Earlier this year, the World Uyghur Congress was successful in its appeal in a case which centered on concerns about the importation of cotton products to the UK from the Xinjiang Uyghur Autonomous Region ("XUAR") in the People's Republic of China1. In this article we will explore the important legal and practical ramifications of this decision, in light of more recent allegations against large multinational entities for failing to prevent slavery and human trafficking abuses in their supply chains. We will also examine the impacts this decision may have in other areas from a Proceeds of Crime ("POCA") perspective, along with practical steps organisations can take to manage supply chain risk.
Background
In April 2020, the World Uyghur Congress ("WUC") sent evidence to the NCA that serious human rights abuses were taking place in the XUAR, and that cotton from that region likely resulted from forced labour. The WUC alleged that this cotton was criminal property under POCA and sought to persuade the NCA to investigate potential money laundering offences. The NCA declined to investigate.
The WUC is an international NGO of exiled Uyghurs that claims to "represent the collective interest of the Uyghur people" both inside and outside of the XUAR. The Uyghurs themselves are a minority Turkish ethnic group originating from and culturally affiliated with the region of Central/Eastern Asia. Uyghurs are predominantly (but not exclusively) Muslim and form one of China's 55 recognised ethnic minorities.
In October 2022, the WUC submitted a judicial review claim against the NCA's decision not to investigate, which the High Court rejected.
In May 2024, the WUC appealed the High Court's decision, and in June 2024, the Court of Appeal found that the NCA made an error in law in deciding not to investigate under POCA.
Why did the NCA decline to investigate?
Echoing the High Court's findings, the Court of Appeal stated that it was accepted that there was "a diverse, substantial and growing body of evidence" that large-scale human rights abuses were occurring in the XUAR region, including forced labour and torture. Indeed, the WUC's unchallenged evidence was that 85% of all cotton grown in China comes from the XUAR. Specifically, Justice Dove noted that there was "clear and undisputed evidence of instances of cotton being manufactured in the XUAR by the use of detained and prison labour as well as by forced labour".
The NCA did not dispute these findings; instead, it rejected the WUC's claims on two bases. First, it argued that since no specific shipment of cotton had been identified as the proceeds of crime, POCA would not apply. Secondly, it held that once someone in the supply chain had paid adequate consideration (i.e. market value), for the product, it could no longer be criminal property, per the exemption in Section 329(2)(c) POCA. Whilst POCA makes clear that products derived from forced labour overseas can be criminal property, the NCA deemed that the giving of adequate consideration, in effect, 'cleansed' the property so that it was no longer considered "criminal property."
Quick recap: The money laundering offences in POCA
Whilst the term 'money laundering' is often assumed to mean acts solely concerned with, in effect, concealing ill-gotten gains from the authorities, the offences under POCA are in fact far wider than this. They can capture just about any act concerning property or benefits derived from a criminal breach. More specifically, the main three offences in POCA are found in s.327 – 329 and are as follows:
- s.327: it is an offence to deal with criminal property in various ways, including concealing it, disguising it, converting it, transferring it, or removing it from the UK.
- s.328: it is an offence to facilitate the acquisition, retention, use or control of criminal property by or on behalf of another person.
- s.329 it is an offence to acquire, use, or possess criminal property.
In order to be liable under any of the sections above, a person must know or suspect that the property is a benefit of someone's crime (i.e. that it is "criminal property"). In addition, criminal acts committed overseas may bring the proceeds of such crime into scope by virtue of section 241(2) POCA if it can be shown that the conduct would also be a criminal offence in the other jurisdiction, as well as in the UK. However, in this case, POCA would not require it to be demonstrated that the conduct in question would also be a criminal offence in China as the underlying allegations in question were connected to the commission of gross human rights abuses and related violations.
Section 329.2(c) (acquiring, using or possessing criminal property) is an exception if adequate consideration is given. This section of POCA provides protection for someone who inadvertently buys criminal property when there was no indication that was what it was. However, there is no similar exception in sections 327 or 328. It is this exception which the NCA sought to rely on in its refusal to investigate the WUC case.
The ruling
The Court of Appeal unanimously agreed with the WUC's interpretation of the money laundering offences in POCA. In respect of the NCA's first argument, the Court of Appeal found that it was unnecessary to identify specific criminal property and conduct, i.e., a specific consignment of cotton produced by forced labour before determining that there can be a proper basis for an investigation under POCA. The Court felt that to interpret this otherwise could discourage the NCA and other investigative bodies from commencing investigations, including in relation to corruption, in the absence of concrete evidence of particular crimes carried out by particular persons.
In respect of the NCA's second argument seeking to rely on the exemption under Section 329.2(c), the Court of Appeal held that payment of adequate consideration at some point in the supply chain does not deny a shipment of cotton produced by forced labour its criminal character. A purchaser or importer who knows or suspects that goods are the product of forced labour or other serious human rights abuses would therefore not be able to rely on the "adequate consideration" exemption under POCA (and will not be considered "bona fide" good faith purchasers). The Court of Appeal reiterated that suspicion does not have to be clear, or firmly grounded and targeted on specific facts — rather, it only needs be "more than merely fanciful" (R v Da Silva [2006] EWCA Crim 1654).
In light of this ruling, the Court of Appeal found that the NCA had made an error in law when deciding not to investigate. The Court of Appeal quashed the NCA's decision and ordered the NCA to re-consider whether it should investigate money laundering offences in relation to the trade in cotton from the XUAR.
What are the key takeaways from the judgement?
- Criminal property under POCA is broadly defined and need not be specifically ascertained. "Criminal property" is broadly defined in Section 340 of POCA as any benefit derived from criminal conduct, or any property representing the same. Any proceeds relating to the sale of cotton (or indeed other products) created through forced labour could therefore fall within that definition. The Court's finding that the criminal property need not be specifically ascertainable is, however, significant and extends the ambit of POCA yet further. In addition to increasing the prospect of future supply chain liability cases (as discussed below), it is likely to pose more practical challenges for the regulator and others dealing with this regime on a day-to-day basis. For example, POCA can be a time-consuming and often disproportionately expensive challenge in M&A transactions, where targets may be unwittingly tainted by potentially minor breaches of law that could lead to reportable money laundering offences. This decision may only further complicate that process by expanding the scope for criminal property to be identified within a target.
- Greater risk of POCA breach. This ruling reemphasizes that anyone who imports or sells goods in the U.K., knowing or suspecting that they are the product of forced labour, is potentially liable to criminal investigation and prosecution. Whilst "knowledge" is usually a high bar - and one that is unlikely to be met in the majority of supply chain cases – the threshold for suspicion is considerably lower. Thus, any business or person who becomes suspicious about the property they have acquired for fair value now faces greater risk of committing an offence under POCA in any onward dealing with the property (such as selling, transferring, or moving it) – because they cannot rely on the adequate consideration exemption to "cleanse" these actions.
- A delicate balance. Arguably, this ruling creates the potential for further tension in relation to supply chain management; on the one hand, organisations will seek to thoroughly investigate and mitigate supply chain risks through enhanced due diligence as a result. This is particularly the case for companies conducting human rights due diligence on their supply chains, and/or publicly reporting pursuant to EU sustainability legislation, such as the Corporate Sustainability Reporting Directive, the Corporate Sustainability Reporting Directive or the UK's Modern Slavery Act 2015 (although the ambit of that regime is more limited). On the other hand, by carrying out such exercise, they may also be more likely to affix themselves with knowledge or suspicion; UK companies who import cotton produced in XUAR, as well as other higher-risk products such as cocoa, sugar and cobalt, will need to be particularly mindful of this potential legal risk. This underlines the reality that ESG practices are increasingly not just about monitoring and transparency: businesses need to be ready to take action where actual or potential issues are identified through that additional scrutiny.
What products and sectors are considered high risk from a modern slavery perspective?
Modern slavery risks can be linked to a number of different sectors, such as hospitality, cleaning, construction, agriculture, fisheries and certain types of manufacturing e.g. textiles. These sectors can have high modern slavery risks because of their characteristics and processes, including the widespread use of low skilled labour in higher risk jurisdictions or heavy reliance on outsourcing. Modern slavery risks can also be linked to certain products, such as cotton, spices, rubber, minerals such as cobalt and lithium used for batteries, bricks, timber, construction materials, cocoa, coffee and tea. Products utilizing one or more of these materials as components, for example lithium batteries or solar panels, are also considered higher risk.
New legislation in the pipeline?
Unlike the US, the UK does not currently have specific legislation banning imports of products from particular regions on human rights grounds. Given the impact of the WUC ruling and several high-profile human rights abuse allegations linked to UK based companies, many have called for more targeted legislation impacting imports in this area (similar to the EU's Forced Labour Products Regulation, aimed at tackling forced labour within supply chains, regardless of the type of product involved). Indeed, just last month certain MPs called for a UK iteration of the US's Uyghur Forced Labor Prevention Act to specifically outlaw imports of products linked to forced labour, and the House of Lords Select Committee published a report2 this month urging for the same. Whether such legislation will be implemented in the future remains to be seen.
What businesses can do
For businesses sourcing goods or services from countries where there is a greater risk of human rights violations and criminal conduct occurring in their supply chain, exposure to the money laundering regime in POCA is heightened. This is particularly the case for large, multinational entities with complex supply chains, but could also impact smaller organisations that import higher risk products.
The following practical steps may serve to assist in limiting such exposure:
- Risk assessment - Assessing the risk associated with specific suppliers and regions, including considering factors such as the prevalence of forced labour, human rights abuses, and money laundering in the relevant territory.
- Enhanced due diligence - Conducting thorough due diligence on supply chains, including ensuring informed sourcing decisions and investigating suppliers, subcontractors and other entities involved in the supply chain process.
- Supply chain mapping - Considering detailed mapping of the supply chain including identifying each link, from raw materials to the final product (and any higher risk items or sectors). Understanding the flow of goods, services, and funds within the supply chain.
- Contractual protections – Reviewing clauses in contracts that require suppliers to comply with applicable laws, including human rights standards and anti-money laundering regulations. Following through on consequences for non-compliance.
- Monitoring/auditing - Regularly monitoring suppliers' activities, including implementing surprise audits if necessary. Using technology to help track transactions and verify authenticity.
- Training and awareness – Helping others in recognising red flags and escalating where appropriate. Establishing clear procedures and documenting efforts, including relevant policies (e.g. Human Rights Policy and/or Code of Conduct).
- Legal advice - Seeking legal advice to help ensure compliance with relevant laws in this area, and understanding the specific implications of the Court of Appeal ruling on your own business and its supply chains.
Footnotes
1 World Uyghur Congress, R (on the application of) v National Crime Agency [2024] EWCA Civ 715
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.
