In its recent judgment in World Uyghur Congress v National Crime Agency, the Court of Appeal addressed the application of the money laundering provisions of the Proceeds of Crime Act 2002 (POCA) in the context of international supply chains. The appeal court’s clarification of the scope of the ‘adequate consideration’ exemption under POCA has wide-reaching implications not only for businesses with global supply chains but for all professional services firms in the UK.
WUC v NCA
The case followed an unsuccessful judicial review in which the World Uyghur Congress sought to challenge the decision not to investigate whether consignments of cotton goods into the UK, originating from the Xinjiang Uyghur Autonomous Region of China (XUAR), were the product of forced labour or other alleged human rights abuses by the People’s Republic of China.
There was no dispute that there was ‘a diverse, substantial, and growing body of evidence that serious human rights abuses are occurring in the XUAR cotton industry on a large scale…. 85% of cotton grown in China comes from the XUAR’. It was also accepted that products derived from criminal conduct such as forced labour may represent ‘criminal property’ for the purposes of POCA, such that the importation of such goods could theoretically represent a money laundering offence under Part 7 of POCA.
Instead, the case focused on narrow issues as to the application of POCA, with particular focus on the ‘adequate consideration’ exemption. The exemption – which only applies to the substance offence of money laundering contrary to section 329 (and not those offences under sections 327 or 328) – provides that a person does not commit the offence of money laundering under section 329 of POCA if that person acquired, used or had possession of the criminal property for adequate consideration. The issue here was whether the presence of someone in the supply chain who can rely on the adequate consideration exemption, would have the effect of ‘cleansing’ the property going forward.
Adequate consideration
The latest Crown Prosecution Service guidance on money laundering offences (updated April 2024) describes the scope of the adequate consideration exemption as follows: ‘This covers cases where the funds or property have been acquired by a purchase for a proper market price or similar exchange and to cater for any injustice which might otherwise arise: for example, in the case of tradesmen who are paid for ordinary consumable goods and services in money that comes from crime.
‘It will also apply where professional advisors (such as solicitors or accountants) receive money for, or on account of costs (whether from the client or from another person on the client’s behalf). It would not apply if the value of the work carried out or intended to be carried out was significantly less than the money received for or on account of costs.’
The effect of the Court of Appeal decision, however, is to significantly narrow the practical effect of the exemption by finding that the adequate consideration exemption is personal to the individual concerned and has no effect on the status of the property itself. This means that the exemption ‘would afford protection to the purchaser while he had the property in his possession even if he knew it was criminal property, 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’ pursuant to other substantive money laundering offences under Part 7 of POCA.
To adopt the example in the CPS guidance, this means that, although a tradesman may accept funds that he knows or suspects to represent criminal property in reliance on the adequate consideration exemption, those monies would remain criminal property for so long as the tradesman retained the knowledge or suspicion, such that he would not be able to transfer those monies onwards to anyone else without committing a separate money laundering offence.
Supply chains
The decision means that the importation of goods that represent criminal property may constitute the offence of entering into an arrangement for the acquisition, use or possession of criminal property, contrary to section 329, notwithstanding that, at some point in the supply chain, the goods are obtained for adequate consideration. UK companies with supply chains involving goods that may represent the benefit of criminal conduct – which could include, for example, human rights abuses, or environmental harms – now face a real risk of criminal liability in the UK under POCA.
As commission of a substantive money laundering offence under POCA requires knowledge or suspicion that the property in question is criminal, the prospect of liability remains contingent on an enforcement body being able to establish that the company in question had the requisite state of mind. Somewhat perversely, particularly in the light of increasing expectations on companies to conduct due diligence on their supply chains, this has the potential to absolve those companies who fail to do so effectively.
The UK has taken a slow and piecemeal approach to legislating for supply chain due diligence, with the pace of change largely set by companies, driven principally by reputational concerns led by retail consumers and investors. By contrast, in April, the EU adopted the Corporate Sustainability Due Diligence Directive. This will require affected companies to actively identify and address potential and actual adverse human rights and environmental impacts throughout their supply chain.
The EU reform, which will also bite on non-EU companies with a turnover in excess of €450m in the EU, seems bound to drive further legislative change globally, including in the UK. It appears increasingly likely that UK companies will also soon be mandated to conduct more thorough due diligence enquiries throughout their supply chain. Together with the approach adopted in World Uyghur Congress v National Crime Agency, this is going to have serious implications for businesses in the coming years.
Professional services
The effect of World Uyghur Congress v National Crime Agency will also be felt by professional services firms who have hitherto relied on the adequate consideration exemption when receiving client monies in circumstances where they may represent criminal property.
Following World Uyghur Congress v National Crime Agency, although those monies may still be received by such firms in reliance on the adequate consideration exemption, they may not be transferred onwards – for example, by being applied against invoices or used to pay disbursements without the commission of a substantive money laundering offence. This interpretation of POCA effectively renders the adequate consideration exemption useless for the purposes of carrying on normal business as the onward movement of monies would require the submission of a defence against money laundering to the National Crime Agency on each occasion.
The position for law firms is slightly improved in so far as the courts have previously considered the application of principal money laundering offences under POCA in Bowman v Fels [2005] 4 All ER 609. The decision in that case was that section 328 of POCA was not intended to cover the ordinary conduct of litigation by legal professionals, but the court’s reasoning extended further at [63] (emphasis added): ‘To our mind, it is as improbable that parliament, being the UK legislator, had the ordinary conduct of legal proceedings to judgment in mind under s328 (or indeed under ss327 and 329) as it is to suppose that the European legislator had them in mind in article 7. If the European legislator did not intend article 7, and the UK legislator did not intend ss327-9, to cover the ordinary conduct of legal proceedings or the ordinary giving of legal advice in circumstances not making the legal adviser a co-conspirator or accessory to any other offence [emphasis added], it was unnecessary – and would indeed have been inappropriate – to have introduced into either article 7 or into ss327-9 any equivalent exceptions to those provided, respectively, by article 6 and s330(6)(b), (10) and (11). Support for our conclusions is provided by linguistic and policy considerations.’
Law firms are likely to seek to rely on the indications in Bowman v Fels that the ordinary giving of legal advice is not subject to the substantive money laundering offences at sections 327-329 of POCA. The policy arguments relied on in Bowman v Fels include that legal advice is to be regarded as a fundamental right that is not lightly interfered with, such that there is a strong argument that parliament cannot have intended that law firms are unable to take receipt of funds for the provision of such advice.
While this approach looks to offer a way forward for law firms, it is of no assistance to other professional services firms which, as a result of the World Uyghur Congress v National Crime Agency judgment, will have no option other than to wait for updated guidance from the CPS or NCA.
Christoper Gribbin is a managing associate at Mishcon de Reya, London
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