On 27 June 2024, the UK Court of Appeal (“CA”) notably overturned a High Court decision by finding in favour of the World Uyghur Congress (“WUC”) in a case on forced labour and human rights abuses in overseas supply chains. In its decision, the CA focused on the application of the UK Proceeds of Crime Act 2002 (“POCA”) by the UK National Crime Agency (“NCA”), in particular the requirements for commencing an investigation and how the POCA exemption of payment of “adequate consideration” is applied.
Background and CA decision
WUC, an NGO advocating for the Uyghur people previously approached agencies, including the NCA, with evidence of the forced labour and other human rights abuses conducted by the People’s Republic of China in the supply chains of the cotton products imported from the Xinjiang Uyghur Autonomous Region of China (“XUAR”). The NCA did not use its powers under POCA to investigate and/or commence civil recovery investigations.
The CA considered whether the NCA had misdirected itself on two points of law and concluded the following:
- An identifiable, specific criminal property is not necessary to commence an investigation under the POCA as the finding of such criminal property itself could be the aim of an investigation; and
- Reliance on the “adequate consideration” exemption under section 329(2)(c) of POCA (which the NCA had sought to rely on, in assuming that payment of adequate consideration (effectively market value) in the supply chain would cleanse criminal tainting of property) by a person earlier in the supply chain cannot cleanse the criminal property to preclude its recovery in the hands of another person if there is requisite knowledge or suspicion of criminality, and thus future dealings of that property may continue being subject to anti-money laundering (“AML”) restrictions. To note, the CA clarified that Section 329(2)(c) does not impact on the status of the property (i.e., this exemption applies to an individual and not to the property itself) and Section 329(2)(c) is not about bona fide purchasers (i.e., a bona fide purchaser will not need to rely on the “adequate consideration exemption” because without requisite knowledge or suspicion of criminality, they will not have committed an offence contrary to Section 329(1) to which they need an exemption for).
Key takeaways:
This decision, while primarily concerned with confirming the instances in which a company could be investigated for offence under POCA, including the application of the “adequate consideration” exemption, is nonetheless reflective of the recent increased focus on ESG matters, including forced labour, we have seen from regulators and consumers alike.
The clarification provided on the implications of the “adequate consideration” exemption confirms that the absence of explicitly identifiable criminal property does not preclude an authority investigation. The CA’s effective confirmation that POCA applies to the global trade of goods may also lead to the NCA directing some focus on investigating POCA related offences in global supply chains.
We therefore expect this decision will have an impact on how businesses view and monitor their global supply chains and how ESG and broader human rights abuse risks are managed. It is possible that, following due diligence exercises into global trade operations, individuals may come to know or suspect overseas criminality (e.g., forced labour or other human rights violations) in their supply chains which are caught under POCA and thus become guilty of money laundering offences.
As such businesses will need to increase their scrutiny, including by undertaking a broader review of the labour practices utilised in their supply chains to understand any risks of forced labour. Businesses will also need to be prepared to take remedial steps upon identification of any criminal practices, as well as reflect on the analysis that must be conducted when contemplating the reporting requirements and seeking of any requests under POCA.
The CA decision can be accessed here.
For more information on forced labour, please see our blog posts here and our Forced labour, ESG Compliance and Supply Chain: Due Diligence webinar here.
