Recent UK money laundering decision

Organisations should be uplifting their risk management practices 3 min read

Proceeds of crime laws may apply where a company is connected to modern slavery or forced labour—eg through its business relationships with suppliers. The UK Court of Appeal recently considered the potential for this intersection, shedding light on the possible implications and applicability in such circumstances.

In this Insight, we explain how this decision is relevant to Australian companies, whereby proceeds of crime laws may provide rightsholders and activists with an additional lever for seeking company engagement on tackling modern slavery (and, potentially, other human rights issues).

Key takeaways

• As reflected in the recent UK decision (World Uyghur Congress) v National Crime Agency¹ (R v National Crime Agency), it may be possible for a company to engage in money laundering through its supply chain where it receives products from a supplier that are in some way connected to a human rights-related crime.
• Companies should be thinking about how their operations and supply chains may expose them to potential involvement with proceeds or instruments of crime.
• Given heightened stakeholder expectations in relation to ESG and the global trend towards mandatory human rights due diligence, they should also be proactively assessing their systems and processes to ensure that they are undertaking effective human rights due diligence.

Background

Proceeds of crime laws seek to disrupt and deter criminal conduct by targeting its financial aspect, through depriving persons of the proceeds or benefits derived from offences, and undermining the profitability of criminal enterprises.

The Australian Proceeds of Crime Act 2002 (Cth) (the Australian POCA) establishes a framework under which assets gained through federal crimes, including modern slavery offences, may be confiscated, and confiscated assets be used for certain initiatives that benefit the wider community.

The UK equivalent of the Australian POCA is the Proceeds of Crime Act 2002 (UK) (the UK POCA).

R v National Crime Agency (UK)

The facts

In R v National Crime Agency, a non-profit organisation, the World Uyghur Congress (WUC), challenged the decision of the UK's National Crime Agency (the NCA) not to investigate whether consignments of cotton goods originating from the Xinjiang Uyghur Autonomous Region of China (XUAR) were the product of human rights abuses relating to forced labour.

The appeal focused on whether the NCA had erred in its interpretation of the law when refusing to open a criminal investigation into the cotton products, as well as a civil recovery investigation to recover the cotton products and proceeds of their sale. The NCA had decided not to investigate the importation of cotton products from XUAR for two main reasons. The first was that it considered:

even where there was evidence of forced labour or other human rights abuses, it was necessary to identify a specific product as criminal property before commencing an investigation into whether a money-laundering offence had been committed under the UK POCA. The National Crime Agency's position was that, while various expert opinions, news articles and committee reports had been provided to the National Crime Agency in relation to the XUAR, it had not identified anything which provided a concrete allegation of modern slavery upon which the National Crime Agency could commence an investigation, and so there were insufficient grounds to suspect that any identifiable criminal offence had been committed by identifiable individuals.

Second, the National Crime Agency had decided that the presence within a supply chain of a person who could rely on the exemption from liability under section 329(2)(c) of the UK POCA (by acquiring, using or possessing the property for 'adequate consideration') had the effect of 'cleansing' the criminal property so as to preclude its recovery from anyone who subsequently acquired it, or the recovery of the proceeds of its onward sale.

The findings

The UK Court of Appeal found that both bases outlined above were incorrect in law. While there is an exemption under the UK POCA for property acquired for 'adequate consideration', the court held that this exemption from liability is personal to the individual concerned, and does not impact the state of the property as criminal property or recoverable property. As such, under the UK POCA, the payment of adequate consideration (ie market value) for criminal property by one person does not necessarily rid the property of its criminal nature; and does not preclude the property from being 'criminal property' in the hands of another person who knows of, or suspects, human rights issues connected to the property.

This means that, under the UK POCA, the payment of adequate consideration within a supply chain does not necessarily have the effect of precluding its recovery from anyone who subsequently acquires it, or the recovery of the proceeds of its onward sale. It follows that the existence of a long or complex supply chain does not necessarily preclude the risk of an investigation and potential criminal liability for companies that deal with goods while knowing or suspecting that they derive from human rights abuses amounting to criminal conduct, such as forced labour.

Relevance to Australia

By analogy, for entities subject to Australian law, ESG-related offences in their supply chain could give rise to liability under the money laundering provisions found in Division 400 of the Criminal Code. It provides that a person commits the offence of money laundering if, among other requirements, the person 'deals with' money and:²

• believes, or is negligent or reckless as to whether, the money in question is proceeds of an indictable crime;
• intends that the money will be an instrument of crime, or they are reckless or negligent as to the fact that the money or property is an instrument of crime, or that there is a risk that the money or property will become an instrument of crime; or
• it is reasonable to suspect that the money is proceeds of an indictable crime.

Division 400 also contains proceeds of general crime provisions, which deal with money or other property derived or realised by a person from the commission of an offence that is not necessarily linked to an indictable offence.

In addition to potential criminal liability under Division 400, there is the risk of confiscation of proceeds under the Australian POCA, pre- or without criminal conviction.

What this means for you

R v National Crime Agency highlights the challenges that companies may face when human rights impacts materialise in long and complex supply chains, and the importance of effective human rights due diligence. It also potentially demonstrates that rightsholders and activists may draw upon proceeds of crimes laws (eg through engagement with regulators) as part of their human rights advocacy.

The decision is also of interest in the Australian modern slavery context, since anti-money laundering schemes may inform potential reforms to Australia's Modern Slavery Act 2018 (Cth). The report of the statutory review of the Modern Slavery Act (released in 2023) considered anti-money laundering laws when canvassing the potential introduction of mandatory human rights due diligence and related penalties.

With the intersection between corporate crime and ESG risks increasingly coming to the fore, companies should be uplifting their risk management practices, including by carefully aligning corporate crime and human rights policies and risk assessments, to ensure potential risks are effectively identified and addressed.