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In R (on the application of World Uyghur Congress) v National Crime Agency, the Court of Appeal ("CoA") reversed the decision of the High Court and concluded that the National Crime Agency ("NCA") acted unlawfully in deciding not to open a money laundering investigation into the importation and trade of cotton in the UK from the Xinjiang Uyghur Autonomous Region of China (the "XUAR").
In doing so, the CoA clarified that the payment of consideration does not automatically have the effect of 'cleansing' criminal property, so as to preclude its recovery from anyone who subsequently acquires it, or the recovery of the proceeds of its onward sale. The CoA also confirmed that the threshold for commencing an investigation into a potential money laundering offence is low.
This decision has potentially wide implications for all businesses seeking to manage the risks of criminal conduct taking place within their supply chains, as well as the risks associated with the receipt of criminal property. It will also impact upon the analysis conducted by regulated firms (amongst other companies) as to whether and to what extent a Suspicious Activity Report ("SAR") and/or request for a Defence Against Money Laundering ("DAML") from the NCA is required.
The World Uyghur Congress (the "WUG") is an organisation concerned with representing the collective interests of the Uyghur people, a Turkic ethnic group primarily resident in the XUAR.
In 2020, the WUG presented a body of evidence pertaining to allegations of forced labour and enslavement said to be occurring in the production of cotton in XUAR to UK law enforcement agencies including the NCA. The intention was to persuade the NCA to launch an investigation into businesses in the UK handling products and proceeds derived from cotton from the UXAR for potential money laundering offences under the Proceeds of Crime Act 2002 (“POCA”).
The NCA did not commence an investigation. The decision not to investigate and the reasons for this decision were communicated to WUG in a decision letter dated 10 September 2021 (the "Decision Letter").
The WUG brought a judicial review action arguing that it was clear on the face of the Decision Letter that the NCA was labouring under two fundamental misapprehensions of law when it took the decision not to investigate, namely:
Part 7 of POCA creates three distinct money laundering offences in sections 327, 328 and 329:
For the purposes of each of these offences, "criminal property" is property which a person knows or suspects represents a person's benefit from criminal conduct (s.340(2) and (3) POCA).
Section 329(2)(c) provides a defence for a person who would otherwise commit an offence under s.329 if that person acquires, uses, or possesses criminal property for “adequate consideration”.
Part 5 of POCA provides a scheme to reclaim the proceeds of crime. Under this scheme, property obtained through "unlawful conduct" can be recovered via civil proceedings. There are certain exemptions to this scheme, as contained in s.308. One such exemption prevents the recovery of otherwise recoverable property which a person has obtained on disposal in good faith, for value and without knowledge that that property is a product of unlawful conduct.
In relation to Issue 1, the CoA held that it was "obvious" from the definition of "investigation" in s.341 POCA1 "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". As such, if the NCA had proceeded on the basis that a specific product has to be identified as "criminal property" before an investigation is commenced, that would be a misapprehension.
In relation to Issue 2, the CoA provided clarification on two parts of POCA when discussing the effect of the payment of adequate consideration on the status of criminal property.
The CoA noted that the defence in s.329(2)(c) is personal to the individual concerned. In particular, for the defence to operate the property still has to be "criminal property", which requires the individual within who's hands the property lies having knowledge or a suspicion that the property is derived from criminal conduct. Without such knowledge or suspicion, the property cannot be criminal property and no reliance needs to be placed on the defence. As such, the defence in s.329(2)(c) has no effect on the status of criminal property and is not about bona fide purchasers.
Further, the CoA clarified that the defence under s.329(2)(c) is a defence only to the s.329 offence. As such, a person who can benefit from the defence in respect of acquiring, possessing, or using criminal property may nevertheless commit an offence when they convert, transfer, or remove from England and Wales the same criminal property (under s.327), or if they become concerned in an arrangement in respect of that criminal property (under s.328).
As such, a person who acquires cotton that is the product of forced labour and enslavement may have a defence to the s.329 offence but will still commit a money laundering offence if s/he then use that cotton to make garments, or ships that cotton outside of England and Wales. Employees working for a business that buys, sells and/or uses that cotton may similarly be committing a money laundering offence.
The existence within the supply chain of a person that can rely on the defence does not have the effect of "cleansing" the property more generally.
The CoA then went on to discuss s.308 which provides an exemption for the recovery of the criminal property. The CoA noted that if the requirements of s.308 are met, the property ceases to be recoverable property all together. However, each and all of the requirements of s.308 must be met; it is not enough for adequate consideration to have been paid.
If all the conditions in s.308 are met (i.e., a person has disposed of recoverable property and the person who obtains it on disposal does so in good faith, for value and without notice that it was recoverable property) that property ceases to be recoverable property for all purposes.
The CoA concluded that "on a fair reading of the decision letter, the NCA proceeded on the basis of an error of law". The CoA quashed the decision and remitted the question as to whether an investigation should be carried out under POCA back to the NCA for consideration.
This decision has potentially wide ramifications for all businesses, not only those in the "regulated sector" for AML purposes. The CoA's interpretation of the s.329(2)(c) defence increases the risks of inadvertently committing a money laundering offence and in doing so, increases the burden associated with considering and analysing factual scenarios in order to ensure an offence is not committed under POCA.
In practical terms, the decision of the CoA is likely to lead to an increase in the number of SARs seeking DAMLs as businesses seek to take a cautious approach to compliance with POCA.
Firms should ensure that the effects of POCA on its business are thoroughly understood and appreciated, and that appropriate steps are taken to reduce the likelihood of inadvertently committing a money laundering offence.
Alan Ward, Partner
Anna Purvis, Associate
1 Section 341(2) reads: "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…"