Can Companies Knowingly Profiting from Forced Labour “Buy” Their way out of Accountability?

[Dearbhla Minogue is a senior lawyer at the Global Legal Action Network and a consultant solicitor with Bindmans LLP. Leanna Burnard is a lawyer at the Global Legal Action Network and a consultant with Bindmans LLP.]

The authors represent the World Uyghur Congress before the UK Court of Appeal.

The commission of atrocities, including correctional forced labour, by the Chinese government against the Uyghur and other Turkic Muslims in Xinjiang has been widely reported on and condemned. The brutality of the measures taken to erase the Uyghur identity and reduce its population are so extreme, and are done with such an explicit purpose, that they easily fit the definition of genocide. But can companies knowingly profiting from these abuses be held to account?

This was the question raised by the World Uyghur Congress’ (WUC) claim against the UK’s National Crime Agency (NCA) regarding the latter’s failure to investigate the potential laundering of the proceeds of crime by companies buying and selling cotton that they know or suspect was produced through Uyghur forced labour. The litigation is brought by the Global Legal Action Network (GLAN) and Bindmans LLP. It was the first case concerning the Uyghur genocide to take place internationally and is the first to hold the UK authorities accountable for failing to prevent the proceeds of atrocity crimes entering the UK.

Importantly, the High Court recognised that cotton produced through forced labour could constitute the “proceeds of crime” for the purposes of the UK’s Proceeds of Crime Act 2002 (POCA), but it proceeded to agree with the NCA on a troubling point of law – that a purchaser of such cotton could effectively “buy” their way out of accountability by paying “adequate consideration” for it. To add insult to injury, the NCA further suggests that once adequate consideration had been paid, the cotton was “cleansed” of its criminal status and was subsequently free to be bought and sold without consequence (see para. 75 of the Judgement).

The WUC’s appeal will be heard in the Court of Appeal this week, where “adequate consideration” will be under the spotlight. The impact of the decision will reverberate through supply chains, from shipping companies to wholesalers and retailers, right down to the high street shopper. Importantly, it will also send a message to victims of some of the most heinous human rights violations, and to their families and supporters campaigning valiantly for their freedom, about whether commercial interests trump their human rights.

The Adequate Consideration Exemption

Section 329(1) POCA makes it an offence to acquire, use, or possess criminal property. It is the main offence for purchasers of criminal property. Section 329(2)(c) creates an exemption, such that a person does not commit the offence where they acquire, use or possess criminal property for “adequate consideration”. 

It is remarkable that a similar exemption from liability does not apply to transferring the proceeds of crime (section 327) or facilitating the acquisition of such property (section 328). It is even more remarkable that no other jurisdiction applies such an exemption in its anti-money laundering laws, nor do the international or regional instruments underpinning POCA, such as the 1988 Vienna Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, the 2003 UN Convention on Transnational Organised Crime, and relevant EU Directives.

Adequate consideration is not defined in POCA, although consideration is deemed “inadequate” where the value of the consideration is significantly less than the value of the property (section 329(3)(c)).

Adequate Consideration: the “Tradesperson’s Exemption”

The NCA, with which the High Court agreed, argued that the adequate consideration is a defence which applies to  an exchange for criminal property as long as it is, in effect, market value. This would include money, goods or services. However, the WUC argues that such a broad interpretation of adequate consideration is highly problematic, and that the exemption was in fact designed as a narrow exemption from liability for “tradespersons”, such that it was intended only to apply to the provision of goods and services in exchange for criminal money. It cannot have been intended to apply to either the payment of money in exchange for known criminal goods, nor any large-scale repeat supply chain relationship –  let alone one in which the property in question has only come into existence through an international crime.

The “tradesperson’s exemption” interpretation suggests that if a solicitor or plumber is paid by their criminal client with what they know or suspect is the proceeds of a bank robbery, they should be exempt from liability. However, a wholesaler who buys cotton they know or suspect is the proceeds of forced labour is not.

There are four clear grounds which support this narrow interpretation of adequate consideration.  

Firstly, from a policy perspective, allowing a person to avoid liability so long as they pay the market price for criminal goods creates a market place for criminal property, results in the perception that “crime pays”, and disincentivises companies from looking into their supply chains. Such a position would run directly contrary to the purpose of POCA.

Moreover, it would support a repugnant proposition that there can be a fair market price for goods produced with forced labour at a significantly lower cost than lawfully manufactured goods, and in doing so enable criminals to maximise their profit. It is wrong to suggest that Parliament intended to endorse a “market value” for goods produced by slave labour.

Secondly, it was Parliament’s intent that the exemption operate as a “tradesperson’s exemption”. The Explanatory Note to section 329 states that the effect of subsection (2)(c) “is that persons, such as tradesmen, who are paid for ordinary consumable goods and services in money that comes from crime are not under any obligation to question the source of the money.” The purpose of the provision is clear and explicit.

Thirdly, a narrow interpretation of adequate consideration is necessary to make sense of section 329(3)(c), which should be read together with section 329(2)(c). Section 329(3)(c) operates like an exemption to the adequate consideration exemption. It states that the provision by a person of “goods or services” which they know or suspect may help another to carry out criminal conduct is not consideration at all.

For example, if a mechanic is paid by a drug dealer with criminal money (i.e. the proceeds of selling illegal drugs) to fix the drug dealer’s car, the mechanic would be exempt from liability even though he knows the money is criminal, so long as he is paid the going rate (section 329(2)(c)). However, if the mechanic knows that the drug dealer plans to use the car to run down and kill someone once it is fixed, the exemption (subject to proof of the mental element) is displaced and he is liable for accepting the drug dealer’s criminal money (section 329(3)(c)).

This makes sense.

However, if the Court were to accept that “adequate consideration” in section 329(2)(c) covers all forms of consideration, including money, while section 329(3)(c) is limited to goods and services only, this creates an illogical inconsistency.

For example, if a person buys a car from a drug dealer, knowing or suspecting that the drug dealer bought the car with criminal money, and they pay with cash at the going rate for such a model, they will be exempt from liability for possessing criminal property under section 329(2)(c). However, if they know that the cash will be used by the drug dealer to buy a gun and kill someone, the purchaser would still be exempt from liability because section 329(3)(c) doesn’t apply to money.

This doesn’t make any sense.

Section 329(3)(c) only makes sense in application if section 329(2)(c) is limited to goods and services, not money. The provisions must be read together.

Fourthly, an adequate consideration exemption which includes monetary payment would severely undermine the disclosure regime. Section 329(2)(a) creates an exemption from liability where the person makes an authorised disclosure to the authorities that property they have acquired, used or possessed, is criminal property, in accordance with section 338. Section 330 further requires persons working in the regulated sector (broadly the financial sector, banks, investors etc.) to make a Suspicious Activity Report (SAR) to the authorities where they know or suspect another is engaged in money laundering.

Such disclosures and reports are critical for intelligence gathering. The interveners in the appeal, Spotlight on Corruption, note that 901,255 SARs were made in 2023. Yet if the High Court position is upheld, if a bank determines that adequate consideration was provided in the sale of the proceeds of crime, its reporting obligation for the s. 329 offence is undermined.

Breaking the Chain: Can Criminal Property Be Cleansed?

Another point in issue for the appeal will be whether criminal property can be cleansed of its criminal character, such that it acts as a “circuit-breaker” in the money laundering supply chain.

The NCA’s position is that property can be cleansed in two ways. Firstly, following the payment of adequate consideration. Accordingly, where a purchaser pays market value for cotton produced through forced labour, they are exempt from liability and the criminal quality passes from the cotton to the money in the hands of the seller. The question thereby becomes: can a person buy themselves and others out of liability?  

Secondly, the NCA proposes that where criminal property passes through the hands of a person who does not know or suspect that the property is stolen, an “unwitting intermediary”, the property is cleansed.

It will be interesting to see where the Court of Appeal lands on these questions, as neither proposition seems to be  supported by the legislation or policy.

Critical to these questions is the definition of “criminal property” in section 340 POCA, which states that property is criminal property if:

1. It constitutes a person’s benefit from criminal conduct or it represents such a benefit (in whole or in part and whether directly or indirectly), and
2. The alleged offender knows or suspects that it constitutes or represents such a benefit.

The fact that adequate consideration has been paid for criminal property does not take the property outside the definition. The adequate consideration exemption is a personal exemption from liability which does not alter the property’s status.

Moreover, to allow adequate consideration to cleanse the property in the way suggested by the NCA would undermine the purpose of the legislation by enabling criminal property to be traded without consequence, and it would ignore the application of international and regional instruments underpinning the legislation.

Where the property passes through an unwitting intermediary, the character of the property is temporarily altered as sub-section 340(b) no longer applies. However, it clearly resumes the definition of criminal property once it is placed in the hands of a person who does have knowledge or suspicion.

If an unwitting intermediary were deemed to cleanse the property, the practical effect would be that a person who wished to launder property could simply interpose an unwitting intermediary to first handle the property, after which it could be freely passed on to whomever, including persons in cahoots with the original owner who have full knowledge of the property’s criminal origins. This cannot have been the intention of Parliament.

If there is no circuit-breaker, the NCA expressed concern regarding the risk of “mushrooming” criminal property, whereby the original property retains its criminal status and the money paid for it also becomes criminal property. However, Parliament clearly intended for the possibility of mushrooming criminal property because if someone pays inadequate consideration for criminal property, there is no exemption, and no suggestion that the property loses its criminal character.

Separately, but relatedly, where there is no circuit-breaker, the NCA expressed concern that a shopper on the high street who suspects the retailer’s cotton is sourced from Xinjiang is susceptible to prosecution and that this could not have been intended by Parliament. However, the exposure of the high street shopper to liability is not problematic.

Firstly, it makes sense theoretically that a shopper with knowledge / suspicion is open to prosecution because the legislation intends to stop people from knowingly buying and benefiting from criminal property.

Secondly, the purpose of the Claimant’s litigation is to compel the authorities to use their powers to hold the people who are bringing this material to the market accountable, and if that was being done, the material would not be available to shoppers.

Conclusion

A broad interpretation of “adequate consideration” and the forging of a conceptual “circuit-breaker” risk undermining the integrity of the UK’s anti-money laundering regime and the ability of the authorities to effectively prevent and interrupt criminal supply chains. POCA should be interpreted in a way that reflects the legislation’s purpose and best protects the victims of crime.