UK court decision highlights money laundering risks in global supply chains
10 July 2024
10 July 2024
In a landmark judgment, the Court of Appeal found that the National Crime Agency's (NCA) decision not to investigate cotton goods imported from the Xinjiang Uyghur Autonomous Region (the XUAR) of China, which were allegedly produced using slave labour, was unlawful.
Over an 18 month period from April 2020, the World Uyghur Congress (WUC) provided evidence to the NCA regarding alleged human rights abuses in the production of cotton goods in the XUAR. The WUC invited the NCA to open an investigation into money laundering offences and potential recovery of proceeds of unlawful conduct under the Proceeds of Crime Act 2002 (POCA).
The NCA declined to investigate or commence civil recovery proceedings. The WUC brought a judicial review contending that the NCA's decision was based on two fundamental misapprehensions of law:
Dove J held at first instance in the High Court that the NCA had not misdirected itself in law in its decision not to investigate.
The principal money laundering offences under POCA, in broad terms, prohibit dealing with criminal property (which is property a person knows or suspects constitutes or represents a benefit from criminal conduct). The test for suspicion is low and requires only a possibility which is more than fanciful that a person has been engaged in or has benefited from criminal conduct.
A Defence Against Money Laundering (DAML) can be requested from the NCA where a person has a suspicion that property they intend to deal with is criminal property, and by dealing with the property they risk committing a money laundering offence under POCA. A person does not commit a money laundering offence if a DAML is received from the NCA.
It was common ground between the parties that (i) serious human rights abuses are occurring in the XUAR cotton industry, and (ii) products derived from forced labour anywhere in the world can amount to criminal property for the purposes of POCA.
Prior to the appeal hearing, four key concessions were made by the NCA:
Against the backdrop of these concessions, the Court of Appeal held that the NCA had erred in law in its decision not to investigate. WUC's appeal was therefore allowed and the Court of Appeal remitted the question of whether to carry out an investigation under POCA back to the NCA for reconsideration.
The most significant aspect of the decision is the Court of Appeal's narrow interpretation of the "adequate consideration" exemption under section 329 of POCA. Specifically, the Court of Appeal's decision suggests that payment of adequate consideration does not preclude that property from being "criminal property", rather it only serves as an exemption from liability for the purchaser while they possess the property. Critically, a purchase for market value in a supply chain does not "cleanse" the property of its criminal characteristic if passed to someone else who holds the requisite knowledge or suspicion of criminality, thereby exposing that person to the risk of committing money laundering offences under POCA. Moreover, the adequate consideration exemption only affords protection to an offence under section 329(1) of POCA and will not protect a person who, with the requisite knowledge or suspicion, deals with the property in a manner which constitutes an offence under one of the other principal money laundering offences (for example, by transferring the criminal property to another person under section 327(1)).
This judgment could have a range of potentially significant consequences for businesses and the investigation of money laundering offences in the UK:
Contributing author: Asha Owen-Adams, Junior Associate
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.
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