Commercial Supply Chains: Identifying The Risks
Businesses should be constantly alert to the potential risks associated with their supply chains – risks that can arise in unexpected ways. They particularly include the criminal threat, such as bribery, cyber threats and money laundering.
A recent decision should act as a prompt for businesses to keep on top of the risks and take appropriate action. Broadly speaking, the criminal offences under the Proceeds of Crime Act (POCA), encompass concealing, arranging; and acquiring, using and possessing criminal property.
Under s329 POCA, a business can commit the offence of acquiring, using or possessing criminal property. But if criminal property is purchased for an amount not significantly less than its value, even if they know it is criminal property, they do not commit an offence when making the purchase. This is known as the “adequate consideration” statutory exception.
In this case1, the appeal court has provided helpful clarification on s329 and the correct approach to be taken by UK authorities in relation to money laundering investigations.
Cotton crime
Briefly by way of background: the World Uyghur Congress (WUC) sent evidence in April 2020 to the National Crime Agency (NCA) that forced labour and human rights abuses were occurring in the Uyghur Region and that cotton from that region was likely the result of it.
Under Part 7 POCA, property derived from oversees forced labour can be criminal property. The WUC asked the NCA to investigate the cotton imports for potential POCA offences.
The NCA decided not to investigate on grounds that there was “no proper basis” to do so. First, it took the view that specific criminal property and criminal conduct had to be identified before it investigated. Secondly, if there was adequate consideration anywhere in the supply chain, any goods imported into the UK would not be identified as criminal property.
The Court of Appeal decided that the NCA had misapplied the law in making its decision not to investigate. It ruled that a purchaser or importer who suspects the goods to be the product of forced labour or other human rights abuses would not be able to rely on the exceptions under s308.
The NCA’s decision was unlawful and it must now reconsider whether it should investigate.
What does this mean?
The ruling makes clear that if there are goods in the supply chain which resulted from criminality, and the company even suspects that’s the case, the company itself could be liable for money laundering offences. It will also have its reputation to consider.
And if there was “adequate consideration” at any point in the supply chain? The court made clear that does not mean the chain is broken. Robust due diligence at each stage in the supply chain is more vital than ever.
1R (oao World Uyghur Congress) v NCA [2024] EWCA Civ 715
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