A recent Court of Appeal decision [1] on the UK Proceeds of Crime Act (POCA) has provoked significant interest given its focus on the potential for money-laundering offences to occur within the context of global supply chains where criminal conduct is suspected. But it is the court’s comments on a relatively narrow but important point, namely the impact of the adequate consideration exemption, that could impact how anti-money laundering compliance is approached in practice.
This case may, at least for a period, lead to some Suspicious Activity Reports being filed in circumstances where they may not have been filed previously. But, ultimately, even though a period of uncertainty and constructive debate with the relevant enforcement agencies on the scope of this decision is anticipated, it should be possible to view the Court’s comments in a way that is consistent with earlier case-law and practice, especially given the limited scenario that was before the Court in this case.
We unpack the decision here and consider what it means for those grappling with these issues in practice.
The relevant provisions of POCA under consideration
The primary money-laundering offences under Part 7 of POCA are:
- concealing, disguising, converting or transferring criminal property (s.327);
- entering into an arrangement which facilitates the acquisition, retention, use or control of criminal property (s.328); and
- acquiring, using or possessing criminal property (s.329). Although there is an exemption from criminal liability under s.329 if the person acquired, used or possessed the property in return for adequate consideration.
Part 5 of POCA also provides for civil recovery of the proceeds of crime, which is subject to an exception if the holder of the property received it in good faith, for value, and without notice that it represented the fruits of unlawful conduct.
Background – an NGO challenges NCA decision not to launch an AML investigation
An NGO sought a judicial review of the decision by the National Crime Agency (NCA) not to commence a money laundering investigation or civil recovery proceedings in relation to a certain class of goods imported into the UK that allegedly represented the proceeds of a crime abroad (in this case, alleged forced labour). The High Court initially found in the NCA’s favour. The NGO appealed.
The NCA set out two grounds in its original letter to explain why it was declining to commence an investigation. One of those reasons was understood, on a fair reading of the NCA’s letter, to be that it considered the provision of adequate consideration anywhere in the supply chain would prevent any goods imported into the UK from being identified as criminal property (for the purposes of Part 7 offences) or recoverable property (for the purposes of Part 5).
The Court held that this (and another ground in the letter which related to the threshold for when the NCA might commence an investigation) was an error of law (something the NCA accepted) and remitted the decision of whether to commence an investigation to the NCA for further consideration.
Unpacking what this means for the operation of the adequate consideration exemption
The particular focus for present purposes is the Court’s analysis of the adequate consideration exemption under s.329 and what this may mean for the operation of the other money-laundering offences under ss.327 and 328.
The Court of Appeal noted that, to the extent that the High Court Judge had accepted that the use of adequate consideration in any of the transactions involved in a lengthy supply chain could break the link with the underlying criminal conduct, he “was wrong to do so” and, rather, the Court still considered such property to be criminal property.
Further, the Court of Appeal noted that the adequate consideration exemption protects a purchaser while he has the property in his possession, even if he knows it is the proceeds of crime, but it ‘would not protect him if, for example, in that knowledge, he transferred it to someone else, or took it out of the country and thereby became potentially liable under section 327(1)(d) or (e)’ (emphasis added).
There is clear tension between these comments (which are potentially obiter) and the perceived wisdom to date, which has been that the adequate consideration exemption also has a limiting effect on ss.327 and 328. And there are obiter dicta in the leading Court of Appeal case of R v Afolabi [2] to support this long-held proposition.
The Court in Afolabi suggested that when property is sold to a good faith purchaser then it does not remain criminal property. Although the purchase money is criminal property, the original property does not retain this characteristic as it passes through various hands. Concluding that if this was not the case “the effect of that would be that the benefit from the initial criminal conduct would multiply exponentially each time the property was sold on. Both the original property and the proceeds of sale on each subsequent sale would represent criminal property. That cannot be the right analysis”.
These comments in Afolabi support the view that ss. 327 and 328 should be interpreted in a manner that protects third parties who, acting in good faith, receive the proceeds of crime in exchange for adequate consideration. But the comments in the WGU v NCA now cast some doubt on this approach.
A practical way forward?
In future cases, there may be an opportunity to distinguish this case or challenge whether it represents binding authority. The Court accepted that the “appeal raised a single, narrow issue”; namely, whether the NCA, in deciding not to start a money laundering investigation or civil recovery proceedings, had proceeded on the basis of an error in law. There was no issue or facts before the Court as to whether an offence had been committed under criminal law.
From a practical perspective, especially for those facing these questions regularly, perhaps not much has changed. The operation of POCA can be complex and fact-specific. This has always been the case, and this decision simply underlines the need for a careful examination of the facts in each case, especially where the adequate consideration exemption may apply. Even where the exemption applies, businesses may need to assess whether to file a precautionary Suspicious Activity Report (SAR) with a Defence Against Money Laundering request as a risk mitigation measure or to engage in early dialogue with the relevant enforcement agency on the specific facts.
We consider these types of questions with clients on a regular basis. Please do get in touch if you would like to discuss these issues further.
[1] R (on the application of World Uyghur Congress) v National Crime Agency [2024] EWCA Civ 715
/Passle/5832ca6d3d94760e8057a1b6/MediaLibrary/Images/2024-12-02-11-53-01-136-674d9f9d4c309d768a583799.jpg)