Jersey: Is There A Requirement To Prove Property Derived From Crime To Prosecute An Offence Of Money Laundering?

Last Updated: 20 July 2011

R v MONTILA AND OTHERS (HOUSE OF LORDS) (2004)

1. This case has brought to the fore a very interesting question in the field of money laundering. The issue at stake was the following: in relation to the laundering offence contained in section 93C(2) of the Criminal Justice Act 1988 and section 49(2) of the Drug Trafficking Act 1994 (the "Acts"), is there a requirement for the prosecution to prove that the property being converted is in fact the proceeds of crime? The Court of Appeal and the House of Lords have taken directly opposite views, illustrating the difficulty of identifying an answer for an apparently simple question.

BACKGROUND

2. Nine defendants were charged with offences under the aforementioned sections of the Acts. It was alleged that they had concealed, disguised, converted or transferred property knowing, or having reason to suspect, that the property represented another person's proceeds of criminal conduct or drug trafficking. At a preparatory hearing the judge ruled that in a prosecution under either of these sections it was necessary for the Crown to prove that the property being converted was in fact the proceeds of crime or drug trafficking.

COURT OF APPEAL RULING

3. The Court of Appeal (Criminal Division) held that where a person was charged, under these sections, with assisting another to avoid prosecution by concealing, disguising, converting or transferring property which he knew or had reasonable grounds to suspect was property representing that person's proceeds of crime or drug trafficking, it was not necessary for the Crown to prove that the property was in fact the proceeds of crime or drug trafficking.

4. The Court of Appeal had considered the judge's six reasons for his conclusion that it was necessary for the Crown to prove that the property was the proceeds of drug trafficking or of criminal activity. These were (i) the decision in R v El- Kurd [2001] Crim L R 234, in which the Crown accepted that it had to establish that the money had come from drug trafficking or other criminal conduct, (ii) the terms of the Proceeds of Crime Act 2002, (iii) the fact that almost invariably third party money laundering cases include directly or indirectly evidence as to the provenance of the money, (iv) the reference in the subsection to assisting a person to avoid a prosecution, (v) relative unfairness between a principal subject to subsection (1) and a third party subject to subsection (2), and (vi) analysis of international treaties and conventions leading to the passing of the two Acts.

5. The Court of Appeal had not been convinced by any of the reasons. Scott Baker LJ said that there was no authority directly on the point. The starting point on the question of construction was that subsection (1) of each section referred expressly to the defendant's proceeds of crime/drug trafficking and made it an offence to deal in certain ways with that property or what represented it. It was beyond argument that the Crown had to prove the source of the laundered money.

But subsection (2) was phrased in an entirely different way: the target was the state of mind of the defendant as much as what he did. What was critical was that the defendant knew or had reasonable grounds to suspect that the property was another person's proceeds of crime/drug trafficking. The distinction between the two subsections was likely to have been a deliberately drafted distinction and compelling reasons would be required to imply an additional element into the offence created by subsection (2). No such reasons could be found. Accordingly, the judge's ruling was wrong.

6. The judge had stated that the mens rea necessary to prove the offence almost always proved the provenance of the money and so the additional burden of proof was not significant. The Court of Appeal disagreed and reasoned that there would be cases where a defendant was discovered converting a large amount of cash but the Crown could not prove its source. His culpability would be no different were the Crown able to prove the source of the money. The whole purpose of money laundering was to disguise the source of the money and to distance the holder from that source. It was often very difficult to trace the source of banknotes.

7. Subsection (1) was concerned with the launderer's own proceeds and required the Crown to prove that the property being converted was the proceeds of crime. But in subsection (2) the launderer was converting property for the purpose of assisting someone else. It seemed entirely logical that in the latter case Parliament should regard it as sufficient that the defendant knew or had reasonable grounds to suspect that the property was the proceeds of crime/drug trafficking without the necessity of proving also that the property was in fact such proceeds. A subsection (2) defendant might be some distance from the source of the original criminality from which the subsequently laundered money arose.

8. What was critical in subsection (2) was that the defendant knew or had reasonable grounds to suspect that the property was another person's proceeds of drug trafficking/ crime. The subsection specifically did not expressly require the Crown to prove that the property was in fact the proceeds of drug trafficking/crime. The difference between the two subsections was that in (1) the property had to be the defendant's proceeds of crime whereas in (2) there was no such requirement.

9. The relevant provisions expressly envisaged commission of the offence where the defendant's state of mind fell short of actual knowledge. Reasonable grounds for suspicion were enough. This suggested quite strongly that it was irrelevant whether the property was in fact the proceeds of crime/drug trafficking. There was no reason to place the additional burden on the Crown of proving the source of the property when the essence of the offence was what the defendant was doing and the state of mind in which he was doing it.

10. Provided that the defendant had reasonable grounds to suspect that the money was the proceeds of drug trafficking/ crime it made no moral difference to his conduct that the Crown could prove the source of the money. Subsection (2) was aimed at the third party who might be some way down the line. Therefore, the drafting differences that existed between these subsections were for a legitimate legislative aim.

HOUSE OF LORDS RULING

11. The case went to the House of Lords. The decisions of the judge and the Court of Appeal were reviewed. The House of Lords reversed the decision of the Court of Appeal. It was necessary to examine the words of the subsection and this needed to be done in the context of the legislation as a whole.

12. The 1988 Vienna Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances required actual knowledge that the property was derived from crime. The Criminal Justice (International Co-operation) Act 1990 was enacted as a result. The wording used was "knowing or having reasonable grounds to suspect" that the property represented another person's proceeds of crime (section 14(3)). This was replaced by section 51(1) of the Drug Trafficking Act 1994. The latter requires actual knowledge. Actual knowledge was also a requisite under the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and the EEC Council Directive of 10 June 1991 on prevention of the use of the financial system for the purpose of money laundering (91/308/EEC).

13. Subsection (2) stated that a person is guilty of an offence "if knowing or having reasonable grounds to suspect that any property is ... another person's proceeds of drug trafficking [s 49(2) of the 1994 Act] / of criminal conduct [s 93C(2) of the 1988 Act]" he does one or other of the things described to "that property" for the purpose which the subsection identifies. There was therefore a strong indication from the opening words of the subsection that it was directed to activities in relation to property which was in fact "another person's proceeds of drug trafficking" or "another person's proceeds of criminal conduct", as the case may be. A further indication was to be found in the absence of any defence if the property which the defendant was alleged to have known or had reasonable grounds to suspect was another person's proceeds turned out to be something different. Subsequent events might show that the property that he was dealing with had nothing whatever to do with any criminal activity at all, but was the product of a windfall such as a win on the National Lottery. On the Crown's argument it was enough for it to be proved that he had the mens rea at the time when he was dealing with the property and that he was doing what he did for the purpose that the subsection identified.

14. The surrounding context, as outlined above, gave credence to the requirement that the proceeds needed to be criminal in nature.

15. It was in regard to section 14(3) that the weakness in the Crown's argument was revealed. There was no defence if the property turned out to not to have been another person's proceeds of drug trafficking or his criminal conduct. What this subsection said was that an offence was committed by a person who, having the state of mind that it describes, acquired the property for no, or for inadequate, consideration. This made sense if the Crown had to prove that the origin of the property was of the kind described. But it made no sense to say that the defendant was guilty of an offence of money laundering simply because he acquired the property for no or inadequate consideration, having reasonable grounds to suspect that this was its origin (his purpose being irrelevant in this case), if he was in a position to prove that it was not property of that kind at all.

16. The House of Lords noted that the new Proceeds of Crime Act 2002 replaced the money laundering offences in the Acts. Although the 2002 Act was not in force at the time of the judge's decision, the wording was instructive. Section 327(1) of the 2002 Act provides that a person commits an offence if he conceals, disguises, converts or transfers criminal property or removes criminal property from England and Wales or from Scotland or from Northern Ireland. Section 340(3) of the 2002 Act states: " Property is criminal property if - (a) it constitutes a person's benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly), and (b) the alleged offender knows or suspects that it constitutes or represents such a benefit."

17. The House of Lords stated that the description of the offences created by section 327(1) requires the prosecutor to prove that the property is criminal property within the meaning of section 340(3).

18. The difference between the two appellate decisions effectively turns on whether attempted money laundering is viewed as being reprehensible enough to warrant the punishment of the law. Under the Court of Appeal reasoning, a person who, whilst believing or having reasonable grounds to suspect money laundering, engages in the activities specified in the Acts, will be guilty of an offence even if the property turns out to be legitimate. In other words, punishment will be meted because that person attempted to launder money. The punishment relates to intent. The House of Lords, in taking the view that the property needs to be criminal in nature, is reluctant to allow punishment purely on the basis of intent/attempt. Both positions are defensible but ultimately the House of Lords decision is what guides us. The problem stays the same despite the fact the 2002 Act repeals the Acts as it retains the wording "knows or suspects".

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