Insights

Landmark Court of Appeal judgment changes AML landscape in the UK

9/07/2024

The Court of Appeal handed down its landmark ruling in R (on the application of World Uyghur Congress) v National Crime Agency [2024] EWCA Civ 715, on 27 June 2024. The case has potentially profound consequences for businesses that identify criminality within their supply chains.

Background

The World Uyghur Congress (WUC) submitted a report in April 2020 to the National Crime Agency (NCA) to prompt an investigation into whether consignments of cotton goods originating from the Xinjiang Uyghur Autonomous Region of China were the product of forced labour. 

The NCA declined to investigate, arguing that it was first necessary to identify a specific product as "criminal property" i.e., the NCA would first need to establish qualifying criminality and determine that the property was a benefit of that criminality.

The NCA also argued that if someone in the supply chain were to receive the goods for "adequate consideration" (essentially market value) it would not only provide that person with a defence to section 329(1) of the Proceeds of Crime Act 2002 (POCA) (i.e., acquiring, using, or possessing criminal property), it would cleanse the goods for all subsequent links in the chain. The authorities would also be precluded from recovering the goods under Part 5 of POCA.

Court of Appeal judgment

The WUC brought a Judicial Review challenge against the NCA's decision but lost at first instance.

The Court of Appeal, however, overturned the High Court's decision and rejected both NCA arguments.

  • First, the whole purpose of the NCA investigation would have been to establish the criminality and therefore the criminal nature of the goods in question. It could not possibly be correct that the criminality and nature of the goods had to be established before an investigation was considered warranted.
  • Second, the presence of someone in a supply chain who receives goods for "adequate consideration" does not cleanse the property. Whilst that person may have an exemption (rather than a defence) under section 329(1) POCA for acquiring, using, or possessing the goods, the goods would remain criminal property and the exemption would not apply to their onward supply of the goods (e.g., transferring criminal property is a separate offence under section 327(1) POCA which does not have the benefit of an "adequate consideration" exemption).

In fact, the Court held that the NCA's position indicated a fundamental confusion of the "adequate consideration" exemption under section 329(2)(c) POCA and another important concept under POCA.

Section 308 POCA (contained within Part 5 of POCA) provides that if a person obtains criminal property in good faith, for value, and without notice that it was criminal property, the property in question ceases to be recoverable under the authorities' civil recovery powers. Essentially, it is cleansed and cannot be followed into the purchasers' hands. This is distinct from the "adequate consideration" exemption in section 329(2)(c) POCA, which can only be activated if (a) the person knows or suspects that the property is criminal property, and (b) the person acquires, uses, or possesses criminal property at market value.

The decision as to whether to open an investigation was remitted back to the NCA for reconsideration.

What does this mean?

The ruling dramatically narrows the scope of the "adequate consideration" defence for businesses in the context of tainted supply chains. If a company knows or suspect that the goods it trades in are tainted by e.g., modern slavery or other human rights abuses, they are now at greater risk of criminal action and civil recovery.

Whether the NCA will have the resources to launch investigations in cases such as these remains to be seen (particularly in cases where establishing criminality in the supply chain is difficult). This is nevertheless a significant decision, and companies should be reviewing their supply chain due diligence procedures to ensure they effectively identify, investigate, and remediate concerns (particularly those in higher risk industries such as cotton, coffee, chocolate, sugar and tobacco). This includes potential engagement with the NCA to obtain a defence against money laundering that protects business operations that would otherwise amount to money laundering.

In that context, businesses should also carefully consider the impact of recent reforms to corporate criminal liability under the Economic Crime and Corporate Transparency Act 2023 (ECCTA). Since 26 December 2023, ECCTA has expanded the cohort of senior managers who can fix a company with criminal liability, thereby facilitating criminal actions against companies for money laundering offences (for further detail on this, see our article here). 

Moreover, large businesses with an annual turnover over £36 million already have a legal obligation under the Modern Slavery Act 2025 (MSA) to produce a statement each year setting out the steps they have taken to ensure that their business and supply chains are slavery free, or a statement that they have taken no steps to do this (although the latter is not a recommended approach). Smaller companies are also increasingly taking steps to voluntarily publish MSA statements demonstrating their actions to eliminate modern slavery and human trafficking within their business and supply chains. This requires proactive assessment and review of policies and procedures that impact the business' workforce as well as procurement policies and the working practices of suppliers. 

Howard Kennedy's Business Crime & Regulatory team has significant experience advising companies on their supply chain risk management, including financial crime risks in dealings with counterparties, risk assessments, policy and procedure reviews, and staff training. Our Employment team are also experienced in supporting and advising businesses with MSA compliance and preparation of MSA statements. 

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