Guidance note for frozen bank accounts

6 December, 2018
by: Cripps Pemberton Greenish

Have you had your bank account frozen without explanation?  This guidance note explains what can cause your account to be frozen and provides guidance if you find yourself in this situation.  Please note that in most cases the involvement of lawyers is unlikely to assist in getting accounts unfrozen

The implementation of the Proceeds of Crime Act 2002 (POCA) has serious implications for financial institutions, who are committing an offence if they fail to report suspicion of money laundering.  Consequently, banks have a responsibility to monitor their customers’ bank accounts and identify unusual transactions.  By using computer algorithms, they are able to identify suspicious activity that could be connected with money laundering or terrorist financing.

Each bank will have a nominated officer who, under sections 330–332 of POCA, is under a duty to report suspicious information to the National Crime Agency (NCA).  This is widely known as a Suspicious Activity Report (SAR).  Whilst reporting the information to the NCA, the nominated officer will request consent from the NCA to proceed with the customer’s transaction.

At the same time that the nominated officer files the SAR, the bank will freeze the customer’s account.  This is of huge financial inconvenience to the customer as whilst the bank account is frozen, they will be unable to make any transactions or access funds.  This means that anything from day to day transactions to monthly standing orders will not be possible.  The period of time the account is frozen for is dependant upon the response of the NCA.

Once the SAR has been filed, the NCA is required to respond within 7 days concluding whether or not the transaction should be permitted.

If the NCA does not respond to the bank, consent is implied, the transaction permitted and the account will be unfrozen.  Likewise, the outcome will be the same if the NCA responds to the bank within 7 days consenting to the transaction.

However, if the NCA responds to the bank refusing consent to proceed with the transaction, the bank must keep the account frozen (‘inhibited’) for a further 31 days whilst the NCA investigates.  This period of time is referred to as the ‘moratorium period’.

The inhibition will remain in place until the expiry of the moratorium period, at which point the NCA will conclude whether to permit the transaction (as the funds will be bona fide) or seize the funds.  The account will be unfrozen and the customer will again have access.

Since the Criminal Finances Act 2017 came into force, law enforcement agencies can apply to the Crown Court to extend the moratorium period by up to six months.  The court may only extend the inhibition if it is satisfied that any investigation is ongoing, being conducted diligently and expeditiously, further time is needed to complete the investigation and that such an extension is considered reasonable in all the circumstances.

The bank will be unable to discuss why an account has been frozen with the customer as, under section 33 POCA, it is a criminal offence to ‘tip somebody off’ about a SAR.  If the bank discusses the freezing order with the customer, this could prejudice any investigations.

Section 33 POCA does not take into account the length of time the account has been frozen for.  Therefore, the bank is unlikely to provide an explanation to the customer regardless of how long the account has been frozen or the harshness of the impact on the customer.

Unfortunately, nothing much can be done to unfreeze the account immediately.  It is important to remain calm and cooperate with the bank and the NCA as much as possible.

If the NCA fails to respond within the initial 7 days of the SAR being filed, the account will be unfrozen and the inhibition will only have lasted for 7 days.  However, if the NCA responds to the bank requiring an investigation, then an account could be frozen for a further 31 days.  In rare cases an application to Crown Court may be made to extend this period even further.

Neither the bank nor the NCA are permitted to disclose the contents of the investigation or even acknowledge that an investigation is being carried out.  

If the bank is acting in accordance with POCA then it will not be liable for any loss to the customer caused by the account being frozen.

In summary, the negative impact on innocent customers of having their accounts frozen whilst investigations are carried out is considered to be an acceptable price to pay to prevent money laundering and other financial crime.  Innocent customers have no option but to be patient and hope that such investigations are swiftly progressed.  If the account remains frozen after the time allowed for such investigations and the bank fails to communicate satisfactory reasons for this then a complaint to the Financial Ombudsman may assist in achieving a resolution –