Supreme Court considers the constituent elements of an offence under section 328 of POCA

The facts

An individual, "B", established four websites that falsely purported to offer customers cut-price motor insurance. One of the websites was established in the name of AM Insurance and was live from 1 September 2011 to January 2012. B recruited an associate, "H", who opened two bank accounts into which customers from the website paid money during the period in which the website was live, as payment for non-existent insurance cover. This case relates to H and is unusual in that the arrangement began before any "criminal property" existed. The prosecution conceded that H may not have known the details of B’s fraud. However, the circumstances in which H was asked to open the bank accounts were such that H must have known, or at least suspected, that B had some criminal purpose. B had already pleaded guilty to a number of offences.

H stood trial at the Old Bailey on the charge of entering into or becoming concerned in a money laundering arrangement contrary to section 328(1) of POCA, which states that 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".

At trial, H submitted that he had no case to answer because at the time he opened the bank accounts, thereby entering into the arrangement at issue, no "criminal property" existed. Under section 340(3) of POCA, 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".

Under section 340(5) of POCA, a person benefits from conduct "if he obtains property as a result of or in connection with the conduct".

The following question was referred to the Supreme Court as a point of law of general importance:

"Where, by deception, A induces the payment of money to a bank account opened for that purpose by B (pursuant to an arrangement with A to receive and retain that money) then may B commit an offence contrary to section 328 of POCA, on the basis that the arrangement to receive and retain money in that bank account can be treated as both rendering the property "criminal property" and facilitating its retention, use or control?"

The judgment

• In order to determine whether H was guilty of an offence under section 328, the Supreme Court considered the following four issues:
• Does the commission of an offence under section 328 require the property to constitute criminal property prior to the arrangement coming into operation?
• Does the property have to exist at the time when the defendant enters into or becomes concerned in the arrangement?
• Did the sums received into the respondent’s account constitute criminal property before being paid into those accounts?
• 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?

Does the commission of an offence under section 328 require the property to constitute criminal property prior to the arrangement coming into operation?

The Supreme Court upheld the Court of Appeal’s interpretation of "criminal property" as being property that is already "criminal" by reason of criminal conduct which is separate from the conduct alleged to constitute the money laundering offence itself. In making this decision, the Supreme Court noted that: "a wider interpretation would have serious potential consequences for third parties including banks and other financial institutions. They already have an onerous reporting obligation if they know or suspect, or have reasonable grounds for knowing or suspecting, that another person is engaged in money laundering".

Does the property have to exist at the time when the defendant enters into or becomes concerned in the arrangement?

As to the question of whether the property has to exist at the time when the defendant enters into or becomes concerned in the arrangement, the Supreme Court again upheld the Court of Appeal’s decision that it is irrelevant whether criminal property exists at the time of the arrangement, the key point is that the property is criminal when the arrangement begins to operate on it.

Did the sums received into the respondent’s account constitute criminal property before being paid into those accounts?  

The prosecution argued that property amounts to "criminal property" if it constitutes or represents a benefit of criminal conduct and, therefore, if there was an underlying chose in action (as in the definition of "property" under section 340(9) of POCA) that money paid into the account represented, the money paid would satisfy the definition of criminal property. The Supreme Court did not disagree with the prosecution’s reasoning, but stated that the prosecution had failed to identify such a chose in action given that the contracts of insurance were between AM Insurance and the victims of the fraud, rather than with H.  

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 restated the conventional view that the actus reus of the section 328 offence is entering or being concerned in an arrangement that in fact facilitates the acquisition of criminal property and the mens rea required is knowledge or suspicion. By the arrangement H had entered into with B, H had facilitated the retention, use and control of the money by or on behalf of B. The key question for the Supreme Court to consider, therefore, was whether the arrangement fell within section 328 on the basis that the money was "criminal property" because it was the proceeds of a fraud. On this point, the Supreme Court distinguished the present case from the leading authority, R v Geary [2010] EWCA Crim 1925. In R v Geary, the property paid to the defendant remained the lawful property of Mr Harrington who had transferred it to the defendant. The defendant argued that he had been approached in order to help hide the money from Mr Harrington’s wife as he was about to become involved in divorce proceedings. The Supreme Court in the present case stated that R v Geary was not, therefore, "a case of the defendant holding proceeds originating from a crime independent of the arrangement made between them". In the present case, although the money paid into the accounts was lawfully held by the purchasers of contracts of insurance, it was paid into H’s account due to a fraud. As a result, the Supreme Court held that the money became "criminal property" when it was transferred into H’s account not because of the arrangement he had made with B, but because the money had been obtained by fraud.  

The Supreme Court did not consider it artificial, as the Court of Appeal had, to acknowledge the transformation of previously "clean" money into the proceeds of crime upon receipt of the money in H’s account. Accordingly, the Supreme Court allowed the appeal, holding that:

• The Court of Appeal’s ruling that B had no case to answer was erroneous.  
• The arrangement H had entered into with B was capable of constituting an offence under section 328 POCA.

The Supreme Court stated that the same reasoning could be applied to the section 327 and 329 offences, but cautioned that:

"the courts should be willing to use their powers to discourage inappropriate use of the provisions of POCA to prosecute conduct which is sufficiently covered by substantive offences, as they have done in relation to handling stolen property". 

Accordingly, the prosecution should only add additional counts under the section 327, 328 and 329 offences if there is a "proper public purpose in doing so", such as in cases where it can be proved that a thief concealed what he must have known or suspected was stolen property, but there is doubt as to whether the prosecution can prove that he was the thief himself.    

Comment

In practice, the Supreme Court’s judgment in R v GH is unlikely to affect banks’ and other financial institutions’ reporting obligations under POCA. In situations where a bank suspects that an account is being opened in which to deposit the proceeds of crime, for example, the results of the bank’s existing AML checks would preclude the account from being opened and it is difficult to see how any changes could (or should) be made as a result of this judgment.

The SFO is currently updating the money laundering chapter of its Operational Handbook which, when published, will hopefully clarify the SFO’s intentions with regard to the prosecution of money laundering offences in the future. The Supreme Court’s decision in R v GH suggests that the SFO should avoid prosecuting a money laundering offence where other substantive offences are available. It appears unlikely, therefore, that there will be an overall increase in prosecutions for money laundering offences as a result of the judgment in R v GH.

This article first appeared on www.practicallaw.com and is published with the permission of the publishers.