to freeze a specified amount of funds held in a bank or building society account, prohibiting the account holder, beneficiary or signatory from making withdrawals from or payments to that account for a specified duration of up to two years.
If an enforcement agency (such as HMRC, the Serious Fraud Office or the police) suspects that a business or individual bank account has been or is actively being used in the course of unlawful conduct, an AFO is a tool that can be utilised to temporarily prohibit the flow of money through that account while investigations are ongoing to establish the legitimacy of the funds.
The account may pertain to a business or individual and may only have a minimum of £1,000 in credit balance. An AFO may only be applied for by an enforcement officer of appropriate seniority within the relevant enforcement agency. The application must demonstrate reasonable grounds to suspect that the funds in the account are either:
- recoverable property (funds that were obtained through unlawful conduct)
- intended for use in unlawful conduct.
How is an Account Freezing Order made?
An application is made to the Magistrates’ Court (with or without notice to the affected parties) using a prescribed form and supporting information setting out the grounds for suspicion, the amount to be frozen, the duration of the order, any exclusions from the order and whether the funds are suspected of being a) recoverable property or b) intended for use in unlawful conduct.
The application and notice of the hearing will be served on interested parties, e.g. the bank, the company and the individual (such as the company director).
The order can be opposed at the time of the application; however, since applications are usually made without notice, most account holders will have to apply to set aside the order after it has been imposed.
The court will hear the application and will only grant the order if a) or b) above are met. There is a low threshold for ‘reasonable suspicion’; therefore, these orders are usually granted. An order may initially be for a short duration (three to six months) but can be extended for up to two years.
What happens while an Account Freezing Order is in force?
The enforcement agency will carry out a ‘frozen funds’ investigation to gather evidence and conduct enquiries to establish the origin and destination of the funds. The account holder will be asked to provide such evidence as required so the enforcement agency may determine if such suspicions are founded (and therefore may be liable to forfeiture (see our later article Part 2 relating to account forfeiture) or if there should be a wider criminal investigation, or if the suspicion is, in fact, unfounded, in which case the order may be set aside.
It is generally within the interests of the account holder to provide such information to the relevant enforcement agency to support the legitimacy of their funds and to, therefore, expedite the conclusion of the investigation and the (hopeful) subsequent setting aside of the AFO.
Application to vary or set aside the order
Such a frozen funds investigation may ensue for many months, in which time the business may suffer as the account holder will be unable to access the account to pay outgoings and any payments into the account will be blocked. Early in proceedings, an account holder may choose to take the following action:
a) apply to have the order set aside
The account holder (or anyone affected by the order) may apply to have the order set aside, yet this is difficult to argue in the first instance as the application will have to refute the enforcement agency’s claims that there are reasonable grounds for suspicion that the funds are recoverable or intended for use in unlawful conduct. Since the AFO will have already been granted by the court, this will be hard to make out, particularly if there is an ongoing investigation, as the investigation itself will provide the opportunity to supply such evidence of legitimacy of funds.
b) apply to vary the order
The more common course of action at this time is to apply for a variation of the AFO. The legislation allows for certain funds to be excluded from the order for two main purposes:
- to meet the person’s reasonable living expenses, or
- to carry on any trade, business, profession or occupation
- to enable the person to meet reasonable legal expenses that they have incurred and/or may yet incur during the course of proceedings (legal aid is not available in these matters).
An application to vary the order must stipulate in full the reasons for requiring such an exclusion from the order and may include the following information: business continuity, financial history, sources of income (the variation is unlikely to be granted if there is another source of income which can be drawn down), anticipated income, liabilities (what needs to be imminently paid), consequences for inability to trade, a breakdown of legal costs and a final calculation of the amount requested to be excluded from the order.
To save both parties and the court time and costs, the application to vary can be initially agreed between the parties to avoid opposition to the application. If and when an agreement to the variation is met, the account holder may then apply to the court for the variation with a signed Consent Agreement (of the agreed amount) for the order to be varied.
The court will then hear this application; if there is a prior agreement, it would be unlikely for the court to refuse such an application. If granted, the enforcement agency will have to arrange for the agreed amount to be excluded from the AFO and the funds to be made available to the account holder without delay.
The frozen funds investigation will continue following an application to vary (if one has been made) and may conclude in the following manner:
- The enforcement agency may determine that there is insufficient evidence that the funds are recoverable property or are intended for use in unlawful conduct; if so, they will apply to set aside the AFO to unfreeze the account.
- However, if there is sufficient evidence of criminal conduct the enforcement agency may apply for all or part of funds to be forfeited by way of:
- Account Forfeiture Notice, or
- Account Forfeiture Order.
The relevant legislation which governs the procedure regarding Account Freezing Orders can be found under s303Z1 – 8 of the Proceeds of Crime Act 2002, as amended by Chapter 3B Criminal Finances Act 2017.
Contact our regulatory law solicitors today
If you have any questions regarding any of the issues raised in this article, please do not hesitate to contact our specialist Regulatory Law team by using our online enquiry form or by calling 0330 191 5713.
The article above is Part 1 – A short guide to Account Freezing Orders.
Account Forfeiture Notices and Forfeiture Orders will be explored in our later article: ‘Part 2 – A short guide to Account Forfeiture.’
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