An understanding of the problems that the police face when relying on information obtained from abroad is becoming increasingly important for people who work in (or proffer advice about) financial crime compliance. This article explores this issue through the lens of the now-commonly-deployed Account Freezing Orders (AFrOs) and Account Forfeiture Orders (AFOs).
In harmony with technological advancement and globalisation, fraud and other financial crimes continue to occur in record volume and cross national borders as never before. This has a knock-on effect beyond the direct harm that it does to victims; a recent report says that spending on financial crime compliance is now in excess of $200 billion globally.
This trend is mirrored in the field of law enforcement. Agencies around the world are trying harder and harder to combat the growth in cross-border financial crime by sharing intelligence and data with one another. In the sphere of asset recovery, the UK’s National Crime Agency (NCA) has been very clear about its objective (in the Home Office Asset Recovery Action Plan of 2019) of “working better with international partners” in order to develop “a fully effective response to asset recovery.”
An understanding of the issues that enforcement bodies face when relying on information obtained from abroad will be increasingly important for people who work in (or give advice about) financial crime compliance. The likelihood is that at some point their jobs will involve liaison between the criminal or regulatory authorities of many countries. This article explores this issue through the lens of the now commonly-deployed Account Freezing Orders (AFrOs) and Account Forfeiture Orders (AFOs).
AFrOs and AFOs
Globalisation and the increasing use of the global financial system have enabled criminal gangs to move from hoarding piles of cash to using sophisticated electronic banking systems capable of moving money across borders in milliseconds. To deal with this, Parliament introduced the Criminal Finances Act 2017, which amended the Proceeds of Crime Act 2002 (POCA) to grant new powers to law-enforcement agencies to freeze and forfeit funds in bank accounts using AFrOs and AFOs. Before this, the police could not seize funds held in bank accounts that they suspected to be the proceeds of crime in the same straightforward way that they could seize cash. Instead, they had to follow more complex legal routes with a higher standard of proof in order to recover funds.
Consistent with its aim, the procedure and legal test for obtaining an AFrO is weighted in favour of the applicant; a senior officer, as defined in POCA, can apply to a Magistrates’ Court to freeze an account maintained by a British bank or building society for up to two years (containing a minimum of £1,000). To succeed with the application, the enforcement officer need only demonstrate that there are “reasonable grounds to suspect” that the funds in the account are the proceeds of crime or are intended for use in crime (and are therefore “recoverable property”). This low threshold has resulted in the courts granting AFrOs on an increasingly regular basis.
After he has investigated the source of the frozen funds further, the officer can apply to a Magistrates’ Court for an AFO to forfeit the funds. To do so, as we have seen, the court must be satisfied (on the balance of probabilities) that the funds are recoverable property. Importantly, there must be a causal connection between the funds and the alleged criminality.
This approach to the recovery of criminal assets is not attractive just because of its streamlined procedure and lower standard of proof. Since their introduction, the authorities have used AFrOs and AFOs to freeze and/or recover funds to the value of more than £300 million.
In each case, the agency that applies for the orders is entitled to a 50% share of eligible receipts. Parliament introduced the Asset Recovery Incentivisation Scheme or ARIS in 2006 as a means by which to “incentivise” agencies to attempt to recover assets. [Here, lawyers use the term 'recovery' in the same sense as when they refer to the recovery of damages.] Under ARIS, a proportion of funds recovered in accordance with POCA goes to the law enforcers.
A global fight across borders
Although AFOs are a useful and profitable tool for enforcement authorities such as the NCA and HM Revenue and Customs, they must be placed in the wider context of a global escalation in financial crime-fighting methods and co-operation. In the United Kingdom, fresh legislation and recent litigation show that the authorities are taking an increasingly international approach to investigations.
British law enforcers have used many of the powers that POCA has bestowed on them, including AFrOs and AFOs, to help foreign countries recover monies or evidence. The operative law here is the Proceeds of Crime Act 2002 (External Investigations and External Orders and Requests) (Amendment) Order 2018. As a result, a foreign country can ask the UK for "mutual legal assistance," as it is called, in the hope of benetiting from an Unexplained Wealth Order or AFrO in relation to an asset based in the UK.
In January 2021, Airbus agreed to pay $4 million to settle a bribery investigation in a landmark moment of co-operation involving the UK's Serious Fraud Office and law enforcers from the US and France. This agreement is testament to a growing trend of co-operation between agencies in different countries. The National Crime Agency, Britain's answer to the US Federal Bureau of Investigation, now applies to the courts for many AFOs to help foreign investigations. In April last year it obtained an AFO to freeze British bank accounts containing US$2 million that was linked to a $72 million fraud committed in the United States.
During such cross-border investigations, however, Britain's authorities must still make their own enquiries to a standard that satisfies British law. A recent NCA application is a prime example of the problems that occur when an agency relies solely on the fact of a foreign conviction.
No causal connection
In 2017, a British citizen and former CEO of a multi-national corporation in the offshore oil and energy sector reached a plea agreement in the United States in which he admitted to participating in a bribery scheme. He was sentenced to a term of three years' imprisonment and a fine of US$150,000. Nobody in the United States tried to make him forfeit any assets.
In 2018, the NCA obtained AFrOs for a sum in excess of £5 million that lay in the executive’s bank accounts in the UK. The source of the frozen funds was not in dispute: it consisted of remuneration and pension payments from the company. However, the connection between the frozen funds and the unlawful conduct was far from straightforward. In fact, it was not possible to identify any causal connection between the unlawful conduct and the frozen funds.
The NCA pursued the funds on the basis that, in effect, there must be some causal connection between the funds and the unlawful conduct because the funds represented his salary, pension and bonus payment from his employment during the "relevant period," i.e. the period of the crimes to which he had admitted.
The District Judge disagreed and concluded that no part of the executive’s salary, pension or bonus could lawfully be categorised as the proceeds of crime. Instead, he ruled, the CEO's remuneration was incidental to, and did not flow from, his admitted criminal conduct.
In failing to do enough to investigate, identify and specify the funds that derived from the unlawful conduct, the NCA lost sight of the key legal tests and assumed that the very fact of a foreign conviction would be enough to satisfy the test for forfeiture. A significant award of costs followed this ruling.
An evolving regulatory landscape
The last decade has seen an exponential growth in anti-financial-crime and bribery-and-corruption policies and procedures in the business world. This is now being matched by more and more co-operation and mutual reliance between regulatory and police bodies all over the world. These bodies want to use every means at their disposal to investigate but they must do so carefully and always in accordance with their own legal standards and procedures.
It is vital for a compliance officer who finds himself directly or indirectly caught up in such an investigation to work out whether the investigators are levelling their allegations against activities that occurred at home or abroad. Only then can he ask his lawyers to show him the best way forward.
* Karl Masi can be reached on +44 (0)20 7822 7740 or at email@example.com; Maria Cronin can be reached on +44 (0)20 7822 7737 or at firstname.lastname@example.org