HMRC v Cheng Xing & Anor

For a property freezing order under Proceeds of Crime Act 2002, the applicant must show a good arguable case that the property is recoverable property. Money laundering may be inferred from the way funds are handled; proof of the underlying offence generating the money is not required at the interim stage. A real risk of dissipation is also required, although allegations of dishonesty or money laundering will commonly support that inference. The court may proceed without notice where notice could prejudice recovery proceedings. Suspicious transactions, unexplained wealth, substantial transfers, dispersed cash deposits and international links may collectively establish the necessary case and risk.

HM Revenue and Customs applied without notice for a property freezing order under section 245A of the Proceeds of Crime Act 2002 against Cheng Xing and Yan Zhang. The order concerned three properties and the balance of a savings account, with an approximate combined value of £1,425,890.

HMRC relied on extensive financial analysis showing declared income substantially below expenditure, property acquisitions and transfers involving third parties and China. The central issues were whether there was a good arguable case that the assets were recoverable property, whether there was a real risk of dissipation, whether the application should proceed without notice, and whether HMRC had complied with its duty of full and frank disclosure.

1. Property freezing order granted. The court held that HMRC had established a good arguable case that the three properties and the savings account balance were recoverable property obtained through unlawful conduct.
2. The expression “good arguable case” requires more than a case barely capable of serious argument, but does not require a better than 50 per cent prospect of success. In allegations of fraud or serious impropriety, a good prospect of succeeding at trial is sufficient; a merely speculative case is not.
3. The court was entitled to infer money laundering from the way the funds had been dealt with. It was unnecessary at this stage to prove the underlying offence which generated the cash. The combination of unexplained wealth, minimal declared income, high expenditure, outright property purchases, dispersed cash deposits and extensive third-party and overseas transfers supported the inference.
4. There was a real and immediate risk of dissipation. The respondents’ longstanding links with China and their demonstrated ability to move substantial sums through different mechanisms and jurisdictions created a substantial risk that the assets could be liquidated or transferred if notice were given.
5. The application properly proceeded without notice under section 245A(3) of the Proceeds of Crime Act 2002, because notice could prejudice HMRC’s ability to obtain a recovery order. HMRC had also complied with its duty of full and frank disclosure, including acknowledging the possibility that some transfers might be legitimate.
6. The order was proportionate and necessary to preserve the assets while the civil recovery investigation continued. A short return date was set so that the respondents could be heard.