The outcome: HMRC were forced to apply to set aside the AFO. Our client could once again access money in his accounts without inhibition.
What is an Account Freezing Order?
An Account Freezing Order (‘AFO’) is a legal tool used (in this case) by HMRC to prevent the movement of funds within a bank, building society or similar account when those funds are suspected to be connected to criminal activity.
The AFO ’freezes‘ the money on the account, preventing the account holder from accessing or transferring the money. AFOs are typically employed by regulatory authorities in cases involving suspected money laundering, fraud, drug trafficking or other serious crimes where there is a concern that the funds might be dissipated.
Once the targeted account is frozen, regulatory investigations can continue without risk that the funds will be transferred out of reach of the remit of recovery action, which is the usual ultimate goal. The regulatory authorities want to take the monies in the frozen account and keep it by way of a process called forfeiture.
How is an AFO obtained?
AFOs are applied for (supported by written evidence) usually ex parte which means without notice to you, and are granted under the Proceeds of Crime Act 2002 (‘POCA’), particularly under sections 303Z1 to 303Z19, which were introduced by the Criminal Finances Act 2017. An AFO can be applied to both personal and business accounts and can last up to two years, subject to court renewals. The first you will know about it is the bank will refuse you access to your account and you will receive court papers informing you that a court process is in place and not necessarily how to get the monies unfrozen. During this period, the account holder may be required to provide evidence that the funds in question are legitimate.
How to challenge an Account Freezing Order
Challenging an AFO is possible but can be complex. Authorities seeking AFOs often jump the gun without conducting a comprehensive investigation, which can leave innocent account holders without access to their legitimate funds for prolonged periods. That is precisely what happened in this case.
The first step in formally challenging an AFO is for the account holder to apply to the Court for the Order to be discharged, varied or sometime varied. Often, a request may be made to (as here) HMRC, inviting HMRC to agree to set aside the Order by consent. This can be done for example on the basis that there are no reasonable grounds to suspect that the funds are connected to criminal activity and/or that the continuation of the AFO would cause undue hardship and/or that there were procedural deficiencies in the application for the AFO.
In this case, NDP’s client relied on all 3 above grounds.
The burden of proof in challenging an AFO typically lies with the account holder, who must demonstrate to the Court that the funds are not derived from, or intended for, use in criminal activity. This often involves providing evidence to contradict the assumptions made by the applicant authority in its evidence to the Court used to obtain the AFO in the first place. Such evidence may consist of invoices, bank statements, Tax Returns or (as here) evidence of payments having been made to HMRC (that were inexplicably overlooked by the HMRC evidence in this case). It is important that the full evidential picture is placed before the Court to demonstrate that the frozen funds are not linked to criminal activity. That is precisely what we did.
Legal representation is crucial when challenging an AFO, as the process often involves navigating complex legal arguments and presenting detailed evidence. If the challenge is successful, the Court may discharge the AFO entirely or allow partial access to the funds.
Legal costs
A successful challenge to an AFO can lead to the regulatory authority paying the account holder’s legal costs incurred in challenging the AFO.
NDP’s recent win against HMRC
NDP were recently instructed by a client whose bank account was subject to an AFO. The account in question contained substantial sums which HMRC (wrongly and inaccurately) told the Court in a signed Witness Statement supported by a Statement of Truth, had derived from different companies that had failed to file required Tax Returns for a number of companies covering 18 VAT quarters, which (HMRC said) could not explain the origins or the provenance of the frozen funds.
In fact, HMRC had failed to conduct a thorough and proper investigation before prematurely applying for the AFO. Had a proper investigation been conducted, HMRC would have found (as they later did) that the companies’ respective Tax and VAT filings were all up to date and Tax and VAT payments had been made on time. Significant factual errors were relied upon by HMRC and were put to the Court as being true and accurate. Quite simply that was not the case.
HMRC can, and do, make mistakes, as demonstrated in this case, but this was a step too far.
The experience and involvement of NDP’s Senior Solicitor David Hanman (assisted by Solicitor, Tom Clinton) in dealing with AFOs was critical to securing a favourable result for our client. David approached the matter pragmatically and set about getting to the facts of the matter; looking for what HMRC had missed, rather than what HMRC (thought they) had found.
HMRC were forced to apply to set aside their own AFO once they realised their mistake, meaning that NDP’s client could once again access money in his accounts without inhibition.
When to seek legal advice
If you are subject to an AFO or believe that your account may be at risk of being frozen (e.g. because HMRC have written to you saying they are about to apply for an AFO on an inter partes basis meaning you can be party to the application), it is crucial to seek legal advice immediately. The consequences of an AFO can be severe, including the inability to access funds for extended periods, potential damage to your business and/or reputation, and the stress and uncertainty of legal proceedings.
Legal advice is essential for understanding your rights and the specific requirements needed to successfully challenge an AFO or otherwise deal with it. NDP have significant experience in such matters and can provide valuable guidance on the best approach to take, whether it is challenging the order, negotiating with HMRC, or complying with the order while protecting your interests.
Early legal intervention can also help in gathering and presenting the necessary evidence to challenge an AFO effectively. In some cases, effective legal representatives may be able to resolve matters with HMRC without the need for a prolonged and expensive Court battle.
Conclusion
AFOs are deployed by authorities to tackle suspected financial crime. While they serve a vital role in preventing the dissipation of criminally obtained funds, they can also have significant adverse consequences for individuals and businesses. Understanding the legal framework surrounding AFOs, the process for challenging them and the importance of seeking timely legal advice is crucial for anyone affected by these Orders.
David Hanman – Senior Solicitor – NDP
October 2024
