Introduction
Potential criminal activity in international supply chains can create reputational, civil, and criminal risks. This can be particularly difficult to manage when there are many links in a chain from the source of raw materials to the final product.
One regular question is whether revenue and profit generated from tainted supply chains can be regarded as the proceeds of crime; if so, anti-money laundering legislation may be engaged. This has been considered in a recent High Court case, arising in the context of a special interest group challenging a law enforcement decision not to launch an investigation into alleged supply chain criminality[1].
Background
The World Uyghur Congress (‘Congress’) is a non-governmental organisation that seeks to promote the collective interests of the Uyghur people. Congress alleges that it has provided compelling evidence to UK law enforcement agencies that UK companies importing cotton from the Xinjiang Uyghur Autonomous Region (‘XUAR’) are benefitting from criminal activity and human rights abuses in their supply chains, that the cotton is sourced from facilities that qualify as ‘foreign prisons’, and that as a result the revenue and profits generated by the import and use of the cotton are the proceeds of crime. Congress argued that the UK authorities should investigate whether money laundering offences had been committed, and whether they should exercise their powers to bring POCA civil recovery proceedings.
The UK authorities declined to do so. Congress challenged that decision through judicial review proceedings, asserting that the UK authorities had misinterpreted the Foreign Prison-Made Goods Act 1897 and the Proceeds of Crime Act 2002 (‘POCA’). In both cases, a key question was whether criminal activity had to be shown in relation to specific consignments of the cotton.
When can a claimant challenge a decision not to launch a prosecution?
The Court recognised that it would only rarely intervene to set aside a decision not to investigate alleged criminality, reiterating that ‘There is much authority to the effect that the jurisdiction to conduct a judicial review of a public authority’s decision to launch or not to launch a prosecution, though it undoubtedly exists, is to be exercised sparingly’[2].
The Foreign Prison-Made Goods Act 1897 (the ‘1897 Act’)
The UK authorities argued that the 1897 Act required proof on the balance of probabilities that a specific consignment of goods must be linked to a specific facility that meets the definition of a foreign prison.
Congress asserted that this threshold was too high; instead, it said, an enforcement officer need only be satisfied that the goods in question are more likely than not to have been made in a foreign prison, and that this could be proved by circumstantial evidence. This argument was rejected by the Court. It was uncontroversial that the burden of proof rests with the enforcement officer and that the standard of proof is the balance of probabilities. The Court decided that it is equally clear that an enforcement officer needs to prove that specific goods were made or produced wholly or in part in a foreign prison.
The Proceeds of Crime Act 2002
The debate regarding POCA is of wider interest. The UK authorities accepted that forced labour (contrary to the Modern Slavery Act 2015) and crimes against humanity (contrary to the International Criminal Court Act 2001) could constitute criminal conduct, and could therefore generate proceeds of crime which would engage anti-money laundering legislation. In short, under that legislation, any dealings with the proceeds of crime is capable of being a money-laundering offence, including simply holding the proceeds in a bank account.
Congress argued that it could be presumed that cotton originating from XUAR was, by its very nature, criminal property because of well-documented human rights violations. However, the UK authorities argued that it is insufficient to rely upon the hypothetical scenarios and presumptions put forward by Congress, which in effect attempted to reverse the burden of proof, as liability under POCA required that:
- both criminal conduct and associated criminal property must be clearly and specifically identified (meaning here that specific consignments of cotton must be identified as the proceeds of specific criminal conduct);
- the person dealing with the criminal property must know or suspect that they were facilitating money laundering; and
- no party in the supply chain has given ‘adequate consideration’ for the goods it has received, as this would provide a defence to a money laundering charge and mean that the criminal proceeds would be restricted to the proceeds held by the criminal seller.
Congress argued that the defendants were using a bar higher than that articulated in POCA, and suggested that the approach of the UK authorities would imply, for instance, that in a fraud case it would be necessary for a complainant to provide full details of a bank account before the authorities could contemplate any investigation of the source of the funds within it.
The Court upheld the UK authorities’ interpretation of POCA. In doing so, however, the Court made clear that its decision was narrow and reached by reference only to the specific arguments advanced by Congress, concluding ‘…there has been no error… That is not to say that there may be other tools or measures available to the executive and law enforcement agencies, or other evidence which they could receive meeting the requirements upon which the Defendant has correctly relied in this challenge’.
Takeaway
While Congress was not successful in its action, the case underlines that money laundering liability under POCA is a material risk where there are potential human rights abuses or other criminal wrongdoing in a supply chain. Companies should implement and maintain effective compliance programmes in this respect.
[1] World Uyghur Congress v Secretary of State for the Home Department & Others [2023] EWHC 88 (Admin)
[2] Quoting R (Bermingham and others) v Director of the Serious Fraud Office [2005] EWHC 647 (Admin), CO/0934/2005, [2006] EWHC 200 (Admin)
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