From time to time I am contacted by people who have found their bank account frozen by the bank without warning or explanation. Perhaps the account holder discovers this when he attempts to use a debit card, draw cash from an ATM, use online banking, or visit his bank to pay money in or take it out.
What should the customer do and what can he expect to happen?
Contact the bank
The first thing to do is to contact the bank and ask for an explanation. The bank might be rather evasive in response – perhaps referring to ‘technical difficulties’ – or the bank may refer the customer to a specialist department (such as the fraud department) – or the bank may hand over a pre-printed leaflet about money laundering. But the bank are unlikely to provide a full explanation about what is happening or when the account will be unfrozen.
If the bank won’t tell the account holder what is going on the likelihood is that someone at the bank has flagged up the account for possible ‘money laundering’. In other words someone at the bank (or the bank’s computer system) has noted what appears to be unusual activity on the account which might be connected to proceeds of some sort of crime.
If that is the case then it may be helpful if the customer very swiftly supplies to the bank further information, explanations and, if possible, documentary evidence in support of an innocent explanation for any unusual recent transactions.
The bank will not disclose which transactions have triggered their action or what suspicions they have, so the customer will be left guessing how he can best put the bank’s mind at rest.
But that further information needs to be supplied as quickly as possible, preferably the same day – delaying for a couple of days will probably be too long.
Inside the bank
What is happening inside the bank is probably that the customer’s account (or accounts) will have been referred to the bank’s anti-money laundering or anti-fraud department for consideration of whether a Suspicious Activity Report (SAR) should be made to the National Crime Agency (NCA) by the bank’s Money Laundering Reporting Officer (MLRO).
If the MLRO decides that there is a valid basis for a suspicion of money laundering (which is very widely defined) then an SAR will promptly be submitted to the NCA. The SAR will ask the NCA to give consent for the bank to unfreeze the account. Once that SAR is submitted matters will be largely out of the bank’s control – which means that nothing is likely to be achieved after that time by the customer supplying further information, or making a complaint, to the bank.
But the bank will not normally tell the customer whether it has made an SAR or when the SAR was submitted.
Once the bank has submitted an SAR to the NCA the account will remain frozen until either the NCA have replied to the bank authorising the bank to unfreeze the account, or the ‘notice period’ has elapsed without the bank receiving any response at all from the NCA.
The ‘notice period’ is seven working days starting from the day after the bank submits the SAR to the NCA. So, for example, if the bank submitted an SAR on Thursday 9 June 2016 the ‘notice period’ would end on Monday 20 June.
In practice however the NCA aim to respond to these consent requests before the end of the ‘notice period’.
If the NCA require further time to consider the matter they will respond to the bank by refusing consent. Once that happens the account will remain frozen until the ‘moratorium period’ expires. The ‘moratorium period’ is 31 days starting with the day on which the bank receives refusal of consent from the NCA.
So, for example, if the bank receives refusal of consent on Thursday 16 June 2016 the last day of the ‘moratorium period’ will be Saturday 16 July. The account should then be unfrozen on the next working day.
[UPDATE: The Criminal Finances Bill includes a proposal that would allow a court to extend the ‘moratorium period’ by up to a further six months (an additional 186 days). This is not yet law.]
During the ‘moratorium period’ the NCA will continue to consider the position and may at any time give the bank consent to unfreeze the account.
If the NCA do not give consent then the bank should unfreeze the account once the ‘moratorium period’ has expired unless in the meantime the authorities have obtained a ‘restraint order’ from a Crown Court judge.
If a ‘restraint order’ has been obtained from a Crown Court judge then copies of that order are served promptly on the bank and on the customer (and perhaps also on others, such as the Land Registry). A ‘restraint order’ will normally freeze all the assets of the customer indefinitely. There is more information about ‘restraint orders’ HERE.
A customer who is served with a copy of a Crown Court ‘restraint order’ should seek advice from a solicitor experienced in such matters immediately.
What can the customer do?
The bank ‘s customer will not know whether the bank has submitted an SAR to the NCA, when the SAR was submitted, or what response has been received from the NCA, if any.
Because of this the customer will not know when the ‘notice period’ or the ‘moratorium period’ are due to expire.
Aside from very swiftly providing additional information and documents, as already mentioned, the customer will be able to do little more than check with the bank every day whether his account has been unfrozen.
What about the Banking Ombudsman?
In my experience the Banking Ombudsman does not intervene where the bank has a suspicion of money laundering and is acting in accordance with its Terms and Conditions.
How often are bank accounts frozen?
Figures published by the NCA indicate that they receive approximately 8,000 consent requests each year from banks, building societies and similar institutions.
The NCA on average respond to these consent requests in five working days – and give consent in about 90% of cases. In about a further 5% of cases they give consent during the moratorium period.
However even where consent is granted the bank’s customer may become the subject of an investigation by the authorities (such as the police, HM Revenue and Customs or the Single Fraud Investigation Service).
What is the legal basis for this?
How long will the account be frozen?
In the majority of cases the account should be unfrozen within about two weeks. In a minority of cases the account will be frozen for up to about six weeks, perhaps slightly longer.
[UPDATE: The Criminal Finances Bill includes a proposal that would allow a court to extend the ‘moratorium period’ by up to a further six months (an additional 186 days) which would mean that an account could be frozen for up to about 32 weeks without a ‘restraint order’. This is not yet law.]
Where a ‘restraint order’ is obtained the account will remain frozen after that.
What happens after the account is unfrozen?
After the account is unfrozen the bank’s relationship with the customer may return to normal or the bank may write to the customer asking him to close his account (or accounts) within 60 days and move to another bank.
The bank may not give any reason for requiring the customer to close his account.
Can the customer claim damages against the bank?
I am not aware of any cases in which bank customers have successfully claimed damages against their bank in relation to an account which has been frozen because of a reasonable suspicion of money laundering (even where, on investigation, no ‘money laundering’ was discovered).
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(Note: This article applies to matters arising under the provisions of the Proceeds of Crime Act 2002 in England and Wales. Appropriate professional advice should be sought in each individual case.)