Account Freezing and Forfeiture Orders (“AFFOs”) are all the rage. Often the subject of these orders are foreign nationals holding UK bank accounts who are said to be using their personal bank accounts to run a Money Service Business (“MSB”). These MSBs often take the form of an informal value transfer system (“IVTS”) such as Hawala. IVTSs work by a payment being made to an agent in one geographic location, and another agent paying out the intended recipient of the transfer in another location. The funds paid out are not the same funds as were paid in, but are of equivalent value. IVTSs are not in themselves illegal and are used worldwide for perfectly legitimate transactions. However, they also attract criminals who seek to use the largely unregulated systems to move their criminal funds around the world.
Wei Wei Yang v West Yorkshire Police
A recent case heard on appeal at Leeds Crown Court of Wei Wei Yang v West Yorkshire Police gave consideration to the effect of running such an MSB through a personal bank account. The Appellant had transferred Chinese Yuan to a man in China. In return over £200,000 was deposited in the Appellant’s UK account. Nearly £170,000 was deposited in cash.
The funds were the subject of a AFFO. It was accepted that the Appellant was acting as a MSB within the meaning of the Money Laundering Regulations 2007 (“the Regulations”).
This required the Appellant to be registered to carry on as an MSB, she was not. Under regulation 45 of the Regulations a person who fails to comply with the requirement to register is guilty of a criminal offence.
The question raised by the Appellant was, were the deposits into the Appellant’s account criminal property within the meaning of section 242 Proceeds of Crime Act 2002? The Appellant submitted they were not obtained through unlawful conduct, and therefore the funds were not recoverable.
Was it illegal conduct or conduct rendered illegal by failing to obtain a licence?
The Appellant relied on R v McDowell  EWCA Crim 173. At paragraph 34 Pitchford LJ stated:
… there is a narrow but critical distinction to be made between an offence that prohibits and makes criminal the very activity admitted by the offender or proved against him and an offence comprised in the failure to obtain a licence to carry out an activity otherwise lawful.
The Appellant submitted that the conduct of the Appellant was not criminal, it was the failure to obtain the licence under the Regulations that was the offence. As such, the funds were not obtained by crime and were not recoverable.
The case of R v Palmer  EWCA Crim 1049 considered McDowell. Simon LJ considered that on the wording the legislation, in that case, did criminalise the engagement in licensable conduct without a licence.
The Court considered how this applied to the Regulations where regulation 26 states:
- A person in respect of whom the Commissioners are required to maintain a register under regulation 25 must not act as a... money service business... unless he is included on the register
The court found that that, read together with regulation 45, criminalised the activity carried out. As such, the court concluded that the funds were obtained by criminal conduct and were therefore recoverable.
In fact, R. (on the application of Campbell) v Commissioner of Police of the Metropolis  EWHC 3424 (Admin) had already made a decision on similar facts in relation to the cash forfeiture provisions. In that case cash had been obtained by a business which had carried on without the necessary environmental licence. Goss J held that carrying on with the regulated activity was an offence and as such the cash was recoverable property.
While Wei Wei Yeng is not a binding decision on other Magistrates’ or Crown Courts it is helpful guidance. Together with Campbell it will make things far more difficult for individuals facing these orders. Those using their bank accounts as unregistered MSBs should beware; AFFOs will continue to be the tool of choice for law enforcement investigating money laundering.
John is experienced in defending and prosecuting a range of proceedings arising from the Proceeds of Crime Act 2002 including restraint and confiscation, cash forfeiture, and account freezing and forfeiture hearings. John has advised and represented individuals and companies as respondent's facing these orders at an early stage.