Series
Blogs
Court of Appeal decision set to increase scrutiny on money laundering in international supply chains
Court of Appeal decision set to increase scrutiny on money laundering in international supply chains
15 July 2024
Series
Blogs
15 July 2024
On 27 June 2024, a Court of Appeal decision overturned a first instance decision of the High Court and found in favour of the World Uyghur Congress (“WUC”) in its challenge of a decision by the National Crime Agency (“NCA”) not to investigate potential money laundering offences under the Proceeds of Crime Act 2002 (“POCA”) in relation to the importation of cotton allegedly produced using forced Uyghur labour in China.
In April 2020, the WUC approached the NCA, amongst other agencies, with alleged evidence of forced labour and enslavement occurring in the supply chains of specific suppliers in China’s Xinjiang Uyghur Autonomous Region, attempting to persuade them to take action against the importation of goods originating from the region. The WUC requested that the agency investigate companies importing goods from the area for alleged money laundering offences, relating to their handling of the proceeds of suspected forced labour and enslavement. The NCA ultimately decided not to investigate, leading the WUC to challenge that decision under judicial review grounds in the High Court.
The High Court found in the NCA’s favour, holding that it had not misdirected itself when it had declined to use its investigatory powers. The WUC challenged that ruling in the Court of Appeal.
The Court of Appeal overturned the High Court’s decision and remitted the matter back to the NCA for reconsideration, on the basis that the NCA’s decision not to investigate was premised on two mischaracterisations of the law, namely that:
The ruling has clarified the effect of the “adequate consideration” exemption on the status of “criminal property”, with potentially wide implications for businesses whose supply chains may be tainted with criminal conduct. Under section 329 of POCA, it is an offence to acquire, use or possess criminal property. However, a person does not commit the offence where they pay adequate consideration for the property. In deciding not to pursue the investigation, the NCA incorrectly considered that a person’s reliance on this exemption “cleansed” the property for the purposes of the remainder of the supply chain.
The Court of Appeal disagreed. It held that reliance on the exemption to the section 329 offence does not change the criminal status of the property, so even if a person acquires criminal property in reliance on the exemption, those goods will nevertheless remain criminal property and the same person may commit a different money laundering offence if they subsequently transfer the property to a third party (an act for which there is no “adequate consideration” exemption). Depending on the third party’s state of mind and whether they have themselves paid adequate consideration, that third party purchaser may also incur liability under POCA.
In making clear that criminal property is not “cleansed” by the provision of adequate consideration earlier in the chain (and therefore that each person in the chain is capable of attracting liability under POCA, depending on their own state of mind and the adequacy of any consideration they have paid), the ruling serves to remind UK companies of the importance of monitoring their international supply chains to identify and manage ESG and associated money laundering risks. This need is all the greater given the recent reforms on corporate criminal liability, which have made it significantly easier to prosecute companies for economic crimes.1
The Court of Appeal also helpfully clarified, following some confusion arising from an earlier Court of Appeal case, that the “adequate consideration” exemption is not intended to protect bona fide purchasers for value. This is because bona fide purchasers have no need to rely on it. For property to be criminal in a person’s hands, that person must know or suspect that it derives from criminal conduct (in other words, the concept of knowledge or suspicion is baked into the definition of “criminal property”, such that the same property can be criminal property in the hands of one person but not in the hands of another, depending on their respective states of mind). Where a person is a bona fide purchaser and therefore has no knowledge or suspicion that the property derives from criminal conduct, they cannot be said to deal with criminal property and so the elements of the offence are not made out.
Finally, the case demonstrates that, while it is “only in highly exceptional cases [that] the Court [will] disturb the decisions of an independent prosecutor and investigator”2, the Court will nevertheless use its discretion to interfere where the circumstances warrant it, namely where the relevant body has erred in its application of the law.
The case is R (on the application of World Uyghur Congress) v National Crime Agency [2024] EWCA Civ 715.