Proceeds of crime in the supply chain: The saga of The World Uyghur Congress v The National Crime Agency

John Hartley, Partner and Head of Business Crime and Regulation Primas Law shares his thoughts in the Compliance and Risk journal.  

In his authored piece, John considered the UK Court of Appeal decision in the World Uyghur Congress v The National Crime Agency and its wider implications as regards to money laundering and supply chain criminality. 

Below is a copy of the original article that was published in Volume 13, Issue 4 in July/August 2024. 

Governments around the world have long known that there have been claims of human rights abuses and crimes against humanity committed against the Uyghur community in the Xinjiang province of China.  

Background  

In January 2022, the Uyghur Tribunal, an unofficial body which heard evidence on the subject, delivered its findings, which were then discussed in the UK’s Parliament.  

The judgment stated that torture of Uyghurs “attributable to the PRC [Peoples’ Republic of China] is established beyond reasonable doubt”. It also said that crimes against humanity attributable to the PRC “is established beyond reasonable doubt” by acts of: “deportation or forcible transfer; imprisonment or other severe deprivation of physical liberty; torture; rape and other sexual violence; enforced sterilisation; per-section; enforced disappearance; and other inhumane acts”. (see The Uyghur Tribunal – House of Commons Library (parliament.uk)).  

The response of the Chinese government was to impose sanctions on certain UK individuals who were involved in the tribunal – including five MPs, various UK businesses and the Tribunal itself.  

The UK also has in place a specific sanctions tool to address global human rights. The Global Human Rights Sanctions Regulations 2020 (the Regulations) are in place to at- attempt to deter activities of a State and to provide accountability for a State’s violation of an individual’s:  

• right to life;  

• right not to be subject to cruel or degrading treatment ;  

•  right to be free to slavery and servitude.  

The UK can also use the Regulations to impose asset freezes and travel bans where there are reasonable grounds to suspect that a person has been involved in such violations.  

 Interestingly, and for the purpose of the article, a person can be ‘involved’ in the violating activity if: 

• The person provides financial services, or makes available funds, economic resources, goods or technology, knowing or having reasonable cause to suspect that those financial services, funds, economic resources, goods or technology will or may contribute to such an activity (Regulation 6 (3) (d) of the Regulations), or  

• the person profits financially or obtains any other benefit from an activity falling within the Regulations (Regulation 6 (3) (f) of the Regulations.  

There are currently 37 individuals/ entities subject to this sanction re- gime who are based in China, and 7 of the current sanctions specifically relate to the Xinjiang Uyghur Autonomous Region (XUAR).  

Based on these details set out above, it would strongly indicate that the laws of the UK provide a framework for considering that the behaviour of certain individuals and entities in XUAR are in breach of human rights and that the financial benefit from any violation would be considered sufficient to place the benefit- ting party on the UK sanctions list.  

You may be wondering why these issues have any bearing on UK businesses and their supply chains. Well, it is of course no secret that a significant amount of global industry is connected to China with products exported over the world. In particular, it is estimated that around 30% of global cotton production originates from China and, of that, around 80% is produced in the XUAR.  

The case in point  

Enter into the scenario The World Uyghur Congress (WUC), an NGO which engages with the United Nations and other human rights organisations to raise awareness of the plight of the Uyghur community.  

In October 2022, the UK’s High Court heard a case brought by the WUC against the UK Home Office, Revenue and Customs (HMRC) and the National Crime Agency (NCA). The case was brought by way of a judicial review, challenging the decision of the UK authorities not to criminally investigate the importation of cotton into the UK. The main theme of the argument was  

that it would be inevitable that most, if not all, cotton imported into the UK would form the proceeds of crimes committed by the Chinese state’s violation of human rights.  

Despite being presented with significant evidence of behaviour which would be criminalised in the UK [relating to the forced labour of the Uyghur community], the court dis- missed the application.  

The main thrust of the arguments centred around the money laundering provisions under the Proceeds of Crime Act (POCA) and, in particular, s.329 of the Act which relates to the acquisition, use and possession of criminal property.  

POCA s.329  

For an offence to be made out under s.329 of POCA, the prosecution would need to prove that a person had acquired, used, or possessed criminal property and that the person had the relevant knowledge or suspicion that the property in question represented the benefit from criminal conduct.  

The issues for the court to consider therefore was the interpretation of criminal conduct and criminal property in the context of this matter.  

The concepts of criminal property and criminal conduct are inextricably linked as the property can only be criminal if it stems from criminal conduct.  

Criminal conduct is defined as conduct which:  

• constitutes an offence in any part of the UK, or 
• would constitute an offence in any part of the UK if it occurred there. 

Given the narrative and background above in respect of the Uyghur Tribunal, the sanctions laws of the UK, and the UK’s Modern Slavery Act, it may seem on the face of it that the conduct of an oppressive regime using slavery and inhumane treatment of forced labour would indeed satisfy the test for criminal conduct.  

However, the court agreed with the NCA’s submission (and initial rationale for not bringing an investigation) that the Proceeds of Crime Act would require the specific criminal property to be identified before an investigation may be commended. Therefore, just as any criminal conduct needs to be clearly and specifically identified, so too the resultant property should similarly be specifically identified – ie in the context of the case, there needed to be evidence of criminal conduct associated to a specific consignment of cotton.  

The court also drew attention to the defence of “adequate consideration” which is incorporated into S.329 POCA. This provides a defence to a person (or company) that takes possession of criminal property in return for having given “adequate consideration”.  

Again the court sided with the NCA citing that:
“It would not only be necessary to show that a consignment was criminal property, but also that, considering the question objectively, the consignment had been purchased for significantly less than its value or by some other measure for consideration which was not adequate”. (Para 85 [2023] EWHC 88 (Admin)).  

The court considered that this factor would raise significant issues in the context of international trade and extensive supply chains.  

As you will no doubt have appreciated by this point, the WUC claim failed, despite it being common ground that forced labour in the Xinjiang Province of China can amount to criminal conduct.  

However, that is not the end of the story… The WUC was given leave to appeal the High Court’s decision.  

Fast-forward to the summer of 2024, when the Court of Appeal handed down the judgment in R (oao World Uyghur Congress) v NCA [2024] EWCA Civ 715.  

Court of Appeal ruling  

Essentially, the Court of Appeal disagreed with the findings of the High Court and this case serves to clarify certain elements as to the interpretation of the Proceeds of Crime Act.  

The central issue was, again, whether the NCA had incorrectly applied the law when deciding not to bring a case relating to the importation of cotton from the Xinjiang Province of China. However, the case will not start and end with such cotton products but will serve as a benchmark for businesses involved in global supply chains of all products and commodities.  

The Appeal court specifically looked at two issues:  

1. The matter of the specific identification of criminal property prior to commending an investigation. 
2. The issue of interpreting the adequate consideration defence. 

Criminal property  

In a swift riposte, the court agreed with the WUC in that the NCA’s decision not to investigate was indeed an error in law. It rebutted the proposition that there needed to be an establishment of specific criminal conduct or criminal property before an investigation under POCA may be commenced. The court said that investigations should be based on reasonable suspicions of criminal conduct rather than requiring identifiable criminal property.  

The question as to whether an investigation in the underlying matter should be carried out was therefore remitted back to the NCA.  

Adequate consideration  

The court then considered the operation of the ‘adequate consideration’ defence and also rejected the interpretation of the High Court. The court held that this was immaterial to the status of the property in question.  

Going back to the earlier point – a person or company need only have a suspicion that the property represents a benefit from criminal conduct, even if that conduct exists way down the supply chain. This clarification from the Court of Appeal presents a complex scenario and may well place a higher burden on those businesses involved in lengthy, overseas supply chains.  

Essentially, therefore, a business may not now simply rely on the fact that goods in a supply chain have been purchased at market value if there is a suspicion of criminal conduct within that supply chain. It will not alter the concept that the property is criminal property, and if the business then attempts to sell it on, then it could be committing a money laundering of- the fence.  

So, the ‘adequate consideration’ de-fence may protect a business whilst it is in possession of the property, but may not offer the same protection if that property is then transferred or sold to a third party.  

Additional steps may therefore need to be taken by the business which may not previously have been deemed necessary (since the business would have relied on the adequate consideration defence).  

Such steps may now include investigating the supply chain to eliminate any suspicion of criminality, or submit- ting a Suspicious Activity Report (SAR) to the NCA with a request for a Defence Against Money Laundering (DAML).  

So where are we now?  

There is a general sentiment that this saga is far from its end. In respect of the underlying WUC case, the matter has been passed back to the NCA for the regulator to consider its position, and we will keenly await that decision.  

As for the wider implications of the ruling, there are, as indicated above, likely to be significant increases in the use of SARs and the requests for DAMLs.  

As we have seen across many sectors in recent years, this decision will only go towards the strengthening and enhancement of due diligence measures in supply chains. There will be an expectation that businesses will stress test these measures and, where appropriate, seek to investigate their supply chains and obtain the necessary legal advice as to how to proceed.  

The decision also places a greater emphasis on the actions of law enforcement agencies, requiring them to properly consider and exercise their investigatory duties and powers. It is possible that we may see a greater increase in the use of Account Freezing and Forfeiture Orders – also available as sanctions under the Proceeds of Crime Act.  

For more information about money laundering and proceeds of crime, or if your business is under investigation for financial crime, visit our business crime solicitors hub or contact John Hartley, Partner and Head of Business Crime and Regulation.