UK: Money Laundering: The Disappearing Predicate

Last Updated: 5 November 2009

Article by David McCluskey, Partner in the Fraud and Regulatory Department, Peters & Peters Solicitors

This material was first published by Thomson Legal & Regulatory Limited in the Criminal Law Review, "Money laundering: the disappearing predicate" [2009] Crim. L.R. 719 and is reproduced by agreement with the Publishers.

Money laundering as a criminal offence has traditionally had a "dark twin", a predicate offence which generates the funds to be laundered. Cases decided on the law before the Proceeds of Crime Act (POCA) 2002 required proof that such predicate criminal conduct had in fact generated the money being laundered.1 Not without some doubt,2 recent cases decided under the POCA 2002 have gradually undermined the significance of the actual source of the funds. The Court of Appeal in Anwoir 3 found (at [21]) that there are two ways in which the Crown can prove the property is criminal property,

"(a) by showing that it derives from conduct of a particular kind or kinds and that conduct of that kind or those kinds is unlawful; or (b) by evidence of the circumstances in which the property is handled which is such as to give rise to the irresistible inference that it can only be derived from crime" .

Thus the Crown is not required to allege and prove the specific criminality or even the class of criminality which it says generated the funds which the defendant is now accused of laundering. It must simply lead enough evidence so that the jury can draw an inference that the property concerned is "criminal property" .4

Comment has been made that this position is far from satisfactory, because (1) further clarification of what " type" of conduct qualifies under (a) above is required, (2) part (b) arguably involves a lesser burden of proof than the Crown bears in POCA 2002 Pt V (civil recovery) cases, and (3) the potential unfairness to an accused is magnified because "without identifying the crime or type of crime alleged, D cannot know the case against him in adequate detail to meet it".5 The effect of the Anwoir line of decisions on our jurisprudence is that the concept of, or indeed requirement for consideration of, a specific predicate offence as underlying a money laundering offence is slowly but steadily being eroded. Instead, money laundering is becoming a primary offence in its own right.6

This is further underlined by the fact that POCA is arguably drawn widely enough that it does incorporate predicate offences: s.328 criminalises an arrangement which facilitates, amongst others, the "acquisition" of criminal property. The section does not contain the word "creation", but in the vast majority of acquisitive criminal cases (particularly fraud), criminal property only becomes such at the moment it is "acquired". In other cases criminal property is created before it is acquired by the criminal, such as when a transfer goes awry or is stopped by the bank or by agency intervention. Nonetheless, the degree of overlap between the predicate offence (fraud, conspiracy to defraud) and the "laundering" offence (an arrangement which "facilitates ... acquisitions ... of criminal property") is all but complete.7

Thus where a credit card fraudster makes a payment using stolen credit card details, he is both committing an offence of fraud and arguably laundering his criminal property by transferring it. A cheque fraudster who alters payee and amount details on a cheque in order to divert funds fraudulently to him is both committing an offence of fraud and simultaneously laundering the proceeds of that fraud.8 Few would argue with the proposition that in each instance charging both offences, with the payment or transfer as part of the actus reus of each, would be duplication and that one charge would be liable to be struck out.

The importance of the elision between predicate and laundering offences becomes clear in the context of the "consent" regime in the POCA 20029 whereby liability in respect of certain offences is avoided by the making of a report and obtaining consent. The extent of the compliance burden on regulated businesses and individuals is well documented.10 Indeed, nothing has ensured the popularity of the reporting regime quite so much as the very blunt carrot and stick approach at its heart: report, and you will be immune. Do not report, and you are at risk. Thus in relation to the advance fee fraud example above, the victim's bank which receives the request to transfer the money may suspect that a fraud is being perpetrated.11 It applies for12 and receives consent to transact under s.338 of the POCA 2002. While such consent would give the bank immunity against a charge of money laundering under the POCA 2002,13 it goes without saying that no immunity could be given in respect of any other offence (such as aiding and abetting fraud14).

Similarly, where a company or person finds it is being placed under pressure to make a payment with which it is uncomfortable, say to an official or indeed to another company in circumstances it considers suspicious, it may decide to seek consent. Such a request for consent would no doubt set out details of the payment requested and importantly the reporter's knowledge or suspicion which in this case would be that the request or demand for payment was corruptly made. Having received consent to proceed with the transaction, the reporter would obtain immunity from prosecution under the POCA 2002.

The question now arises whether the reporter could be prosecuted for an offence of corruption arising out of the same facts.15 Again, while the granting of consent and consequent immunity is limited to POCA offences, such a prosecution would surely strike at the foundations of the POCA disclosure and consent regime.

It may be argued that the payer (and reporter) should have done neither because he was purporting to obtain consent for the offence of making a corrupt payment (or in the earlier example, aiding and abetting fraud) for which consent can be no defence.16 That raises two separate public interest based questions--first, whether if consent is nonetheless granted by the Serious Organised Crime Agency it would be an abuse to prosecute the corruption offence17 ; and secondly, if it is correct that the reporter would have no defence to a corruption charge, whether the likely effect on reporting suspicious activity18 would be so damaging that as a matter of policy such prosecutions should not be pursued.

The problem is that public policy points generally in the direction that such matters should be prosecuted. After all, this is what suspicious activity reports and the consent regime are for: to allow evidence to be gathered so that wrongdoers can be prosecuted and criminal proceeds confiscated. In the advance fee fraud example quoted above, there is a clear public interest in prosecuting a bank employee who is secretly complicit in the fraud notwithstanding that "consent" is obtained on his behalf. The only rational way to distinguish him from others who deserve protection is to prosecute a conspiracy to commit fraud. The alternative is either a fruitless attempt to distinguish the predicate from the money laundering offence, or ominously, to distinguish such cases on the basis of public interest. That does not serve the cause of a just and knowable law well.

It is not suggested that every person who obtains consent runs the risk of prosecution for a different offence with an identical actus reus. The real difficulty, ingrained in the legislation, is identifying where to draw the line between what conduct has been immunised by consent and what has not. The issue is one of fact: what has been reported and what consent has been obtained? The position is all the more unsatisfactory in the context of general requests for, and granting of, consents to carry on a course of business. Public policy dictates that those who obtain consent should be reassured that doing so will not expose them to criminal liability; equally, the consent system should not provide a shield to offenders.

Footnotes

1. Montila [2004] UKHL 50; [2005] 1 Cr. App. R. 26; Harmer [2005] EWCA Crim 1; [2005] 2 Cr. App. R. 2; Saik [2006] UKHL 18; [2007] 1 A.C. 18.

2. Anwoir [2008] EWCA Crim 1354; [2009] 1 W.L.R. 980 was a not entirely convincing " reconciliation" of two contradictory cases decided within days of each other. Both Anwoir and F [2008] EWCA Crim 1868; [2009] Crim. L.R. 45 have been the subject of references to the Lords, though leave was refused. See V. Walters, " Prosecuting Money Launderers: Does the Prosecution Have to Prove the Predicate Offence?" [2009] Crim. L.R. 571.

3. Anwoir [2008] EWCA Crim 1354; [2009] 1 W.L.R. 980.

4. For the purpose of the POCA 2002 s.340(3). See F [2008] EWCA Crim 1868; [2009] Crim. L.R. 45. See also D. Bentley and R. Fisher, " Criminal Property under POCA 2002--Time to Clean up the Law?" [2009] 2 Archbold News 7.

5. D. Ormerod, Case & Comment [2008] Crim. L.R. 900, 903.

6. This is not necessarily an unintended consequence. Distinguished commentators have conceded " with great reluctance ... it is arguable that the criminal ' arrangement' [i.e. in s.328] is to be defined solely by reference to the accused's state of mind" . See T. Shaw and D. Ormerod, " Developments in conspiracy to launder money" [2005] 7 Archbold News 6.

7. There is some (arguably obiter) judicial authority for the proposition that a s.328 arrangement can only be committed in respect of property which had " already" become criminal at the time the arrangement became operative. See Kensington International v Republic of Congo [2007] EWCA Civ 1128; [2008] 1 W.L.R. 1144 at [67]. It is respectfully submitted that the POCA 2002 simply does not support such an interpretation.

8. Here the inchoate nature of the Fraud Act offences has pushed back the boundaries of the predicate offence in favour of the laundering offence: previously where an advance fee fraudster induced a victim to send money to him, he would be obtaining a money transfer by deception and the transfer would be part of the predicate offence. Under the Fraud Act, the offence of fraud by false representation is complete when he makes the representation, irrespective of the result: the victim's transfer now arguably constitutes the laundering, though evidence of it would plainly be admissible on a prosecution for conspiracy to commit fraud and in relation to the harm caused by the offence.

9. POCA 2002 ss.337 and 338, as referred to in ss.327, 328 and 329.

10. In recent submissions to the Lords' Inquiry into Money Laundering and the Financing of Terrorism, the Law Society said that some of its members estimated the cost of opening a new international corporate client matter at £5,000 in direct and indirect costs.

11. Its own anti-fraud systems may for example have identified a number of requests for money transfers to this particular account.

12. By means of a suspicious activity report.

13. The particular offence would of course be s.327(1)(d) (transferring criminal property) or s.328 (arrangement facilitating transfer of criminal property).

14. Thus a bank employee who is secretly complicit in the fraud could be prosecuted for that offence, notwithstanding consent to the money laundering transaction obtained on behalf of the bank and its employees.

15. Mens rea does not practically assist in distinguishing the unwilling launderer who obtains consent from the criminal who makes a corrupt payment; a reporter who has knowledge that the proposed payment is corrupt surely has the requisite intention to make a corrupt payment, especially once he receives consent; a reporter with suspicion but not knowledge might still find that an inference is sought to be drawn from the circumstances of payment that he has the requisite mens rea for corruption.

16. The alternative may be to embark on a microscopic (and in the context of the POCA 2002, ultimately doomed) exercise to try to separate the predicate from the laundering offence.

17. On the basis that, in obtaining statutory consent and thereby immunity from one offence, he was exposing himself to prosecution for another.

18. Because the would-be reporter would be better off not participating in the transaction at all, not applying for consent and only considering whether he has an obligation to report under POCA 2002 s.330.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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