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

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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

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   " The Meaning of “Criminal Property” in POCA 2002 R v GH (Respondent)  [2015] UKSC 24, 22 April 2015 1  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. 2  Unanimously allowing the appeal of the Director of Public Prosecutions (DPP) 3  , 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.”  Facts and Context 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. 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  4  and Barclays Bank  5  , were opened "  #$$%&''((()*+,-,,)./0'12'3+454'6789':;"<':=)#$>-  :  #$$%&''((()*+,-,,)./0'5('3+454'?@9A'9/,>':;"B'::BC)#$>-  B  #$$%&''((()3%4)0.D)12'+*.1$'E%%)#$>-   =  #$$%&''((()--.FE4*+G2)3.>'  <  #$$%&''((()*+/3-+F4)3.>'    :  by H and B subsequently took control of these accounts and bank cards linked to them. The Supreme Court held that section 328 6  of the Proceeds of Crime Act 2002 (POCA) 7  does not require property to constitute criminal property before an arrangement came into operation because such a construction is likely have serious potential consequences in relation to banks and other financial institutions. The public was swindled into paying £417,709 into the Lloyds’ account and £176,434 into the Barclays’ account for insurance cover that did not exist. Charged under section 328(1) – i.e. entering into or  becoming concerned in an arrangement which he knew or suspected would facilitate the retention, use or control of criminal property, namely the money received into the accounts, by or on behalf of B – H was tried in the Central Criminal Court. To the jury, the DPP articulated its case on the premise that whilst H may not have known the details of B’s fraud, the circumstances in which the accounts were opened pointed to H’s knowledge (or at least suspicion) that B had some criminal purpose. Yet Recorder Greenberg QC held that no criminal property existed at the point in time H entered into the arrangement and that H therefore had no case to answer. The Supreme Court held that someone (like H) who opened bank accounts which he knew or suspected would then be used by a fraudster (such as G) to deposit money which the fraudster aimed to H  #$$%&''((()-50,4-+$,.G)0.D)12'12%0+':;;:':I'453$,.G'B:J  C  #$$%&''((()-50,4-+$,.G)0.D)12'12%0+':;;:':I'3.G$5G$4    B take from victims could be charged with entering into an arrangement to facilitate the retention of criminal property, contrary to section 328(1) of POCA, even though there was no criminal property until after victims’ money had been paid into the accounts. Court of Appeal  Lloyd Jones LJ, Irwin and Green JJ dismissed the DPP’s appeal, mounted on the basis of section 58 8  of the Criminal Justice Act 2003. 9  The Court of Appeal read section 328 to mean that it was unnecessary for criminal property to exist at the moment when parties come to a prohibited arrangement and that the arrangement must relate to property that is criminal property at the time when the arrangement  begins to operate on it. On the facts of the instant case, Lloyd Jones LJ held that the property had not become criminal property at the time when the arrangement began to operate on it. The Court of Appeal decided that the criminal property had to exist at the time when the money laundering arrangement came into operation and not at the time the defendant had entered into that arrangement. Its rationale for upholding Recorder Greenberg QC’s ruling was that under section 328 “criminal property” meant property that had the quality of being criminal property distinct from the conduct alleged to constitute the actus reus  of the money laundering offence itself. In a comparative light, the criminal J  #$$%&''((()-50,4-+$,.G)0.D)12'12%0+':;;B'=='453$,.G'<J  I  #$$%&''((()-50,4-+$,.G)0.D)12'12%0+':;;B'=='3.G$5G$4    = 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 10  and Council Directive 2005/60/EC. 11  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 12  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 13  – involving a similar issue as regards the wording of a Hong Kong money laundering ordinance, namely the Organized and ";  #$$%&''51/K-5L)51/.%+)51'M5L6/,85/D'M5L6/,85/D)E.N1/,O9?M?P&B"II"M;B;J&?Q&RSTM  ""  #$$%&''51/K-5L)51/.%+)51'M5L6/,85/D'M5L6/,85/D)E.N1/,OUV&M&:;;<&B;I&;;"<&;;BH&?Q&WXY  ":  #$$%&''((()*+,-,,)./0'5('3+454'?@9A'9,D':;;I'"":=)#$>-  "B  #$$%&''((()#2-,,)#2'5G0'#2'3+454'#23Z+':;"='=J)#$>- 
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