In its current judgment in World Uyghur Congress v Nationwide Crime Company, the Court docket of Attraction addressed the appliance of the cash laundering provisions of the Proceeds of Crime Act 2002 (POCA) within the context of worldwide provide chains. The attraction court docket’s clarification of the scope of the ‘enough consideration’ exemption below POCA has wide-reaching implications not just for companies with world provide chains however for all skilled providers corporations within the UK.
WUC v NCA
The case adopted an unsuccessful judicial evaluation through which the World Uyghur Congress sought to problem the choice to not examine whether or not consignments of cotton items into the UK, originating from the Xinjiang Uyghur Autonomous Area of China (XUAR), had been the product of pressured labour or different alleged human rights abuses by the Individuals’s Republic of China.
There was no dispute that there was ‘a various, substantial, and rising physique of proof that critical human rights abuses are occurring within the XUAR cotton trade on a big scale…. 85% of cotton grown in China comes from the XUAR’. It was additionally accepted that merchandise derived from legal conduct resembling pressured labour might signify ‘legal property’ for the needs of POCA, such that the importation of such items may theoretically signify a cash laundering offence below Half 7 of POCA.
As a substitute, the case targeted on slender points as to the appliance of POCA, with explicit concentrate on the ‘enough consideration’ exemption. The exemption – which solely applies to the substance offence of cash laundering opposite to part 329 (and never these offences below sections 327 or 328) – supplies that an individual doesn’t commit the offence of cash laundering below part 329 of POCA if that individual acquired, used or had possession of the legal property for enough consideration. The problem right here was whether or not the presence of somebody within the provide chain who can depend on the enough consideration exemption, would have the impact of ‘cleaning’ the property going ahead.
Enough consideration
The most recent Crown Prosecution Service steering on cash laundering offences (up to date April 2024) describes the scope of the enough consideration exemption as follows: ‘This covers instances the place the funds or property have been acquired by a purchase order for a correct market value or comparable alternate and to cater for any injustice which could in any other case come up: for instance, within the case of tradesmen who’re paid for odd consumable items and providers in cash that comes from crime.
‘It can additionally apply the place skilled advisors (resembling solicitors or accountants) obtain cash for, or on account of prices (whether or not from the consumer or from one other individual on the consumer’s behalf). It could not apply if the worth of the work carried out or meant to be carried out was considerably lower than the cash acquired for or on account of prices.’
The impact of the Court docket of Attraction determination, nonetheless, is to considerably slender the sensible impact of the exemption by discovering that the enough consideration exemption is private to the person involved and has no impact on the standing of the property itself. Which means that the exemption ‘would afford safety to the purchaser whereas he had the property in his possession even when he knew it was legal property, however it will not shield him if, for instance, in that data, he transferred it to another person, or took it in another country and thereby grew to become doubtlessly liable’ pursuant to different substantive cash laundering offences below Half 7 of POCA.
To undertake the instance within the CPS steering, which means that, though a tradesman might settle for funds that he is aware of or suspects to signify legal property in reliance on the enough consideration exemption, these monies would stay legal property for as long as the tradesman retained the data or suspicion, such that he wouldn’t be capable of switch these monies onwards to anybody else with out committing a separate cash laundering offence.
Provide chains
The choice signifies that the importation of products that signify legal property might represent the offence of getting into into an association for the acquisition, use or possession of legal property, opposite to part 329, however that, in some unspecified time in the future within the provide chain, the products are obtained for enough consideration. UK corporations with provide chains involving items that will signify the good thing about legal conduct – which may embrace, for instance, human rights abuses, or environmental harms – now face an actual danger of legal legal responsibility within the UK below POCA.
As fee of a substantive cash laundering offence below POCA requires data or suspicion that the property in query is legal, the prospect of legal responsibility stays contingent on an enforcement physique having the ability to set up that the corporate in query had the requisite frame of mind. Considerably perversely, notably within the mild of accelerating expectations on corporations to conduct due diligence on their provide chains, this has the potential to absolve these corporations who fail to take action successfully.
The UK has taken a sluggish and piecemeal strategy to legislating for provide chain due diligence, with the tempo of change largely set by corporations, pushed principally by reputational considerations led by retail shoppers and traders. In contrast, in April, the EU adopted the Company Sustainability Due Diligence Directive. This may require affected corporations to actively establish and handle potential and precise hostile human rights and environmental impacts all through their provide chain.
The EU reform, which will even chunk on non-EU corporations with a turnover in extra of €450m within the EU, appears sure to drive additional legislative change globally, together with within the UK. It seems more and more seemingly that UK corporations will even quickly be mandated to conduct extra thorough due diligence enquiries all through their provide chain. Along with the strategy adopted in World Uyghur Congress v Nationwide Crime Company, that is going to have critical implications for companies within the coming years.
Skilled providers
The impact of World Uyghur Congress v Nationwide Crime Company will even be felt by skilled providers corporations who’ve hitherto relied on the enough consideration exemption when receiving consumer monies in circumstances the place they might signify legal property.
Following World Uyghur Congress v Nationwide Crime Company, though these monies should still be acquired by such corporations in reliance on the enough consideration exemption, they might not be transferred onwards – for instance, by being utilized in opposition to invoices or used to pay disbursements with out the fee of a substantive cash laundering offence. This interpretation of POCA successfully renders the enough consideration exemption ineffective for the needs of carrying on regular enterprise because the onward motion of monies would require the submission of a defence in opposition to cash laundering to the Nationwide Crime Company on every event.
The place for regulation corporations is barely improved in as far as the courts have beforehand thought-about the appliance of principal cash laundering offences below POCA in Bowman v Fels [2005] 4 All ER 609. The choice in that case was that part 328 of POCA was not meant to cowl the odd conduct of litigation by authorized professionals, however the court docket’s reasoning prolonged additional at [63] (emphasis added): ‘To our thoughts, it’s as inconceivable that parliament, being the UK legislator, had the odd conduct of authorized proceedings to judgment in thoughts below s328 (or certainly below ss327 and 329) as it’s to suppose that the European legislator had them in thoughts in article 7. If the European legislator didn’t intend article 7, and the UK legislator didn’t intend ss327-9, to cowl the odd conduct of authorized proceedings or the odd giving of authorized recommendation in circumstances not making the authorized adviser a co-conspirator or accent to every other offence [emphasis added], it was pointless – and would certainly have been inappropriate – to have launched into both article 7 or into ss327-9 any equal exceptions to these supplied, respectively, by article 6 and s330(6)(b), (10) and (11). Assist for our conclusions is supplied by linguistic and coverage issues.’
Legislation corporations are prone to search to depend on the indications in Bowman v Fels that the odd giving of authorized recommendation will not be topic to the substantive cash laundering offences at sections 327-329 of POCA. The coverage arguments relied on in Bowman v Fels embrace that authorized recommendation is to be considered a elementary proper that’s not frivolously interfered with, such that there’s a sturdy argument that parliament can’t have meant that regulation corporations are unable to take receipt of funds for the availability of such recommendation.
Whereas this strategy appears to be like to supply a method ahead for regulation corporations, it’s of no help to different skilled providers corporations which, because of the World Uyghur Congress v Nationwide Crime Company judgment, could have no possibility aside from to attend for up to date steering from the CPS or NCA.
Christoper Gribbin is a managing affiliate at Mishcon de Reya, London
