A recent judgment endorses UK investigators’ doubts about pursuing retailers whose supply chains seem to involve the proceeds of crime. But is it right? BCL partner, John Binns writes.
A green light for slavery products?
The World Uyghur Congress (WUC) recently challenged the National Crime Agency (NCA) and others in a judicial review in the High Court. The case concerned the agencies’ failure to take action under the Proceeds of Crime Act 2002 (POCA), in circumstances where (the WUC said) UK retailers are stocking and selling goods that represent the proceeds of slave labour.
The NCA’s response, endorsed by Dove J in a brief judgment, highlighted three problems with pursuing the retailers and their profits under POCA, said to be prohibitive in cases that involve long supply chains. The result is controversial, both in legal terms, and because it arguably gives a green light for practices that contribute to very serious human suffering.
By way of background, POCA prohibits various dealings with, and arrangements concerning, ‘criminal property’, which means property that (to any extent) represents the proceeds of ‘criminal conduct’, where the person involved knows or suspects that this so. ‘Criminal conduct’ (the ‘predicate offence’) can include conduct that was lawful where it occurred, but would be unlawful if it happened here.
Importantly, under section 329(2) of POCA, someone who acquires criminal property for ‘adequate consideration’ does not commit an offence, even if they know or suspect that it is so. But section 329(3) goes on to give two caveats to this, in that it does not apply where either the value of the consideration is significantly higher or lower than the value of the property, or where the acquirer knows or suspects that the products or services they provide in return ‘may help’ someone to commit criminal conduct.
Three key problems
The WUC presented the NCA with voluminous evidence that goods sold in the UK represented the proceeds of modern slavery. But the NCA said that it would have three key problems pursuing these through POCA. First, it said, it would have to prove in proceedings the specific property involved, stating which consignments from which suppliers were involved. Second, it would have to prove the specific conduct involved, stating what had been done, where and by whom. They would have problems with obtaining evidence for both, particularly from China.
The third problem, they said, was ‘adequate consideration’. Not only was it a knock-down defence for someone who acquired goods for market value, but its effect was to ‘break the chain’ of liability. In effect, as soon as the slavery products were sold by those responsible for the predicate offence, the proceeds would have to be traced through the purchase monies in that person’s hands, and not through the goods that found their way into UK stores. Assuming that each sale in the chain was for market value, the prospects of pursuing the retailers or their profits becomes hopeless.
The case law
Dove J accepted the NCA’s propositions, notwithstanding some important POCA case law. Two civil recovery cases (Green (2005) and Szepietowski (2007), make clear that the NCA does not have to prove specific offences, as long as it can say what kind of offences it alleges. And an important money laundering authority, Anwoir (2008), went further in saying that in criminal cases, the fact that property comes from crime can be proven without even that, where circumstances provide an ‘irresistible inference’ that this was so.
Two more cases seem to go the other way, supporting the NCA’s case on the third key problem. Hogan (2007), an appeal to the High Court, struck down a conviction for money laundering on the basis that ‘adequate consideration’ was an objective test: the magistrates had been wrong to take into account that the defendant had not just suspected but known that the property he handled was stolen goods. Afolabi (2009), a less well known decision of the Court of Appeal, meanwhile supports the idea that an exchange for value without notice ‘breaks the chain’ as the NCA contended, because the property no longer represents the proceeds of the predicate conduct.
Breaking the chains
The most important debates arising from the case are about ‘adequate consideration’ (the NCA’s third key problem). It is clear from POCA itself that innocent purchasers are to be protected, both from civil recovery and from prosecution, and from Afolabi that the effect of supply chains is not to duplicate ‘criminal property’ at each exchange, so that both goods and purchase monies represent the proceeds of the same predicate conduct. But what does this mean in practice?
Let’s imagine a (relatively) simple example of an international supply chain, in which slavery products are sold by a Chinese producer to a UK wholesaler, and then through a UK retailer to a UK customer. What if an individual at the wholesaler or the retailer could be identified, whom the NCA could credibly say had acquired the product, and either knew or suspected the predicate offence? The wholesale manager would likely plead ‘adequate consideration’, and the question for them would be whether either of the two caveats in 329(3) applied. It’s worth alighting for a while on what these are.
As both POCA itself and Hogan make clear, the question of whether the value of the property is significantly less (or more) then the consideration is an objective one: it makes no difference whether the manager actually knew or merely suspected the predicate offence. That said, there are important questions here. The NCA and Dove J seem quick to equate ‘value’ here with ‘market value’: is this the right approach? And does ‘significantly’ here mean ‘substantially’, or something else? If the market is flooded with slavery products whose value is low for precisely that reason, does s329(3) apply? Should it?
Where buying ‘may help’
The judgment spends virtually no time considering the final twist of s329(3): that adequate consideration does not apply where the acquirer knows or suspects that the ‘goods or services’ they provide in return ‘may help’ someone to commit criminal conduct.
The obvious scenario is the getaway driver, who takes a cut of stolen money in return for their part in the crime. But the wholesale manager surely faces difficulties in a scenario (just as real, and as egregious, as any bank robbery) where they know (or suspect) the producer will (or may) go on producing in the way that they have, for as long as the money keeps flowing.
Further down the chain
What of the retailer? Afolabi implies that the product it acquires would not, at this stage, represent the proceeds of the predicate offence – at least, if the wholesaler acquired it ‘without notice’. But what if the retailer suspects that the wholesaler acquired it with the requisite knowledge or suspicion, or that its price was (then) significantly less than its value? Would the goods not then represent the proceeds, not of the predicate offence, but of the POCA offence by the wholesaler?
This is, admittedly, not an easy scenario to think about. Necessarily, where supply chains are involved (and assuming Afolabi is right), the question for anyone lower down the chain than an immediate buyer is bound to be more difficult. If it were otherwise, then even an individual consumer could face prosecution under POCA, where they suspect (as we increasingly must) that the low-price clothes we buy might come from a sinister source.
The impact of the judgment
The judgment certainly does seem to hand a (superficially) strong point to suspects in supply chain cases (if there are any), and (thanks to the NCA’s first two key problems) in cases more generally. A money laundering suspect, faced with a case that does not precisely specify both the predicate offence and the property concerned, may now cite Dove J’s judgment.
For a UK business that genuinely cares about these things, the glimmer of hope in this judgment is its rejection of the idea that any suspicion of modern slavery in a supply chain equals liability under POCA. Instead, the responsible corporate can and should ensure the right (albeit complex) questions are asked, about those further up its supply chain, and act accordingly.
In the end, the service done by this challenge is to shine a light not only on the continuing scandal of slavery products in the UK, but on the legal and practical issues faced by businesses and law enforcement alike. Dove J’s judgment seems unlikely to be the last word on these issues, and nor should it be. Whether by understanding the current law better or by reforming it, there is clearly a lot more to be done.