ACCOUNT FREEZING ORDER (AFO)

Did authorities freeze your UK bank account? Have you received notice of hearing for AFO application? Do you know what happened and what are the legal consequences?

On 28th February 2019, The UK’s National Crime Agency froze 95 Barclays’ bank accounts, mainly held by Chinese students studying in the United Kingdom. These accounts contain an estimate of £3.6 million that is suspected to be from proceeds of crime or intended to be used for criminal purposes. Accounts will be frozen for 9 months for the purpose of subsequent money laundering investigations conducted by the National Economic Crime Centre’s officer. In 2019/2020, AFOs were up to 166 cases.

Why did the authorities freeze my account?

A lot of Chinese student received letters from enforcement authorities, such as the City of London Police and the HM Revenue & Customs, confirming there was an Account Freezing Order (AFO) application against their bank accounts and a hearing was scheduled. Subsequently, these bank accounts would be frozen for nine months. These bank account users have one similarity: they frequently used Private Foreign Currency Exchange Service to exchange for pounds.

As the People’s Republic of China’s authorities implement regulations to limit the exchange of foreign currency from Renminbi, Chinese students are tempted to use Private Foreign Currency Exchange Service to exchange pounds. Chinese students perceive these private currency exchange service more convenient to use and it offers a slightly better exchange rate as incentives than banks’ service. Why not?

Private Currency Exchange Service is well-known and frequently used by the Chinese communities in the UK. These currency exchange service companies operate by sourcing Chinese customers on communications platforms such as Wechat and Alipay. The currency exchange service providers register an account on such communication platform and appear as a Universities’ alumni or some status that sounds credible in the group chat to attract Chinese customers. Chinese customers who want to use the private exchange service will simply have to contact the person they ‘met’ on the communication platform and agree with their exchange rate, the transaction can subsequently be performed. The entire private currency exchange process will take less than one day to complete while traditional currency exchange through banks may take up to 5 working days.

However, Chinese students may not know that in the United Kingdom, strict anti-money laundering regulations are enforced on banks and institutions that perform banking activities. Any large transactions and money transfers will be subject to tracing and declaration of those source of funds.

Private Foreign Currency Exchange is regulated in the United Kingdom. By violating regulations through using these Private Foreign Currency Exchange service, you might have to bear the legal consequences, often not known to you at the outset.

The New Legislation - Criminal Finance Act 2017

Since 31 January 2018, new enforcement power was introduced into the Proceeds of Crime Act 2002 by Criminal Finance Act 2017, it allows authorities to apply to Magistrates’ Court to freeze the monies in “suspicious” bank accounts or building societies account until the source of the funds can be established. Funds were either alleged to be derived from, or intended for use in, unlawful activities.

The frequent use of Private Foreign Currency Exchange services is considered one of the activities that will make Chinese Students’ bank account looks suspicious.

This is because in each transaction, the currency exchange service provider will separate the total amount of pounds into several tranches before sending. The service provider will deposit each tranche of the transaction by cash into the customer’s bank account from different bank branches all over the United Kingdom. By sending in tranches and in different branches, the service provider can avoid being suspicious when paying large amount of cash into a single account in a single branch.

When the NECC notice that there are no links between the location where cash are deposited and where the bank account holder is based, they classify this as a money laundering technique called ‘smurfing’. This constitutes a reasonable ground to suspect the source of those funds are illegitimate. Therefore, the NECC officer will subsequently apply to the Magistrates’ Court to freeze the bank account of these Chinese students for further investigations.

What are the legal consequences?

While the NECC is conducting the money laundering investigations, the account holder must cooperate with the authorities and give evidence with explanations. If the account holder fails to give evidence, the account holder may have to bear the legal consequence and sentence for money laundering. Not only the frozen funds will be forfeited, the criminal record may also affect any current and subsequent student visas in the UK.

What should I do next?

When you receive the notice of AFO applications sent by the authorities, we recommend that you seek legal advice at your earliest opportunity. The two cases set out examples of why you need to seek legal advice.

Case one:

The client’s UK bank accounts became subject to AFO. Amount frozen was over £100,000. We were instructed to communicate on the client behalf with the NCA and then help piece together the reasons for so many cash deposits to her bank accounts from different locations. Following a rigorous investigation and discussions with our client. Our ability to speak and write to our client in mandarin was crucial to her understanding what was required to explain what the transactions were. Despite good evidence to show the transactions were all accounted for, the NCA would not agree to unfreeze the bank accounts and the matter proceeded to court hearing again. Following witness evidence given by our client and a prepared bundle of documents filed with the court, the Judge refused the NCA’s request to extend the AFO and accepted our client’s funds and transactions were good. AFO discharged.

Case two:

The Client’s UK bank accounts became subject to AFO. Application brought by a police authority. Amount frozen was £30,000. The allegation was that these were proceeds of crime transfers as the cash payments were made by unknown individuals at various locations in UK. The main worry for the client was her visa status and did not want a criminal record. Following detailed discussions and thorough investigation of all transactions and transfers, we were able to persuade the police authority that only part of the frozen funds could not be accounted for. With several rounds of negotiation, it was agreed that the police would not take this further if the funds that could not be accounted for were disclaimed. A written compromise was agreed, and the client was very happy with the result.

Chan Neill solicitors is a leading Law Firm in London and we have mandarin and Cantonese speaking lawyers who are experienced in the legal area and are able to guide you through this difficult period. If you have any queries of the AFO, please do not hesitate to contact: chinadesk@cnsolicitors.com.

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Chan Neill Solicitors is a trading name of Chan Neill Solicitors LLP, a limited liability partnership registered in England and Wales, under number OC430320. Chan Neill Solicitors LLP is authorised and regulated by the Solicitors Regulation Authority. SRA number: 668071. We use the word partner to refer to a member of Chan Neill Solicitors LLP, or an employee or consultant who is a lawyer with equivalent standing and qualification. A list of members names together with a list of non members who are designated as partners is available for inspection at our registered office at 107 Charterhouse Street, London, EC1M 6HW