HMRC profits by new powers to crack down on illicit finance

The UK tax authority has significantly increased its use of new powers to freeze and seize criminal funds in the banking system as part of its campaign to crack down on illicit financing.

HM Revenue & Customs froze 166 bank and building society accounts in the 2019/20 tax year to March 25, preventing individuals’ access to or withdrawals from £19.5m suspected to have been derived from tax fraud and other crimes. 

In the previous 12 months, the first full tax year since account freezing orders were introduced in early 2018, HMRC issued 60 orders covering £8m. The data were obtained by law firm RPC in a freedom of information request.

The orders make up only a small, but fast-growing, proportion of the criminal funds HMRC recoups each year. In 2018/19 the authority reclaimed some £192m using its full range of powers including civil recovery measures under the 2002 Proceeds of Crime Act.

Lawyers said the increased use of account freezing orders pointed to the ease with which they could be obtained and some high-profile successes.

“The increased use of AFOs by HMRC is due to their simplicity and how effective they’ve been at freezing money suspected to be the proceeds of tax evasion or other illicit activity,” said Azizur Rahman, a senior partner at law firm Rahman Ravelli.

Account freezing orders can be applied for in a magistrates’ court by enforcement agencies including HMRC, the Serious Fraud Office and National Crime Agency.

They were designed to aid the clampdown on money laundering and illicit finance. The NCA estimates £100bn is laundered through the UK every year.

If enforcement agencies can prove the funds were likely to be used unlawfully they can then seize them using associated account forfeiture orders, also issued by magistrates.

Between April 2019 and March this year HMRC seized some £4.8m via account forfeiture orders after applying to the UK magistrates’ courts, up from £1.2m the previous year. 

Lawyers said the gap between money frozen and seized by HMRC was explained by the time it took to investigate potentially criminal funds and the higher threshold needed to secure an account forfeiture order.

In some cases magistrates also concluded that the funds were legitimate.

The powers were introduced at the same time as unexplained wealth orders, which force politically exposed individuals or those suspected to be linked to serious crime to explain the source of assets used to buy expensive assets.

UWOs, often dubbed “McMafia laws” after the BBC crime drama, have garnered publicity due to the high-profile nature of the individuals involved. Targets include property owned by Zamira Hajiyeva, the wife of an Azeri banker who spent £16m in Harrods over the course of a decade.

However, they are costly to obtain and require a High Court order.

“Freezing orders are easy to obtain. The authorities only need to show the magistrate that they have reasonable grounds to suspect that money has been obtained by unlawful conduct,” said Adam Craggs, head of tax disputes at RPC. 

HMRC issued only one account freezing order in the few months of the 2017/2018 tax year they were in operation, and forfeited no assets. In a report last year, law firm Macfarlanes said agencies were unfamiliar with the new rules and feared “making mistakes”.

Since then the NCA, SFO and HMRC have each garnered high-profile successes with them. In February last year the NCA froze £520,000 in bank accounts in a money-laundering probe and seized £1.5m in cash.