Supreme Court: The Meaning of “Criminal Property” in POCA 2002

2 05 2015

R v GH (Respondent) [2015] UKSC 24, 22 April 2015

The Supreme Court (Lord Neuberger PSC and Lord Kerr, Lord Reed, Lord Hughes and Lord Toulson JJSC) heard this case on appeal from a judgment of the Court of Appeal (Lloyd Jones LJ, Irwin and Green JJ) reported at [2013] EWCA Crim 2237. Unanimously allowing the appeal of the Director of Public Prosecutions (DPP), giving the only judgment Lord Toulson held at para 47 that the “character of the money did change on being paid into the respondent’s accounts.” This case involved fraud which had been perpetrated through the Internet via four “ghost” websites falsely pretending to offer cut-price motor insurance. To execute his plans, B used associates who opened bank accounts for transmitting the proceeds generated by the scam and H was an associate of this nature. A ghost website in the name of AM Insurance was operated from 1 September 2011 to January 2012. Before the site became live online, two bank accounts, in Lloyds Bank and Barclays Bank, were opened by H and B subsequently took control of these accounts and bank cards linked to them. The Supreme Court held that section 328 of the Proceeds of Crime Act 2002 (POCA) does not require property to constitute criminal property before an arrangement came into operation because such a construction is likely have serious potential consequences in relation to banks and other financial institutions.

The public was swindled into paying £417,709 into the Lloyds’ account and £176,434 into the Barclays’ account for insurance cover that did not exist. Charged under section 328(1) – i.e. entering into or becoming concerned in an arrangement which he knew or suspected would facilitate the retention, use or control of criminal property, namely the money received into the accounts, by or on behalf of B – H was tried in the Central Criminal Court. To the jury, the DPP articulated its case on the premise that whilst H may not have known the details of B’s fraud, the circumstances in which the accounts were opened pointed to H’s knowledge (or at least suspicion) that B had some criminal purpose. Yet Recorder Greenberg QC held that no criminal property existed at the point in time H entered into the arrangement and that H therefore had no case to answer.

The Supreme Court held that someone (like H) who opened bank accounts which he knew or suspected would then be used by a fraudster (such as G) to deposit money which the fraudster aimed to take from victims could be charged with entering into an arrangement to facilitate the retention of criminal property, contrary to section 328(1) of POCA, even though there was no criminal property until after victims’ money had been paid into the accounts.

Court of Appeal

Lloyd Jones LJ, Irwin and Green JJ dismissed the DPP’s appeal, mounted on the basis of section 58 of the Criminal Justice Act 2003. The Court of Appeal read section 328 to mean that it was unnecessary for criminal property to exist at the moment when parties come to a prohibited arrangement and that the arrangement must relate to property that is criminal property at the time when the arrangement begins to operate on it. On the facts of the instant case, Lloyd Jones LJ held that the property had not become criminal property at the time when the arrangement began to operate on it.

The Court of Appeal decided that the criminal property had to exist at the time when the money laundering arrangement came into operation and not at the time the defendant had entered into that arrangement. Its rationale for upholding Recorder Greenberg QC’s ruling was that under section 328 “criminal property” meant property that had the quality of being criminal property distinct from the conduct alleged to constitute the actus reus of the money laundering offence itself. In a comparative light, the criminal property that was the subject of the indictment had attained that character only as a result of the operation of the arrangement (which underpinned the substance of the charge).

Issues

The following four issues confronted the Supreme Court in this case. First of all, does the commission of an offence under section 328 (“Arrangements”, under Part 7 “Money Laundering”) require the property to constitute criminal property prior to the arrangement coming into operation? Second, does the property have to exist at the time when the defendant enters into or becomes concerned in the arrangement? Third, did the sums received into H’s accounts constitute criminal property before being paid into those accounts? And finally, was the actus reus of the offence committed by reason of the arrangement facilitating the retention, use or control of the money paid into the accounts?

The Supreme Court

Unanimously allowing the appeal, the Supreme Court construed “criminal property”, as defined in section 340 (Interpretation) of POCA, to refer to property which already has the quality of being “criminal property” by reason of prior criminal conduct distinct from the conduct alleged to constitute the commission of the money laundering offence itself. The court reasoned that the approach was at one with the natural meaning and underlying purpose of these provisions, the explanatory notes to POCA and Council Directive 91/308/EEC and Council Directive 2005/60/EC.

Under section 328, a person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person. Upon a literal construction, the provision is readable as creating criminal liability if the defendant suspects that the effect of the arrangement is to facilitate the acquisition, etc, of criminal property, even where his suspicions are misplaced and the property concerned is not criminal. That is not its accepted or correct interpretation. 

In JSC BTA Bank v Ablyazov [2009] EWCA Civ 1124 at para 14, Moses LJ rightly said that sections 327, 328 and 329 are “parasitic” offences because they are predicated on the commission of another offence which has yielded proceeds which then become the subject of a money laundering offence. Lord Toulson concurred with the analysis that a wider interpretation would have serious potential consequences for third parties including banks and other financial institutions. The Supreme Court also approved of the analysis advanced in the case of HKSAR v Li Kwok Cheung George [2014] HKCFA 48 – involving a similar issue as regards the wording of a Hong Kong money laundering ordinance, namely the Organized and Serious Crimes Ordinance, Cap 455) – where Ribeiro and Fok PJJ held in the Hong Kong Court of Final Appeal that:

It is one thing to criminalise dealing with funds where the dealer knows or has reasonable grounds to believe that they are the proceeds of crime, it is quite a different matter to stigmatise as a money launderer, a lender dealing with its own ‘clean’ funds because of what the borrower does or intends to do with them.

With the above in mind, the Supreme Court held that section 328 did not require property to constitute criminal property before an arrangement came into operation because such a construction was likely have serious potential consequences in relation to banks and other financial institutions. An expansive reading of the provision had the result of intensifying and enlarging the existing onerous obligations to report known, suspected or reasonably suspected money laundering.

On the second point, Lord Toulson explained at para 40 that in the Court of Appeal Lloyd Jones LJ was right to hold that it is irrelevant whether criminal property existed when the arrangement was first made because the crux of the issue is that the property should be criminal when the arrangement operates on it.

On the third issue, or whether the sums received into the bank accounts constituted “criminal property” before being paid into the accounts, the court took the view that there was a stark absence of material to substantiate the existence of such a contract and it rejected the argument that the money paid into the accounts represented underlying choses in action and that criminal property existed before money was received in the accounts. Lord Toulson remarked at para 42 that:

The prosecution would have to establish the existence of a prior bilateral contract (i.e. a contract which bound the purchaser in advance of paying the supposed premium), rather than a unilateral contract (ie an offer by AM Insurance which was available for acceptance by the would-be insured paying the premium quoted). There may be cases properly founded on the laundering of property in the form of a chose in action, but it is not a subject with which jurors or, for that matter, judges of the Crown Court are likely to be readily familiar. If the prosecution is going to advance a case on that basis, it has not only to consider whether the case is capable of being presented in a readily comprehensible way (or whether there might be a different and simpler method of approach) but also to ensure that its tackle is properly in order. Abstract references to a chose in action, without the basis being clearly and properly identified and articulated, are a recipe for confusion.

In relation to the final point about whether the actus reus of the offence under 328 POCA offence was committed, the court nonetheless held that the character of the money in the present case – whilst lawful at the moment of payment – changed on being paid into the bank accounts. Because of the fraud inflicted on the victims, the money became criminal property in the hands of B.

The decision that H had no case to answer was flawed and it was legitimate to regard H as entering into or becoming concerned in an arrangement to retain criminal property for the benefit of another. The instant case could be distinguished from R v Geary [2010] EWCA Crim 1925 – where it would have been artificial to regard the property as changing its character between the defendant receiving it and repaying it – on the basis that there was no artificiality in recognising that:

47. … The character of the money did change on being paid into the respondent’s accounts. It was lawful property in the hands of the victims at the moment when they paid it into the respondent’s [or H] accounts. It became criminal property in the hands of B, not by reason of the arrangement made between B and the respondent but by reason of the fact that it was obtained through fraud perpetrated on the victims.

Moreover, Lord Toulson explained at paras 48 and 49 that the same rationale applied to the provisions in sections 327–329 of POCA. But he also said that the wide ambit of these provisions was manageable by:

  • the prosecution only adding parasitic counts to substantive ones where there is a proper public purpose in doing so; and
  • the courts using their powers to discourage inappropriate use of the POCA provisions to prosecute conduct sufficiently covered by substantive offences.

In relation to the latter point, using the example of handling stolen property, Lord Toulson said that the inappropriate use of POCA by the prosecution needed to be discouraged where the crime was sufficiently covered by substantive offences. His Lordship endorsed the rationale of the Court of Appeal in cases such as R (Wilkinson) v DPP [2006] EWHC 3012 (Admin) and R v Rose [2008] EWCA Crim 239 and said that it was unnecessary to use section 329 (Acquisition, use and possession) of POCA in relation to someone who had committed the offence of handling stolen property contrary to section 22 (Handing stolen goods) of the Theft Act 1968.


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4 05 2015
mkp

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2602485

Abstract:

The Supreme Court (Lord Neuberger PSC and Lord Kerr, Lord Reed, Lord Hughes and Lord Toulson JJSC) heard the case of R v GH (Respondent) [2015] UKSC 24 (22 April 2015) on appeal from a judgment of the Court of Appeal (Lloyd Jones LJ, Irwin and Green JJ) reported at [2013] EWCA Crim 2237. Unanimously allowing the appeal of the Director of Public Prosecutions (DPP) , giving the only judgment Lord Toulson held at para 47 that the “character of the money did change on being paid into the respondent’s accounts.” This case involved fraud. It had been perpetrated through the Internet via four “ghost” websites falsely pretending to offer cut-price motor insurance. To execute his plans, B used associates who opened bank accounts for transmitting the proceeds generated by the scam and H was an associate of this nature. The Supreme Court held that section 328 of the Proceeds of Crime Act 2002 (POCA) does not require property to constitute criminal property before an arrangement came into operation because such a construction is likely have serious potential consequences in relation to banks and other financial institutions.

Keywords: Actus Reas, Banks, Criminal Property, DPP, HKSAR, Fraud, Money Laundering, POCA 2002, UKSC

6 05 2015
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