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When criminal property is not criminal

Jonathan Fisher QC revisits the application of the money laundering legislation in tax cases following a recent decision in the Court of Appeal

Speed read

“Benefit from criminal conduct” and “criminal property” are distinct concepts under Part 7 of the Proceeds of Crime 2002 (POCA) and they are not co-extensive. The fact that “criminal property” is wider than “benefit from criminal conduct” has significant implications in commercial cases where “consent to proceed” is required.

Commentary

After some initial hesitation, practitioners correctly recognised that tax evasion fell to be treated as a predicate offence for the purposes of the anti-money laundering legislation, even though the underlying commercial activity which generated the taxable profits was conducted in a legitimate manner. The unpaid tax represented a taxpayer’s benefit from criminal conduct, and where a criminal prosecution was brought the unpaid tax would be subject to confiscation in the ordinary way.

The position is a little more complicated where the taxpayer – whether individual or corporate - seeks to use business profits to fund a transaction. In this situation, where the amount of unpaid tax is quantifiable and the transaction funded from the remainder of business profits, common sense suggests that no money laundering issue would be involved and therefore “consent to proceed” with the transaction would not be required from the Serious Organised Crime Agency (SOCA).

It is clear, however, from the recent Court of Appeal decision in R v William [2013] EWCA Crim 1262, that common sense does not prevail. This is because the meaning of “benefit from criminal conduct” is different from the meaning of “criminal property” for the purposes of the anti-money laundering legislation. Whilst it is true that the transaction is not funded by the “benefit of criminal conduct”, it is nevertheless “criminal property” for purposes of the legislation.

The facts in R v William were less sophisticated. A mother and two daughters were convicted of transferring criminal property contrary to section 327 of the Proceeds of Crime Act 2002 (POCA), in circumstances where the property constituted untaxed profits of a security business operated by their husband and father. Although HM Revenue & Customs (HMRC) could calculate the amount of unpaid tax for each year, the indictment contained a single charge alleging that “multiple occasions between … 2003 and … 2008 they converted and transferred criminal property, namely payments and bank deposits … suspecting that the said property represented in whole or in part … [the husband and father’s] benefit from cheating the public revenue”.

On appeal, the mother and daughters argued that the charge gave the jury a false impression, because it suggested that the totality of the payments and bank deposits represented benefit from criminal property when in fact this was not the case. The amount of unpaid tax withheld from HMRC represented a fraction of the legitimately earned business profits.

Unsurprisingly, the Court of Appeal rejected this argument. In doing so, the Court brought into sharp focus the difference between “benefit from criminal conduct” and “criminal property”. Although property is defined as criminal property where it constitutes a person’s benefit from criminal conduct, section 340(3)(a) of POCA also stipulates that property is criminal property where it represents a person’s benefit from criminal conduct “in whole or part”. As the Court explained, although the value of the criminal benefit is the amount of the unpaid tax, the criminal property is the entirety of the undeclared turnover and not merely the tax due, “because the benefit is represented in part by that sum” (at paragraph 27).

From a criminal law perspective, the Court’s logic is impeccable. Section 340(3)(a) was drafted widely, so as to capture property with mixed sources of origin, some of which are legitimate and some of which are illegitimate.

But from the perspective of the civil law the Court’s conclusion is a little perplexing, since it compels the making of a financial disclosure to SOCA and a request for “consent to proceed” with a transaction even in cases where a professional adviser is comfortable that the underlying monies to be used to support a transaction were not illegitimately obtained.

In this situation, it is difficult to see how SOCA is well served by the receipt of a request for “consent to proceed”, and perhaps the authorities would be better assisted by focusing their attention on receipt of good quality criminal intelligence where the benefit of criminal conduct is more clearly involved.

However, until the legislation is moderated, practitioners are obliged to heed the practical implications of appreciating that the notion of “criminal property” is considerably wider than “benefit from criminal conduct”, to the point where it may not be criminal property at all!

Biographical note

Jonathan Fisher QC is a leading barrister specialising in white collar crime and regulatory cases. He is recommended in the legal directories as a leading barrister in his specialist areas of practice and has been described as "high-flying", "bringing great commercial acumen to his cases", “an experienced and active silk with a diplomatic and thoughtful style”, and “once in the heat of battle he tells it as it is and pulls no punches ....". In addition to full-time practice as a leading Queen’s Counsel, Jonathan is a Visiting Professor at the London School of Economics where he is responsible for modules in Corporate Crime, Financial Crime and International Economic Sanctions on the LLM programme.

 

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