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THE INADEQUATE “ADEQUATE CONSIDERATION” DEFENCE

the inadequate blogOur portal editor, Jonathan Fisher QC, discusses the recent Privy Council decision in Holt v Attorney General and whether it presents a case for widening the ‘adequate consideration’ defence in money laundering cases in the UK.

SPEED READ

Holt v Attorney General [2014] UKPC 4 illustrates the unfairness that can result from the recent absence of the ‘adequate consideration’ defence from section 140(1) of the Isle of Man Proceeds of Crime Act 2008, in cases where a defendant is charged with becoming concerned in an arrangement, knowing or suspecting that the arrangement facilitates the acquisition, retention, use or control of criminal property. The circumstances arising in Holt support the argument that the ‘adequate consideration’ defence should be widened in the UK.

COMMENTARY

Holt v Attorney General [2014] UKPC 4 concerned an appeal against conviction for money laundering and making false documents. The appellant, a young advocate acting for a client (B) in a criminal case, was convicted of becoming concerned in an arrangement under which the clients' fees (due to counsel and to the firm) had been paid out of money which was, in the client’s hands, the proceeds of crime.

B and his wife had been charged with money laundering offences. The appellant was employed by the firm which was acting for B and his wife, and had regular dealings with them. The client’s administered a number of trusts, via a company, one of these trusts was the ‘Hermitage’ trust.

During preparation for trial, the clients failed to pay counsel’s fees by the agreed date, and counsel's clerks began to chase them, mainly, by emailing the appellant. The fees were eventually paid; however, it transpired that the funds were in fact ‘Hermitage’ funds which B had persuaded one of the trust's bankers to advance by dishonestly pretending that they were to finance property which he was buying as an investment for the trust.

The appellant was alleged to have connived in the use of these funds by B, knowing or suspecting that it was criminal property, an offence under section 140(1) of the Isle of Man Proceeds of Crime Act 2008 (POCA). The prosecution did not suggest that the appellant had any idea of the fraud that B had perpetrated on the bank, nor did it suggest that the appellant stood to gain anything from what was done.

Importantly, the defence of ‘adequate consideration’ was not open to the appellant at trial – i.e. it was not open for her to argue that the funds were received, used or possessed in return for the provision of legal services. This was because the ‘adequate consideration’ defence did not apply to the “facilitation” offence.

The appellant was convicted at trial. However, ultimately, the Privy Council overturned the conviction on the basis of a faulty jury direction. The trial judge correctly directed the jury that whether the defendant knew or suspected the funds were criminal property was the principal disputed issue in the case.  Therefore, the first question to be addressed by the jury was whether the appellant may have believed the source of the funds to be other than the ‘Hermitage’ trust. However, the judge failed to direct the jury that if they were sure that the appellant did know that the money came from ‘Hermitage’, the next question was whether or not she knew or suspected, when continuing the arrangement for the transmission of the money to counsel, that it was the product of criminal conduct on the part of B. As this second part of this direction was absent from the judge’s summing up, the convictions were deemed to be unsafe and were quashed.

Essentially, this case illustrates the unfairness that can result from the removal of the ‘adequate consideration’ defence from such cases. Holt is clearly a case where such a defence would legitimately apply and instead of the case turning upon whether or not the appellant suspected that the monies were the proceeds of crime, it should have been open to the appellant to argue that the funds in this case were received in return for legal services.

 ‘Adequate consideration’ remains a defence in money laundering cases in the UK, but only under section 329(2)(c) of the UK’s Proceeds of Crime Act 2002 (“POCA”). Section 329(1) criminalises the acquisition, use or possession of criminal property and provides that a person does not commit such an offence if he acquired, used or had possession of the property for ‘adequate consideration’. However the ‘adequate consideration’ defence is not available under section 327 or section 328 of POCA (Section 327 criminalises concealing, disguising, converting, transferring or removing criminal property, whilst section 328(1) mirrors section 140(1) of the Isle of Man POCA).

As it would also have been open for the appellant to be have been charged with a section 327 offence of transferring criminal property, Holt is also a good illustration of why the ‘adequate consideration’ defence should not only be extended to s 328 POCA, but also to section 327.

As the law currently stands in the UK, in a case like Holt a prosecutor can sidestep the ‘adequate consideration’ defence available under section 329(2) by choosing to prosecute a defendant under similar provisions contained in section 327 and 328. The defence should be available to the legal representatives of clients prosecuted in the criminal courts in all cases.

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The views expressed in this article represent those of the author and not Bright Line Law.

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