The circumstances in which a money laundering offense may also constitute a substantive criminal offense was the subject of a UK Supreme Court decision last week.
A copy of the Supreme Court’s opinion in R v GH  UKSC 24 is here.
The Proceeds of Crime Act 2002 (POCA) provides that money laundering includes dealing with property known “or suspected” to constitute or represent a benefit from criminal conduct. Sections 327-329, the main provisions (aside from tipping off and reporting obligations in the regulated sector), respectively deal with concealment and transfer of property; arrangements facilitating possession or control of property and acquisition, use or control of property.
The money laundering offenses have been judicially described as “parasitic” offenses, being predicated on proceeds yielding offenses. However, as the decision demonstrates, there is often a considerable degree of overlap and fine, if not unsatisfactory, distinctions to be made.
The instant case involved s.328 (arrangements) and the operation of a bank account opened by the defendant but operated by the fraudster to receive payments from sham online motor insurance websites. The case against the defendant was thrown out on the grounds that at the time of entering into the alleged arrangement with the fraudster no criminal property was yet in existence.
The Supreme Court reviewed a number of decisions, (one of which involved the issue of whether the giving of a bribe by itself constituted a s.328 (arrangement) offense) and contrasted the forward looking provisions of the Terrorism Act 2000 with those of POCA.
The court held there was a valid distinction to be drawn between a person who acquires criminal property and one who acquires property by a criminal act or for a criminal purpose. It was held to be immaterial whether it existed when the operation was hatched provided that criminal property existed when the arrangement took effect.
Significantly for financial institutions, the Supreme Court stated:
A wider interpretation would have serious potential consequences for third parties including banks and other financial institutions. They already have an onerous reporting obligation if they know or suspect, or have reasonable grounds for knowing or suspecting, that another person is engaged in money laundering. That obligation would be considerably enlarged and its limits potentially difficult to gauge if they are required, on pain of criminal sanctions, to report any suspicion, or reasonable grounds for suspicion, of a customer’s intended use of property either in connection with an offence within the UK or in connection with conduct elsewhere in the world which would be an offense if committed within the UK.
In the instant case, it was held that when the character of the money changed on being paid into the respondent’s accounts, from lawful property to that of fraudulently obtained, the defendant could still legitimately be regarded as having participated in an arrangement to retain property for the benefit of another.
The same reasoning applied to sections 327 (concealment and transfer) and 329 (acquisition, use or control) on the grounds that although a thief is not guilty of acquiring criminal property by his act of stealing it from its lawful owner, that does not prevent him from being guilty thereafter of an offense under one or other, or both, of those sections by possessing, using, concealing, transferring it and so on.
The appeal was allowed and the case remitted back for the defendant to stand trial. However, the Supreme Court sought to discourage prosecutors from bolstering prosecutions of substantive offenses with money laundering offenses in the absence of a proper public purpose. The court said,
. . . there may be doubt whether the prosecution can prove that the defendant was the thief but it can prove that he concealed what he must have known or suspected was stolen property, or because the thief’s conduct involved some added criminality not just as a matter of legal definition but sufficiently distinct from the offence that the public interest would merit it being charged separately.
The position would appear to be that although POCA bites on conduct relating to criminal property, a considerable overlap exists between some substantive offenses and post facto money laundering offenses which will require future prosecutorial discretion.
Alistair Craig, a commercial barrister practicing in London, is a frequent contributor to the FCPA Blog.