UK’s new ‘freeze and seize’ powers upheld in Moldovan money laundering case

Unexplained Wealth Orders (UWOs) — nicknamed the “Mcmafia” law after the hit TV drama about Russian organized crime in London — received a lot of attention in the press as the solution to the UK’s dirty money problem.

However, despite the hype around UWOs, law enforcement in the UK are quietly much more excited by their lesser known sister laws, Account Freezing and Forfeiture Orders – introduced in the same Criminal Finances Act 2017.

Last week the National Crime Agency’s Financial Intelligence Unit reported that the 153.6 percent increase in potential criminal assets restrained by UK law enforcement in 2018-2019 compared to previous years was due to Account Freezing Orders as well as the extension from 31 days to up to 6 months granted to law enforcement to investigate suspicious transactions – also introduced under the Criminal Finances Act.

Just a few days later, a Crown Court judicial panel upheld the use of an Account Forfeiture Order by the UK’s National Crime Agency in a money laundering case – paving the way for much greater use of these orders.

Moldovan money laundering

On November 8, the judicial panel dismissed the first ever appeal of an Account Forfeiture Order brought by the son of former Moldovan Prime Minister, Vlad Luca Filat, in a case that shines a light on the increasingly complex ways that money is laundered into the UK.

Vlad Luca’s father is serving 9 years in a Moldovan jail for his role in the theft of $1 billion from the central bank of Moldova – one of Europe’s poorest countries – in 2014.

Back in February, the NCA successfully applied for Filat Jr. to hand over nearly £500,000 ($644,000) frozen from three HSBC bank accounts. The NCA found that Filat, who had no independent income, received multiple cash payments to these accounts through hawala – an informal banking transfer system.

Filat tried to claim unsuccessfully that these payments, from Iraq, Turkey and the Cayman Islands, including $5.5 million in cash loans from an Iraqi company, were gifts from friends. Filat, it emerged from the order, was living a life of luxury including spending nearly £200,00 ($257,000) on a Bentley car, paying £400,000 ($515,000) up front to rent in one of London’s most expensive streets, and buying a £50,000 ($64,000) necklace.

Why Account Freezing and Forfeiture Orders are just so attractive

Account Freezing and Forfeiture Orders (AFOs) allow law enforcement to freeze and seize cash in bank accounts if on the balance of probabilities, the cash came from or could be used for unlawful conduct. They can be heard in Magistrates courts – the lowest courts in the UK.

Having obtained an order from a court, law enforcement can then serve a notice that they will seize (or forfeit) the money in the account unless any objection is received. Law enforcement only need revert back to the court to get a Forfeiture Order if there is an objection or they can apply directly to the Magistrate’s court for a Forfeiture Order, as in Filat’s case. Those subject to either order have an automatic right of appeal to the Crown Court.

In his February 2019 judgement in the Filat case, the district judge relied heavily on Filat’s poor explanation for why the money was in his account. He noted that “if a transaction looks like money laundering and a respondent should be in a position to explain it, but does not do so, then it probably is money laundering.”

Now that his judgement has been upheld by a trio of crown court judges, that gives UK law enforcement a lot of leeway to go after corrupt cash.

AFOs v UWOs

So far, the UK has issued 15 Unexplained Wealth Orders in four cases, two of which relate to Politically Exposed Persons and two to serious and organized criminals, against £115.2 million ($148 million) worth of assets. The NCA meanwhile has announced using Account Freezing Orders in suspected corruption cases against a total of 106 bank accounts worth £124 million ($160 million).

That puts the amount of money frozen as a result of the two different orders neck and neck. However, they are very different beasts.

AFOs only apply to cash in bank accounts. UWOs can be used to go after property and other assets such as yachts and jewelry. But, unlike AFOs, UWOs are not the quick win that they appear at first glance. As an investigative tool, they can get assets frozen but the long journey to actually confiscate the assets is a separate process.

Meanwhile, significant questions remain as to whether a UWO could ever be used successfully against a sitting politician for whom sovereign immunity applies, potentially diminishing their impact on fighting corrupt elites. It isn’t clear whether such immunity would apply to bank accounts however.

And while AFOs should in theory be heard in open court, UWOs are still fairly secretive. Of the two cases so far against PEPs, one is still under wraps. The other only became known because its target – Mrs Hajiyeva, the wife of the central banker currently languishing in jail in Azerbaijan, whose expensive spending habits hit the UK press last May – contested its use. A crucial Court of Appeal hearing on Mrs Hajiyeva’s UWO is pending in December – an appeal that may well define just how useful UWOs are going to be.

The risk with AFOs is they may have diminishing returns as corrupt elites and organized crime resort to alternative money laundering methods that don’t involve cash in bank accounts. But for the meantime, they are a powerful tool in going after corrupt cash that for too long has been freely moving through the UK’s banking system.