How clean is your cash?

Fatima Jama examines the Court of Appeal’s decision in R (World Uyghur Congress) v National Crime Agency [2024] EWCA Civ 715, and its implications.

Introduction

The Court of appeal recently addressed in R (World Uyghur Congress) v National Crime Agency [2024] EWCA Civ 715 a single, narrow issue, namely, whether the Respondent, the National Crime Agency (“NCA”) misdirected itself in law in one or more material respects when reaching the decision (i) not to investigate alleged offences under Part 7 of the Proceeds of Crime Act 2002 (“POCA”) and (ii) not to commence a civil recovery investigation under Part 5 of POCA, in respect of certain cotton products brought into the UK and monies derived from or connected to their purchase.

Background

The World Uyghur Congress (“WUC”), a non-governmental organisation advocating for exiled Uyghur groups, submitted a report to the National Crime Agency (“NCA”) in April 2020, urging an investigation into whether shipments of cotton goods from the Xinjiang Uyghur Autonomous Region of China (“XUAR”) were produced using forced labour.

The NCA declined to investigate, stating that it needed to first identify a specific product as “criminal property”. This would involve proving that criminal activity occurred and that the property in question was a benefit obtained from that criminal activity. The NCA further contended that if someone in the supply chain received the goods for “adequate consideration” (i.e. market value), this would not only provide a defence against section 329 POCA (which pertains to acquiring, using, or possessing criminal property) but would also cleanse the goods for all subsequent parties in the supply chain. Consequently, the authorities would be prevented from recovering the goods under Part 5 of POCA.

In response, the WUC filed a judicial review claim against several government agencies, including the NCA regarding their decision not to investigate the export of cotton products from the XUAR to the United Kingdom. The WUC had provided extensive evidence of forced labour and human rights abuses in the XUAR, which the High Court acknowledged as “undisputed evidence of instances of cotton being manufactured in the XUAR by the use of detained and prison labour as well as by forced labour in the facilities.” The WUC argued that the agencies should have investigated whether the imported cotton products were made with forced labour or other human rights abuses perpetrated by the People’s Republic of China. The High Court ruled against the WUC, finding that the requirements of POCA were not satisfied. The WUC appealed this decision to the Court of Appeal.

In a landmark ruling in June 2024, the Court of Appeal issued its judgment which overturned the High Court’s decision, stating that the NCA’s choice not to investigate was unlawful. The case was remitted to the NCA for reconsideration. This judgment confirmed that criminal conduct in a supply chain could lead to liability for money laundering offences under the POCA and that the threshold for commencing investigations is low. Furthermore, the decision clarified the limited application of the “adequate consideration” exception. It remains unclear if this ruling will be appealed to the Supreme Court. A spokesperson for the NCA said: “We respectfully note the judgment of the Court of Appeal and are considering our next steps”.

The relevant provisions of POCA

Part 5 of POCA provides a scheme to reclaim the proceeds of crime through civil proceedings. It permits the recovery of criminal assets where there has been no conviction. Section 240 explains that the purpose of Part 5 is to enable the recovery in civil proceedings of property which is, or which represents, “property obtained through unlawful conduct”, as well as enabling such property to be forfeited in civil proceedings.

Section 241 defines unlawful conduct in the following terms:

“241 ‘Unlawful conduct’

(1) Conduct occurring in any part of the United Kingdom is unlawful conduct if it is unlawful under the criminal law of that part.

(2) Conduct which–

(a) occurs in a country or territory outside the United Kingdom and is unlawful under the criminal law applying in that country or territory, and

(b) if it occurred in a part of the United Kingdom, would be unlawful under the criminal law of that part, is also unlawful conduct.

(2A) Conduct which–

(a) occurs in a country or territory outside the United Kingdom,

(b) constitutes, or is connected with, the commission of a gross human rights abuse or violation (see section 241A), and

(c) if it occurred in a part of the United Kingdom, would be an offence triable under the criminal law of that part on indictment only or either on indictment or summarily, is also unlawful conduct.

(3) The court or sheriff must decide on a balance of probabilities whether it is proved– (a) that any matters alleged to constitute unlawful conduct have occurred, or (b) that any person intended to use any property in unlawful conduct.”

Part 7 of POCA creates three distinct “money laundering” offences (sections 327-329):

Section 327(1) is concerned with certain specified dealings with “criminal property”. It provides:

“327 Concealing etc.

(1) A person commits an offence if he –

(a) conceals criminal property;

(b) disguises criminal property;

(c) converts criminal property;

(d) transfers criminal property;

(e) removes criminal property from England and Wales or from Scotland or from Northern Ireland.”

Section 328(1) creates an offence of becoming involved in an arrangement to launder “criminal property”. It provides as follows:

“328 Arrangements

(1) A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.”

Section 329(1) creates an offence of acquiring, using, or possessing “criminal property”. It provides:

“329 Acquisition, use and possession

(1) A person commits an offence if he –

(a) acquires criminal property;

(b) uses criminal property;

(c) has possession of criminal property.”

Section 329(2)(c) establishes an exemption if a person acquires or has possession of criminal property for “adequate consideration.” It provides:

(2)But a person does not commit such an offence if—

…

(c)he acquired or used or had possession of the property for adequate consideration;…”

For the purposes of each of the offences contained in sections 327 to 329, “criminal property” is defined in the interpretation section, section 340, by reference to another concept, “criminal conduct”. Section 340 provides, so far as is relevant:

“(2) Criminal conduct is conduct which –

(a) constitutes an offence in any part of the United Kingdom, or

(b) would constitute an offence in any part of the United Kingdom if it occurred there.

(3) Property is criminal property if –

(a) it constitutes a person’s benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly), and

(b) the alleged offender knows or suspects that it constitutes or represents such a benefit.

(4) It is immaterial–

(a) who carried out the conduct;

(b) who benefited from it;

(c) whether the conduct occurred before or after the passing of this Act.

(5) A person benefits from conduct if he obtains property as a result of or in connection with the conduct.

…

(8) If a person benefits from conduct his benefit is the property obtained as a result of or in connection with the conduct.

(9) Property is all property wherever situated and includes—

(a) money;

(b) all forms of property, real or personal, heritable or moveable;

(c) things in action and other intangible or incorporeal property.”

The Ruling

The appeal focused on whether the NCA had acted correctly in deciding not to use its investigatory powers under POCA to investigate the import of certain cotton products from XUAR. The Court of Appeal found that the NCA’s decision was based on two incorrect legal propositions, that that were “wrong as a matter of law”.

“… it is clear that, on a fair reading of the decision letter, the NCA proceeded on the basis of an error of law. The decision letter, read as a whole, would convey to the reasonable reader that the NCA proceeded on the basis i) that it was necessary to be able to identify specific criminal property and criminal conduct before there can be a “proper basis” for a POCA investigation, (whether criminal or civil) and moreover ii) that the provision of “adequate consideration” anywhere in the supply chain would prevent any goods imported into the UK from being identified as criminal property or recoverable property. Both those propositions are, and are now accepted to be, wrong as a matter of law.”

These findings followed several concessions by the NCA, effectively retracting the position it took in the High Court proceedings.

Specific Criminal Property and Criminal Conduct

The NCA argued that a POCA investigation would be “misconceived” without specifically identified criminal property and conduct.

“An investigation premised on potential breaches of the Proceeds of Crime Act 2002 (“POCA”) is misconceived. In the absence of specifically identified criminal property and criminal conduct, POCA is of no application.”

However, overturning that decision, the Court of Appeal relied on the definition of “Investigations” in section 341 of POCA. Section 341 (2) provides that:

“For the purposes of this Part a civil recovery investigation is an investigation for the purpose of identifying recoverable property or associated property and includes

a) investigation into whether property is or has been recoverable property or associated property…”

The Court of Appeal found that it was “obvious from this definition that the investigating body does not need to know that recoverable property exists before commencing an investigation, since the specific purpose of that investigation may be to ascertain that fact”.

Adequate Consideration

The NCA argued that if a product had been transacted for adequate consideration, the product would not be criminal property for the purchaser. The High Court agreed, but the Court of Appeal disagreed, stating that adequate consideration by one party does not preclude the property from being criminal in the hands of another party with the requisite knowledge or suspicion.

The Court of Appeal also examined section 308 of POCA, which sets out the general exceptions to civil recovery.

“(1)If—

(a)a person disposes of recoverable property, and

(b)the person who obtains it on the disposal does so in good faith, for value and without notice that it was recoverable property, the property may not be followed into that person’s hands and, accordingly, it ceases to be recoverable.”

If a person disposes of recoverable property and the person who obtains it on the disposal does so in good faith, for value and without notice that it was recoverable property, the property may not be followed into that person’s hands, and accordingly it ceases to be recoverable. However, the fact that the individual paid the market value for the property is not enough in and of itself to prevent it from being recoverable. They must show that they acted in good faith and were not on notice that the property was obtained by unlawful conduct. A person who suspected that it was would not be able to rely on section 308.

“… A purchaser or importer who suspects the goods to be the product of forced labour or other human rights abuses would not be able to rely on section 308. If, and to the extent that, the Judge accepted the NCA’s submission recorded in the final sentence of [75] that, at any point in a market supply chain stretching many thousands of miles, the chain could be broken merely by the use of adequate consideration in any of the transactions involved, he was wrong to do so.”

Conclusion

The Court of Appeal’s judgment provides clarification on the application of POCA to illegal conduct in supply chains. It limits the “adequate consideration” defence for businesses involved in tainted supply chains. Companies trading goods with knowledge or suspicion of forced labour involvement could face money laundering investigations and potential liabilities, including penalties and confiscation of goods. Financial institutions processing related payments could also be implicated for handling the proceeds of crime.

The NCA’s capacity to investigate such cases, especially those where proving criminal activity in the supply chain is challenging, remains uncertain. Nonetheless, this decision is pivotal, and businesses should reassess their supply chain due diligence procedures to effectively identify, investigate, and address concerns, particularly in high-risk industries. Given the recent changes in attributing criminal liability to companies, businesses must now carefully manage supply chain risks to avoid potential legal and reputational harm.