R (World Uygher Congress) v NCA
The recent decision of the Court of Appeal in the case of R (World Uygher Congress) v NCA[1] has provided some clarity on how aspects of the money laundering offences set out in the Proceeds of Crime Act 2002 (“POCA”) are to be interpreted. The court’s findings are likely to impact the approach to the investigation, prosecution and defence of these offences. However, they may also impact how companies assess the risks associated with their global supply chains.
Factual Background
The World Uygher Congress (“WUC”) had brought an application for judicial review of the National Crime Agency’s (“NCA”) decision to decline to investigate, amongst other matters, potential offences under Part 7 of POCA. The potential investigation in question concerned whether consignments of cotton goods imported into the United Kingdom from the Xinjiang Uyghur Autonomous Region of China (“XUAR”) were the product of force labour or other human rights abuses. The appellant argued that, following their engagement with the NCA and other government agencies, they received a letter outlining the reasons why an investigation would not be forthcoming. They identified what they claimed were two errors of law in the body of the letter, which meant the decision to decline to investigate was unlawful. The two misapprehensions of the relevant law were:
- That it is necessary to identify a specific product as criminal property before commencing an investigation into whether a money-laundering offence has been committed.
- That the presence within a supply chain of a person who can rely on the exemption under section 329(2)(c) of POCA has the effect of “cleansing” criminal property so as to preclude its recovery from anyone who subsequently acquires it, or the recovery of the proceeds of its onward sale.
Section 329 of POCA concerns the offence of the acquisition, use and possession of criminal property and section 329(2)(c) provides an exemption from or defence to the offence, where an individual can show that they “acquired or used or had possession of the property for adequate consideration”.
The relevant extracts from the letter in question are set out as follows:
“31. So far as concerns an alleged failure to investigate possible money laundering offences under POCA, the Letter Before Claim proceeds on a misapprehension. There is no proper basis for a POCA investigation.
32. For the purposes of POCA, offences contrary to s.1 of the Modern Slavery Act and/or s.51 of the International Criminal Court Act 2001 are capable of constituting criminal conduct within the meaning of s.340 POCA. However:
(i) It is a requirement of s.340 of POCA that any criminal conduct is clearly and specifically identified and that the resultant property is specifically identified. It is insufficient, for the purposes of POCA, to deal in hypothetical scenarios or presumptions. In the absence of identifying a specific consignment of goods that is the product of the relevant criminality, the requirements of s.340 are not met and no POCA offence can arise: see R v GH [2015] UKSC 24.
(ii) Whilst the Letter Before Claim raises both the offences contrary to ss 328 and 329 POCA, it is apparent that, in the context of a supply chain, s.329 is the apposite offence (namely the acquisition, use and possession of criminal property, as opposed to entering into an arrangement which facilitates money laundering). However, it is a defence under s.329(2)(c) for a person to acquire or have possession of criminal property for adequate consideration. That provision reflects the policy aim of POCA, that it is not the function of the regime to taint the bona fide purchaser for value. Rather it is to seek the recovery of the proceeds of crime in the hands of a criminal. To the extent that it may be possible (which is currently doubted) to identify any specific product as criminal property, and any particular person as engaging in criminal conduct, within the meaning of s.340, it would nevertheless be the case that if that product has been the subject of a transaction for adequate consideration, the relevant criminal property would be the proceeds of that transaction in the hands of the criminal as seller, and not the product in the hands of the purchaser.”
Decision at first instance
In the first instance, the High Court had found that there was extensive evidence of Human Rights abuses in the cotton industry in the XUAR, describing a “striking consensus” in relation to the extent of force labour and other abuses. The court also held that products which were derived from forces labour could amount to “criminal property” for the purpose of the offences in part 7 of POCA. Nonetheless, the court held that the NCA had not fallen into error in their interpretation of the law, and their decision not to investigate could not be disturbed by the court.
Decision of the Court of Appeal
The Court of Appeal, in reviewing the decision of the High Court, noted that courts have long been reluctant to interfere with the decisions of government agencies concerning the use of their powers of investigation or prosecution and, quoting Lord Bingham in R (Corner House Research) v Serious Fraud Office [2008] UKHL 60; [2009] 1 AC 756, that they would do so “only in highly exceptional cases”[2]. Per Lord Bingham, this reflects the fact that:
“the powers in question are entrusted to the officers identified, and to no one else. No other authority may exercise these powers or make the judgments on which such exercise must depend.”
Expanding upon the nature of such decisions, Lord Bingham, quoting the decision of the Supreme Court of Fiji in the case of Matalulu v Director of Public Prosecutions[3], indicated:
‘the polycentric character of official decision-making in such matters including policy and public interest considerations which are not susceptible of judicial review because it is within neither the constitutional function nor the practical competence of the courts to assess their merits.’
It was conceded by the respondent, in submission before the court, that, in respect of the two issues highlighted by the appellant:
- It was not necessary to identify specific criminal property or specific instances of criminality before commencing an investigation in relation to offences under POCA; and
- The payment of adequate compensation for potential criminal property does not “cleanse” the property in question, in the context of the investigation and prosecution of money laundering offences under POCA.
The respondent argued, however, that the NCA had not actually fallen foul of these two principles in coming to its decision not to investigate. Rather, its letter to the appellant communicating its decision not to investigate “conveyed the results of the type of polycentric decision-making that cannot be impeached other than on grounds of irrationality”.
The court of appeal rejected this argument. In its close analysis of the NCA’s letter communicating its decision not to investigate and of the subsequent High Court judgment, it parsed out clear errors of law in the NCA’s decision making process:
“it is clear that, on a fair reading of the decision letter, the NCA proceeded on the basis of an error of law. The decision letter, read as a whole, would convey to the reasonable reader that the NCA proceeded on the basis i) that it was necessary to be able to identify specific criminal property and criminal conduct before there can be a “proper basis” for a POCA investigation, (whether criminal or civil) and moreover ii) that the provision of “adequate consideration” anywhere in the supply chain would prevent any goods imported into the UK from being identified as criminal property or recoverable property. Both those propositions are, and are now accepted to be, wrong as a matter of law.”
As a result, the appeal was allowed. The decision of the NCA in relation to the investigation was quashed and the question of whether to carry out investigates under part 7 or part 5 of POCA, on the matters that had been brought to its attention by the appellant, was remitted back to the NCA.
Potential impact of the decision
The Court of Appeal’s determination on this relatively discrete question may have some far-reaching consequences. The court’s decision to intervene in a prosecuting body’s decision-making process, a step taken in “only in highly exceptional cases”, shows that they are nonetheless inclined to closely examine all aspects of a governmental body’s decisions in relation the investigation and prosecution of criminal offences. The “polycentric” nature of such decisions will not exempt them from close legal scrutiny. The court’s decision will no doubt impact how government bodies investigate and prosecute offences under POCA but it may have a broader impact on how the same bodies approach such decisions. Prosecuting authorities will be required to take great care both in coming to and communicating such decisions, aware of the scrutiny they will be under.
The biggest impact, however, may well relate to the court’s determination that a supply chain is not “cleansed” by the payment of adequate compensation. The court’s finding on this point has significant ramifications for companies which source their products from jurisdictions and industries in which human rights abuses are widely report. The court’s articulation of the proper interpretation of the money laundering offences under POCA means that companies on notice of potential criminal activities, including human rights abuses, taking place within the supply chain, can no longer rely on the payment of adequate compensation somewhere along the supply chain as an effective defence against money laundering offences. This could contribute to a significant shift in the risks associated with global supply chains and the way that companies source their products and materials globally.
[1] [2024] EWCA Civ 715.
[2] R (Corner House Research) v Serious Fraud Office [2008] UKHL 60; [2009] 1 AC 756.
[3] [2003] 4 LRC 712, 735-736.
Written by Nikos Keim. Edmonds Marshall McMahon. July 1st 2024.
