Purchasers Must Reconsider Reliance on 'Adequate Consideration' Following EWCA Ruling
Purchasers of property may no longer be able to rely on the 'adequate consideration' exemption to protect them against the Proceeds of Crime Act 2002 (the 2002 Act), following the England and Wales Court of Appeal's (EWCA’s) ruling in a successful judicial review challenge brought against the National Crime Agency (NCA).
Case Background
The judicial review was obtained by the World Uyghur Congress (WUC), which alleged that certain products imported into the UK for sale had been made by forced labour in China. It wanted the NCA to investigate these activities under anti-money laundering (AML) laws and potentially bring civil recovery proceedings against the importers. The NCA refused, citing that adequate consideration anywhere in the supply chain would prevent imported goods from being identified as criminal property under the 2002 Act.
Key Legal Question
The case hinged on the exemption from criminal liability outlined in section 329 of the 2002 Act. This section provides a defence against the charge of 'acquiring, using, or possessing criminal property' if the person had received 'adequate consideration'. The question was how this applied to other AML offences under s.327 regarding 'concealing, disguising, converting or transferring criminal property' and s.328 'entering into an arrangement which facilitates the acquisition, retention, use, or control of criminal property'.
Initial Ruling and Appeal
The England and Wales High Court (EWHC) initially found in favour of the NCA, ruling that the 'adequate consideration' exemption applied to the importers. The WUC appealed, and the England and Wales Court of Appeal has now agreed with them.
EWCA's Decision
The EWCA ruled that the exemption would not protect the purchaser if they transferred it to someone else or took it out of the country with knowledge of possible criminality. They would thereby become potentially liable under the 2002 Act s.327(1)(d) or (e), and such property would still be considered criminal property. The EWCA held that the EWHC made an error of law by accepting that the use of adequate consideration in any transaction within a lengthy supply chain could break the link with the underlying criminal conduct. The EWCA also overruled the EWHC on another ground related to the threshold for when the NCA might commence an investigation. Accordingly, it remitted the decision of whether to commence an investigation to the NCA for further consideration (WGU v NCA, 2024 EWCA Civ 715).
Implications for Businesses
'There is clear tension between these comments (which are potentially obiter) and the perceived wisdom to date, which has been that the adequate consideration exemption also has a limiting effect on ss.327 and 328,' commented law firm Freshfields Bruckhaus Deringer. Certain obiter dicta in the leading EWCA case of R v Afolabi support this long-held proposition, suggesting that property sold to a good faith purchaser does not remain criminal property, even though the purchase money itself is criminal property. That judgment implies that ss. 327 and 328 should be interpreted to protect third parties who receive the proceeds of crime in exchange for adequate consideration, provided they are acting in good faith. However, the comments in the WGU v NCA judgment now cast doubt on this approach, says Freshfields.
Practical Steps for Businesses
For the moment, the decision underlines the need for a careful examination of the facts in each case, especially where the adequate consideration exemption may apply. 'Even where the exemption applies, businesses may need to assess whether to file a precautionary Suspicious Activity Report (SAR) with a Defence Against Money Laundering request as a risk mitigation measure or to engage in early dialogue with the relevant enforcement agency on the specific facts.'
Moving Forward
The EWCA's ruling signals a significant shift in the interpretation of the 'adequate consideration' exemption within the context of AML laws. Businesses must now exercise heightened diligence when involved in transactions that might potentially involve criminal property and consider proactive measures to mitigate risks.
Contacts
If you require assistance in relation to the above and/or would like to discuss anything further, please do not hesitate to contact info@act.london or your usual ACT contact.
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