New era of forfeiture

New era of forfeiture

Key points

What is the issue?

The forfeiture of bank accounts is on the rise; however, two recent UK cases have set a precedent for settlement negotiations.

What does it mean for me?

Bank accounts are being frozen and forfeited; this can include accounts belonging to corporates. Where a bank account is forfeited because it represents the proceeds of crime, the authorities can also turn their attention to the professionals who have assisted the accountholder.

What can I take away?

There has been greater use of the account forfeiture provisions in the UK, but if a client is impacted, do not overlook the potential to negotiate and settle.

 

The use of the account forfeiture provisions in the UK, introduced into part 5 of the Proceeds of Crime Act 2002 (the Act) in 2018, shows no signs of slowing. In recent months, there have been stunning successes for the enforcement authorities without the need for any substantive hearing. Introduced into the Act by the Criminal Finances Act 2017, the provisions have been a quiet achiever. Proceedings start and end in the magistrates’ court; therefore, costs exposure is significantly reduced. Prior to the introduction of the account forfeiture provisions, the only way to recover funds in a bank account suspected to be connected to the proceeds of crime was to institute high court proceedings. Thus far, the provisions have been far more successful in attacking wealth with a suspicious provenance in the UK than the unexplained wealth order (UWO) regime that was introduced by the same legislation with much fanfare.

Funds held in a bank account are able to be forfeited in the magistrates’ court if, to the civil standard, the lay justices or district judge are satisfied that the funds are recoverable. Funds can be recoverable in one of two ways: first, if the funds were ‘obtained by or in connection with’ criminal conduct; or second, if they are for use in criminal conduct. In either case, there is no need for any person to have been the subject of a criminal investigation or conviction. Following notification of the forfeiture application, the bank accountholder and any affected party may challenge the application at a hearing.

In practice, although not required by the statutory framework, the holder of the bank account will typically give evidence about the lawful provenance of the funds or the lawful movement of the funds into the jurisdiction. The latter can come into sharp focus if the applicant enforcement authority does not know how the funds were generated in the first place, but takes issue with how they ultimately arrived into a UK bank account. Funds can be recoverable where, for instance, they have been moved or acquired in connection with criminal conduct, such as a money‑laundering scheme or with the assistance of an unregistered money service bureau. The strength of the account forfeiture provisions for the authorities is that, in some situations, they have been deployed even if the money was lawfully generated in the first place.

The width of the forfeiture provisions and the low evidential threshold accounts for the outcome in two recent cases. In both, the authorities have reaped big dividends. The respondents opted to settle and by doing so were able to assert some control over the narrative released into the public domain. Although magistrates’ court decisions are not the subject of case reports, hearings are open and members of the public, including journalists, attend. By settling before any hearing took place, both sets of respondents avoided a public hearing in a magistrates’ court. For the enforcement authorities, the outcomes were also undoubtedly welcome. Substantial amounts were recovered in both cases without the uncertainty of contested proceedings and the potential for an appeal. The risk of the latter is significantly increased where, as in both cases, the respondents have a profile or a high net worth. Proceedings can be rigorously contested.

Case one

In the first case of Javadov, which was a forfeiture application by the National Crime Agency (NCA), ten account‑freezing orders had been granted restraining a total of GBP6.4 million belonging to Suleyman Javadov and his wife Izzat Javadova. The Javadovs held links to the political elite in Azerbaijan. Just prior to the forfeiture hearing, a negotiated settlement was reached resulting in the forfeiture of GBP4 million held in four of the ten accounts. The remaining funds were returned to the accountholders. The press release issued at the time of settlement made clear that the respondents made no admissions to involvement in wrongdoing, including any knowledge of unlawful activity, but had settled the case on the basis that the funds had been transferred with the aid of an Azerbaijani money‑laundering scheme, otherwise known as the ‘Azerbaijan laundromat’.

Case two

In the second and more recent case, a forfeiture application brought by the Crown Prosecution Service (CPS) was settled resulting in GBP29 million being recovered by the state. Du Toit & Co, a South African firm with a presence in London, and Xiperias, a Cypriot company, agreed to forfeit the amount that was held in two bank accounts on the basis it was the proceeds of international money laundering, said to have been layered through the banking system in the UK to present legitimacy. Notably, this was the CPS’s first use of the account forfeiture proceedings and is the largest sum recovered to date. The press release issued by the CPS, however, made clear that neither the law firm nor Cypriot company had any suspicion or knowledge that they held the proceeds of crime, which was the result of conduct carried out by others.

What is interesting about both cases is that they turned on allegations of money laundering, but ultimately not against the accountholders. For the purposes of account forfeiture in part 5 of the Act, this has so far been treated as sufficient.

It is well established that the applicant must identify the type or category of criminal offence that renders the funds recoverable, but if there is a multiplicity of underlying criminal offences and it is not possible to attribute the property to any one kind, this will not be a problem.[1] The approach has been that if the funds have been obtained in connection with money laundering, account forfeiture can bite. Notwithstanding this, in view of the fact that magistrates’ court proceedings are not reported and these are relatively new provisions, the extent to which it has been challenged is unclear.

Arguably, there is room to question whether the offences of money laundering in ss.327–329 of the Act can properly be used to anchor an account forfeiture application in the absence of any other criminal conduct identified by the authorities. Money laundering is, by definition, a parasitical offence. At its essence, it concerns dealing with property that is the product of criminal conduct. If there is an absence of information to support other criminal conduct, it may be argued that there is no money laundering affecting the funds held in a particular a bank account.

Conclusion

In both of the above settled cases, it would seem that the issue did not arise. The respondents, alive to the potential for adverse publicity, opted to nip the forfeiture proceedings in the bud. In doing so, a positive outcome was reached for all involved.

However, large questions remain, including how the settlements were reached, the factors that were taken into account by the authorities in deciding to settle in each case and whether settlement is now on the table in all cases, even those where the amounts are comparatively small and the respondents are not high profile. A new era of account forfeiture has arrived, but if settlement is to be a continuing feature transparency is necessary. Resolution on a no – or limited – admissions basis and potential to keep some of the funds specified should not only be an opportunity open to accountholders with significant means.


[1] Assets Recovery Agency v Szepietowski [2007] EWCA Civ 766