Britain’s so-called “McMafia” laws, unveiled by Security Minister Ben Wallace last year, are an important and overdue step in ensuring the UK does not further develop its reputation as a dirty money hub.

Britain in general, and the London property market in particular, has long been a favorite of the world’s super-rich. Seen as a safe haven for their capital as well as a sound investment, foreign money has ensured that British property owners continue to benefit from a rising market.

Some of these investors, however, have been Politically Exposed Persons, or close relatives or associates of those individuals. This has raised the possibility of Britain’s relatively open economy being used to launder the proceeds of political corruption, or even organized crime. Historically, London’s financial district has been keen to attract international business, without necessarily conducting the requisite due diligence in some notable cases.

But the Criminal Finance Act 2017, as the new laws are known, includes a broad range of powers. The Act is primarily aimed at tax evasion, but necessarily provides investigators with additional enforcement tools, such as the Account Freezing Order (AFO), Account Forfeiture Order and the Unexplained Wealth Order. The measures are designed to be effective at clamping down on individuals who are the beneficiaries of overseas corruption and other forms of cross-border criminal activity.

At the other end of the scale, some of these powers are open to abuse by ill-equipped investigators with insufficient training and experience in using these enforcement tools in financial crime cases. Even though the investigating officers –

• (i) need to be designated enforcement officers according to S303Z1(6) and
• (ii) must be authorized by a senior officer as defined by s.202Z2(4)

We have been here before with liberal use of the Proceeds of Crime Act 2002 (POCA). When POCA addressed some of the disadvantages of the Drug Trafficking Acts and the relevant Criminal Justice Acts, the legislation was supposed to target major criminals. Instead, it began its life by targeting anyone who appeared to have benefitted financially from criminal activity. The legislation was clearly drafted to make life easier for the prosecutor and strict interpretation meant that virtually anyone connected with criminal benefit was fair game. It took quite a few years and the intervention of the Supreme Court to address much of the balance. The government resisted for as long as it could because of the obvious business case for more and more confiscation orders.

The same danger arises from the Criminal Finance Act 2017, although some lessons have been learned. Knowing that the burden is placed upon the defendant (to the civil standard) to rebut the Crown’s case, investigators acting in the early POCA applications arrived at incredible benefit figures and far too many orders included references to hidden assets. Combined with ineffective enforcement proceedings, this approach eventually led to situations in which a large gap existed between the figure in the confiscation order and the amount actually collected; a problem that still exists to a large extent for the Ministry of Justice. Investigators dealing with the Criminal Finance Act 2017 have to be more realistic, but there is still structural scope for over-enthusiastic officers, who are keenly focused on ARIS, the ‘Asset Recovery Incentivisation Scheme’. This is a scheme in which the police and other authorities in the ‘business’ of enforcement, benefit financially from confiscation and forfeiture by a percentage allocation of the ill-gotten gains. Where recovery targets exist, the standard of proof is sometimes the first casualty. This can result in entrepreneurs and business people who run SMEs being on the receiving end of overzealous investigations. Time and time again, I become involved in interviews under caution where officers lack a fundamental understanding of commerce. For some officers, significant profits and success seem to equal criminal benefit and preparing for interview involves mapping out why the relevant business can turn a profit without breaking the law. Don’t get me wrong – I have met some extremely professional officers who take their responsibilities very seriously, but there is a temptation to use the enforcement tools to ‘see what happens’. In other words, rather than developing an existing case based upon good grounds, there is an attempt to flush out a case by simple disruption.

But now it is relatively easy - some would say too easy - for the government to freeze an individual or a business’s bank account. A magistrate (usually – but not always - a legally qualified District Judge) can now freeze money based upon a straightforward test; whether the court is satisfied that the money is recoverable property or is intended by any person for use in unlawful conduct. The court must reach its conclusion based upon evidence from the investigating officer, almost always at a very early stage of the investigation. At the first hearing, there is rarely an opportunity to cross-examine the officer on, for example, their understanding of the difference between ‘belief’ and ‘reasonable suspicion’; two rather different concepts. The bar forming the standard of proof must be low when there is a real risk that criminal proceeds or relevant assets might be dissipated. However, the risk must be real and the bar should not be so low as to scrape the ground, especially when a defendant’s opportunity to recover the costs of a successful defence are virtually non-existent and the minimum amount to be frozen is £1,000.00. This sum is, in itself, an indication of how the government wants the measures to be used.

The National Crime Agency (the UK’s equivalent of the FBI) can now use Unexplained Wealth Order to target high net worth individuals who may be beneficiaries of high level corruption.

Unlike the ultra-high net worth individuals targeted by UWOs, those affected by AFOs are often ordinary businesspeople. When their accounts are suddenly frozen, they may encounter problems covering their legal fees or even their living costs. Even though the orders include a facility to release funds for these purposes, the potential for commercial prejudice is clear when many businesses and individuals depend upon their reputation for their livelihood. Many cases commencing with AFOs subsequently take years to investigate and surviving the investigation process often becomes a commercial battle. Indeed, it has been suggested in some cases that the main objective is the disruptive impact of the order itself, rather than the proper investigation of criminal allegations. When the performance of POCA was audited, it was found lacking in terms of the number of orders imposed as against the amount collected. I expect that when the Criminal Finance Act 2017 is audited, the percentage of AFO cases actually resulting in successful prosecution and confiscation or forfeiture orders will be much lower than the Ministry of Justice was originally promised.

The proliferation of applications for AFOs could lead to a dangerous situation in which the application of a serious measure becomes routine. Justice is never properly served when the Crown expect to be given what they want, when they want it. If it is treated as a numbers game where the enforcing authority is prepared to fail with a particular proportion, businesses and individuals with substantial legitimate assets will get caught up in these proceedings from time to time. There are very few opportunities for a legitimate business to claim compensation after it has gone into liquidation following failed AFO proceedings. The provisions are drafted so as to give officers the freedom to investigate without the constant fear of being held liable for losses. However, there is a difference between robustly testing a line of enquiry and behaving as if there is no right to a defence. Over 25 years’ experience on both sides of the fence has led me to conclude that neither the prosecution nor the defence get the balance right all of the time and this can lead to unjustified losses for innocent parties if an enforcement tool like the AFO is permitted to run away with itself.

It is not in the Crown’s interests to proceed unchecked. The investigator’s actions must be challenged in order to uphold the rule of law. One cannot leave the defence or the prosecution lawyers alone to maintain proper standards. The adversarial system in the UK only works properly when the Crown is transparent and the defence are able to engage responsibly. In addition, the court must play an active role in questioning the use of the power, especially where applications are made ex parte (in the absence of the subject of the proposed AFO). When the proceedings come to the subject’s attention, expert representation is crucial in questioning the grounds and methods used by the relevant officers. If the AFO survives close scrutiny, the Crown can move forward with the confidence of the public these measures are supposed to serve. If the AFO is discharged or substantially varied, it sends an important message to all participants. AFOs are not designed to broadly ‘sweep’ the banking system for potential cancers. They are designed to address real risks and particular wrong doing where assets need to be controlled pending closer analysis. They are part of the diagnosis, not part of the treatment. They need to be used properly and sensibly. They need to be challenged by courts and the defence. Most of all, the subjects of AFOs should not be afraid of the AFO. The work behind the application can be – and should be – revealed. The Crown should not fear transparency if their application and the investigation is well founded.

JMW acts on behalf of a number of entrepreneurs subject to Account Freezing Orders (AFO’s), including a Fintech businessman, who has raised serious concerns over the way in which the police presented evidence before the court when applying for an without notice AFO. As a result a number of official complaints have been made against the Force, including its senior leadership.

Cases like this ought to act as a salient reminder to all police forces to take great care when making draconian without notice applications to ensure that the case is presented in a fair, balanced and accurate manner.