The UK’s National Crime Agency (NCA) recently secured its first forfeiture of sanctioned funds. This was a landmark achievement for the NCA’s Combatting Kleptocracy Cell, which has only existed since 2022 and aims to investigate criminal sanctions evasion and high-end money laundering.
Forfeiture of £780,000 was made under the UK’s Proceeds of Crime Act 2002 (POCA), pursuant to an agreement between the NCA and an individual named Stephen Gater.1 Gater is not sanctioned himself, but was the estate manager of Petr Aven, an oligarch sanctioned under the Russia (Sanctions) (EU Exit) Regulations 2019 (the “Russia Regulations”). The assets were forfeited on the basis that the funds were (the NCA argued) being held for the benefit of Aven and had been transferred to Gater to allow Aven to circumvent sanctions, and therefore were criminal funds.
While this forfeiture is a significant achievement for the NCA, it is important to note that the forfeiture related to sanctioned assets that were frozen under POCA, rather than under a standard asset freeze imposed under UK sanctions rules (which are implemented by the UK’s Office for Financial Sanctions Implementation (OFSI)). This blog post compares asset freezes under sanctions rules with account freezes under POCA and considers how these regimes can be used in coordination by UK authorities.
Asset freezes under UK sanctions rules
Under the Sanctions and Anti-Money Laundering Act 2018 (SAMLA), the UK government can introduce a wide range of restrictive measures to further the objectives of its sanctions regimes. One of the most significant tools in its arsenal is the power to impose asset freezes. Asset freezes are put in place for specified individuals and entities known as “designated persons” who are listed on the UK Sanctions List.
Asset freeze restrictions prohibit dealing with funds and economic resources that are owned, held or controlled by a designated person, and/or making funds and economic resources available to or for the benefit of a designated person. When an asset freeze is imposed, any person within the jurisdiction of UK sanctions must not engage in financial transactions with the designated person, absent prior authorisation from OFSI in the form of a licence. Specifically, they must not deal with any frozen funds or economic resources belonging to or owned, held or controlled by the designated person, or make funds or economic resources available, directly or indirectly, to or for the benefit of the designated person.
Funds and economic resources owned by a designated person must be frozen immediately by the person in possession or control of them. So, for example, a UK bank must freeze the bank accounts of any customer that is subject to an asset freeze. Similarly, a supplier that holds goods that were paid for but are not yet delivered to a person subject to an asset freeze must not deliver these goods to them, and instead must hold these goods on account for the person until such time as the asset freeze is lifted. Importantly, when funds are frozen in this way there is no change in ownership of the frozen funds or economic resources. The funds are not confiscated or transferred to OFSI for safekeeping, and the UK government has no power under SAMLA or other sanctions rules to seize frozen assets.
OFSI does have powers to request that all persons that hold or control funds or economic resources belonging to, owned, held, or controlled by a designated person report to it the details of frozen assets, and it generally requests that such reporting be made annually. According to OFSI’s most recent annual review (2022/23), more than £21 billion of assets were frozen under UK sanctions rules.2 The majority (over £12 billion) was under the Libyan sanctions regime, followed by the Russian regime (almost £8 billion). But despite the volume of assets frozen, there has so far been little political appetite in the UK to establish a standardised confiscation regime for such assets. In June 2023, the former UK Government announced a route for sanctioned oligarchs to donate their frozen funds for Ukrainian reconstruction3 but this has not materialised, and no confiscation route has so far been tabled by the new Government.
POCA Account Freezing Orders
In the case of assets that were recently seized from Gater, these were argued by the NCA to be held for the benefit of sanctioned oligarch Aven. Aven was made subject to an asset freeze under the Russia Regulations on 15 March 2022. In the following days, various payments were made to accounts controlled by Gater, which were flagged as suspicious by various banks. In May 2022, the NCA was granted nine Asset Freezing Orders (AFOs) under POCA. Section 303Z1 of POCA permits the NCA to apply for an AFO if it has reasonable grounds for suspecting that money held in an account is, in effect, the proceeds of crime, or is intended by any person for use in unlawful conduct. An AFO prevents withdrawals and payments being made from the account. The AFOs were imposed on Gater’s account because there were reasonable grounds to suspect that funds had been moved to those accounts to circumvent the sanctions imposed on Mr Aven, as circumventing financial sanctions is a criminal offence under the Russia Regulations.
Where an AFO has been imposed, the NCA may seek forfeiture of the frozen funds under Part 5 of POCA, in order to recover property obtained through unlawful conduct. While Gater’s case was the first of its kind because the unlawful conduct in respect of which the AFO had been imposed was circumvention of sanctions, it was by no means the first time that Part 5 civil recovery has been pursued by the NCA. Frozen funds were forfeited in this case, but this was done under POCA: the UK would not have had any powers to seize the assets under SAMLA or the Russian Regulations alone.
Enhanced co-ordination between UK authorities
The Gater case illustrates how OFSI and the NCA can use their respective powers in co-ordination to confiscate sanctioned assets: the AFO order that ultimately allowed the assets to be forfeited under POCA could not have been imposed were it not for the asset freeze being imposed under the Russia Regulations. However, the specific set of circumstances in this case will not necessarily be mirrored in other examples, and it remains the case that funds frozen under the Russia Regulations and other UK sanctions regimes are not generally recoverable. If the UK government wants to pursue a more general policy of being able to confiscate sanctioned funds, it should legislate specifically to allow this, rather than relying on recovery under POCA.
This article was first published by Law360 on August 20, 2024.
1. NCA News, NCA recovers £780,000 in the first UK forfeiture of sanctioned funds, 29 July 2024, https://www.nationalcrimeagency.gov.uk/news/nca-recovers-780-000-in-the-first-uk-forfeiture-of-sanctioned-funds.
2. OFSI Annual Review 2022-23, Strengthening our Sanctions, https://assets.publishing.service.gov.uk/media/657acdef095987001295e088/OFSI_Annual_Review_2022_to_2023_Strengthening_our_Sanctions.pdf.
3. Gov.UK Press Release, New legislation allows Russian sanctions to remain until compensation is paid to Kyiv, 20 June 2023, https://www.gov.uk/government/news/new-legislation-allows-russian-sanctions-to-remain-until-compensation-is-paid-to-kyiv.
