Court of Appeal ruling raises bar for supply chain monitoring in the UK: World Uyghur Congress v National Crime Agency

What's the development? 

• A recent Court of Appeal ruling significantly raises the bar for supply chain monitoring in the UK. 
• UK businesses will now potentially be 'on the hook' for money laundering offences under the Proceeds of Crime Act 2002 (POCA) where they deal in goods in circumstances where they know or suspect that there is criminality in the supply chain. The fact that the goods have been acquired for adequate consideration won't (of itself) necessarily be sufficient to avoid liability. 
• Similarly, there is now increased exposure to potential civil actions for the recovery of the proceeds of crime under POCA. 
• Some (including those in high-risk sectors) may now need urgently to reconsider their potential liability under POCA and possible actions including the submission of Suspicious Activity Reports and requests for Defence Against Money Laundering. This is particularly so given the serious potential sanctions available under POCA and the increasing risk of private criminal prosecutions by pressure groups and others.

Want to know more?

The claim

An action for judicial review was brought by the World Uyghur Congress (WUC) - an organisation focused on tackling human rights violations against Uyghurs in Xiang Uyghur Autonomous Region of China (XUAR) - against the National Crime Agency (NCA) for failure to investigate the import and trade of cotton in the UK from the XUAR. 

The WUC had submitted a report to the NCA providing substantial evidence of forced labour and human rights abuses in the XUAR in the context of cotton production. Its aim was to persuade the NCA to investigate UK businesses handling the products and proceeds of the XUAR cotton trade for potential money laundering offences under Part 7 of POCA. 

POCA 

Part 7 of POCA sets out three money laundering offences. These provide that a person commits an offence if he:

• Conceals, disguises, converts or transfers criminal property, or removes criminal property from the UK (s. 327). 
• Enters into or becomes concerned in an arrangement which he knows or suspects facilitates the acquisition, retention, use or control of criminal property by or on behalf of another (s. 328).
• Acquires, uses or has possession of criminal property (s. 329).

Property is criminal property if it constitutes a person’s benefit from criminal conduct or it represents such a benefit, and the alleged offender knows or suspects that it constitutes or represents such a benefit.

s.329(2)(c) of POCA provides a defence to s. 329 such that a person does not commit a money laundering offence if they have acquired, used or are in possession of the property for adequate consideration. 

Part 5 of POCA allows civil proceedings for the recovery of the proceeds of crime, subject to various exceptions. S. 308 provides an exception where a person disposes of recoverable property and the person who obtains it does so in good faith, for value and without notice that it was recoverable property. Part 8 of POCA imposes duties on relevant authorities to conduct various investigations under POCA for recoverable and other property. 

The NCA's defence

The NCA had decided not to investigate the import and trade of cotton in the UK from XUAR, prompting the WUC to launch the judicial review action.

The NCA 's defence was that:

• There was no identification of specific criminal property and criminal conduct, therefore an investigation based on 'potential breaches' of the POCA would have been "misconceived". 
• The s.329(2)(c) of POCA "adequate consideration" defence (see above) "cleanses" criminal property preventing the recovery of that property or its proceeds of sale.

In an earlier ruling, the High Court had agreed with the NCA's reasoning. 

What did the Court of Appeal decide?

The Court of Appeal overturned the High Court's decision, quashed the NCA's decision not to investigate and remitted the question of whether an investigation should be conducted under POCA back to the NCA. More specifically, it held that:

• An investigating body does not need to know that recoverable property exists before commencing an investigation – the aim of an investigation may be to discover that fact. 
• The s. 329(2)(c) "adequate consideration" defence is personal to the individual concerned – since it does not attach to the property itself, the property is not "cleansed" generally. Moreover, section 329(2)(c) is only a defence to the s. 329 offence – it has no bearing on the ss. 327 and 328 offences.
• This means that, while s. 329(2)(c) might afford protection to a purchaser while they had property in their possession even if they knew it was criminal property, it would not protect them if, for example, in that knowledge, they transferred it to someone else, or took it out of the country and thereby became potentially liable under s. 327. 
• Likewise, the fact that one person in the supply chain is able to rely on the s. 329(2)(c) defence does not preclude the property from being “criminal property” in the hands of someone else in the supply chain with the requisite knowledge or suspicion (that the property is criminal property) who commits a relevant offence and cannot rely on a relevant defence. 
• The exception to civil recovery under s. 308 only applies if all of the elements of s. 308 (see above) are met – s. 308 requires more than just a disposal for value. 

The NCA had therefore made an "error of law" in deciding not to investigate and was ordered to reconsider investigating the money laundering offences under POCA in relation to the trade of cotton in the XUAR. 

What does this mean for you? 

• Those dealing with international supply chains are now at increased risk of committing a money laundering offence under POCA where there is criminality in the supply chain. The fact that property may have been acquired at some point in the supply chain for "adequate consideration" won't (of itself) necessarily be sufficient to avoid criminal liability under POCA. The person alleged to have committed an offence must be able to show that the "adequate consideration" defence applies to them, personally. 
• Moreover, liability for the separate offences under ss. 327 and 328 of POCA must be considered – and the "adequate consideration" defence does not apply to these sections. It means that an offence is likely to have been committed where a person deals in goods where he knows or suspects that there is criminality in the supply chain.
• Likewise, there is a greater risk of civil recovery actions under POCA since the s. 308 exception requires more than just a disposal for value. 
• Some (including those in high-risk sectors) may now need urgently to reconsider their potential liability under POCA and possible actions including the submission of Suspicious Activity Reports and requests for Defence Against Money Laundering. 
• The risks of failing to act are potentially significant, with money laundering offences carrying a maximum prison term of 14 years and an unlimited fine (and the Economic Crime and Corporate Transparency Act 2023 providing that money laundering offences committed by senior managers can be attributed to their companies). This is particularly so as it is not just the authorities who can take action – there is an increasing risk of private criminal prosecutions from pressure groups and individuals. 

• More generally, businesses need to take supply chain due diligence seriously, with robust supplier checks and contractual provisions, regular detailed reviews, and effective enforcement strategies. They must also ensure that they have adequate systems and procedures in place to investigate where they are put on notice of supply chain issues – now more likely. Simply "turning a blind eye" to issues will not avoid liability.

This article was jointly authored by Rachael Abiodun.