Overview
On June 27, 2024, the UK Court of Appeal handed down its judgment in the case of World Uyghur Congress, R (on the application of) v National Crime Agency [2024] EWCA Civ 715, in which the court held that a decision by the National Crime Agency (“NCA”) not to open a money laundering investigation into cotton imports from the Xinjiang Uyghur Autonomous Region (“XUAR”) of China and monies derived from, or connected to, their purchase was unlawful. This ruling has potentially significant implications for businesses operating in the UK, as the Court of Appeal adopted a narrow interpretation of the “adequate consideration” exception under Section 329 of the Proceeds of Crime Act 2002 (“POCA”), which means that dealing in goods that are known or suspected to be produced using forced labour or other criminal activities, as well as products incorporating those goods, can give rise to a money laundering offence, even when adequate consideration has been provided for the goods or products. In light of the Court of Appeal’s decision, businesses should assess the adequacy of their existing policies, procedures, and controls addressing the identification, investigation, and remediation of potential misconduct in their supply chains, and make any necessary enhancements.
Background
Part 7 of POCA establishes three substantive money laundering offences, as follows:
- Section 327, which establishes an offence of dealing with criminal property in certain, specified ways (g., by concealing, disguising, converting, or transferring criminal property, or removing criminal property from the UK);
- Section 328, which establishes an offence of facilitating the acquisition, retention, use, or control of criminal property by or on behalf of another person; and
- Section 329, which establishes an offence of acquiring, using, or possessing criminal property.
Liability for these money laundering offences requires that the offender knows or suspects that the relevant property is criminal property (i.e., it constitutes or represents a benefit of somebody’s criminal conduct in whole or in part whether directly or indirectly).
POCA includes various exceptions to these offences. Particularly, Section 329(2) of POCA creates an exception to the offence of acquiring, using, or possessing criminal property if adequate consideration (i.e., fair or market value) is given for the criminal property. The Section 327 and 328 money laundering offences under POCA do not contain a comparable exception.
In pertinent part, the World Uyghur Congress (“WUC”), a non-governmental organisation that seeks to promote the collective interests of the Uyghurs, submitted evidence to the NCA concerning forced labour and human rights abuses in the XUAR cotton industry, which the WUC asserted produces a significant majority of the cotton originating from China. Under POCA, products derived from forced labour occurring anywhere in the world can amount to “criminal property” for the purposes of (i) a criminal money laundering offence under Part 7 of POCA, or (ii) civil recovery of the proceeds of crime under Part 5 of POCA. The WUC sought to persuade the NCA to launch a money laundering investigation under POCA on the basis that cotton goods originating in the XUAR or their proceeds could be criminal property such that trading in them would amount to a substantive money laundering offence.
The NCA decided not to investigate for a variety of reasons, including because of its interpretation of the adequate consideration exception under Section 329 of POCA. In line with a view widely held by the UK government, as well as various representative and regulatory bodies for the UK legal profession, the NCA took the position that the giving of adequate consideration in return for criminal property means that no money laundering offences can be committed at that time or subsequently in relation to that criminal property because the adequate consideration effectively cleanses the criminal character of the property.
The WUC brought a judicial review challenging the NCA’s decision not to investigate, which was unsuccessful at first instance. The WUC subsequently appealed the case to the Court of Appeal.
Decision of the Court of Appeal
Following concessions on a number of points by the NCA, the appeal ultimately centered on whether – in refusing to open a criminal investigation into consignments of Chinese cotton products under POCA – the NCA had erred in its interpretation of the law.
The Court of Appeal unanimously overturned the first instance decision, finding in favour of the WUC that the NCA had misdirected itself in law when it decided not to investigate, quashing the NCA’s decision, and ordering the NCA to re-consider whether it should undertake a money laundering investigation.
With respect to interpretation of the adequate consideration exception under Section 329(2) of POCA, the Court of Appeal held that the exception only operates in relation to the acquisition, use, or possession of criminal property under Section 329 of POCA and does not cleanse the property of its criminal character. The Court of Appeal’s interpretation of this exception is markedly narrower than was previously understood to be the case. To put the Court of Appeal’s decision in practical terms, a company can accept goods that they know or suspect to represent criminal property for which they pay fair value in reliance on the adequate consideration exception. However, the goods still represent criminal property in the company’s hands and they cannot be used to manufacture another product or be sold to another person without committing one of the other money laundering offences under Section 327 or 328 of POCA unless a defence against money laundering (“DAML”) has first been obtained from the NCA. Additionally, if a person further down the supply chain knows or suspects that some or all of the property they receive in return for adequate consideration is criminal property, they could also commit a money laundering offence (absent a DAML) when they make use of the property because the adequate consideration exception would not cover that onward dealing with the property.
The threshold for suspicion under POCA is low – this is satisfied when there is a more than fanciful possibility that the property is criminal property, which increases the significance of the Court of Appeal’s interpretation of the limits of the adequate consideration exception.
Key Considerations for Companies
The maximum penalties for committing a substantive money laundering offence under POCA are an unlimited fine for companies, and imprisonment for up to 14 years for individuals. While the impact of the Court of Appeal’s decision in this case on the volume of money laundering investigations instigated against companies and their personnel remains to be seen, this case underscores the importance of companies understanding, and taking steps to mitigate, their potential exposure in light of the Court of Appeal’s narrower interpretation of the adequate consideration exception.
As an initial step, companies should consider whether their business operations bring them within the scope of POCA and, if they do:
- Undertake a review of the existing policies, procedures, and controls they have implemented to monitor criminal conduct in their supply chains to assess whether they remain fit for purpose. This is particularly important when a supply chain has been identified as posing a heightened risk of human rights abuses, environmental damage, or other criminality.
- When necessary, take steps to strengthen processes and controls, for example, by –
- clearly setting out the triggers and pathways for investigating whistleblower or other reports of wrongdoing within the supply chain;
- considering at an early stage whether to accept delivery of goods that are suspected of being tainted by criminal conduct; and
- instigating processes that prompt early consideration of whether to file a DAML to authorize activity otherwise prohibited under POCA.
- Undertake a review of model contractual provisions with business partners such as suppliers and incorporate, on a risk appropriate basis, protective provisions that comply with the restrictions under POCA on “tipping off” (e., disclosing information that is likely to prejudice a money laundering investigation) and making disclosures likely to prejudice a money laundering investigation.
While the potential implications of the Court of Appeal’s judgment may lead to calls for reform of POCA, or additional government guidance, companies should act promptly to ensure that they remain legally compliant and protect themselves against the risk of investigation or prosecution. For more information on these developments, contact the authors of this post, Alexandra Melia or Elliot Letts, in Steptoe’s Anti-Money Laundering team in London.
