A suspicious change in policy?

The new CPS guidance on section 330 Proceeds of Crime Act 2002

Last month the CPS introduced a significant change to its legal guidance on the prosecution of money laundering offences.[1] The change concerns section 330 of the Proceeds of Crime Act 2002, which criminalises the failure to report knowledge or suspicion of money laundering in the regulated sector. The guidance explains that previously “the CPS did not charge under section 330 where there was insufficient evidence to establish that money laundering was planned or undertaken.” With immediate effect, the CPS announces that it will now prosecute in precisely these circumstances because “section 330 […] creates an obligation to report suspicions of money laundering to the authorities, regardless of whether money laundering actually takes place.” The NCA and SFO have endorsed the guidance.[2]

Accordingly, the position of criminal law enforcement authorities across the board is that it is legally irrelevant whether money laundering occurred; all that is required to prove this offence is that an individual in the regulated sector received information that caused them to suspect, or that provided reasonable grounds for suspicion, that another was engaged in money laundering.[3]

Many commentators have written about the likely impact of the guidance: that the offence will be easier to prove; there will be an increase in prosecutions; and regulated persons must therefore exercise even greater self-scrutiny when contemplating their reporting obligations. This article asks a different question: is the CPS correct to contend, as a matter of law, that section 330 does not require a prosecutor to prove money laundering?

To answer this question, compare section 330 to the so-called principal or substantive offences of money laundering in sections 327, 328 and 329. The prosecution proves these principal offences only if it can first prove the existence of “criminal property”. This legal concept is defined by section 340(3); it is in two parts. First, the property “constitutes a person’s benefit from criminal conduct or […] represents such a benefit.” Secondly, the defendant “knows or suspects that it constitutes or represents such a benefit”. Thus there is a fault-based element (that the defendant suspects he is dealing with the proceeds of crime) and an external element (that the defendant is in fact dealing with the proceeds of crime). The defendant’s suspicion, this state of mind, is a necessary but not sufficient condition of criminal liability; the prosecutor must also prove that the defendant’s suspicions are correct. In 2004, the House of Lords in R v Montila[4] avowed this principle; it held that the prosecution must prove – to the criminal standard – that in order for any of the above principal offences to be capable of being proven, the property that is alleged to be the subject of the offence must be derived from the proceeds of criminal conduct.

Montila was the genesis for a line of authority in which the Court of Appeal examined the specificity of the predicate criminal conduct which the prosecution must prove. In 2008, R v NW[5] held that the prosecutor must only prove the type of criminal conduct that had generated the alleged laundering (without needing to specify a specific instance of this conduct). For example, that the laundered money represented the proceeds of drug trafficking. The Court however rejected the proposition that the alleged type of conduct could be inferred; it held that it was not sufficient to show that the circumstances were such that the property could have had no lawful origin.

Two years later, R v Anwoir[6] diluted this test. Now the Court held that a prosecutor could prove criminal property by (a) showing that it derived from unlawful conduct of a specific kind, i.e. the test propounded in W, or (b) evidence that the circumstances in which the property were handled gave rise to an “irresistible inference” that it could only be derived from crime. In 2015, R v Kuchhadia[7] extended the ambit of (b) by holding that there was no objection in principle to a prosecutor positing that the conduct amounted to the commission of one of a number of offences. For example, that the cash found on the defendant was the proceeds of either drug trafficking or kidnapping.

This line of authority illustrates an erosion of the specificity of the predicate conduct the prosecutor must prove in a trial of a principal money laundering offence. However, all these cases have confirmed the principle articulated in Montila that the prosecutor must prove the alleged predicate conduct to the criminal standard.

Returning to the new CPS guidance, it is asserted that, in contrast to the principal money laundering offences, a prosecutor considering a charge under section 330 need not identify any predicate conduct, nor prove it or the subsequent money laundering. At first glance, this interpretation might appear unproblematic. Whereas the principal money laundering offences all require proof of “criminal property”, section 330 eschews this term in favour of “laundered property”. Section 330(5) defines “laundered property” as “property forming the subject-matter of the money laundering that he knows or suspects, or has reasonable grounds for knowing or suspecting, that other person to be engaged in.” Because “laundered property” is narrower in scope than “criminal property”, one can understand why the CPS might consider that it has no requirement to prove money laundering in a trial of section 330.

The CPS supports its interpretation of section 330 by reliance on the Scottish case Ahmad v HM Advocate.[8] In this case, the High Court of Justiciary in Scotland held that it was “plain” that the obligation to report could arise if a person merely suspected, or had reasonable cause to suspect, that money laundering was taking place. Therefore, the court reasoned, it was inconsistent with the purpose of section 330 – described as the prevention of money laundering and the provision of assistance to law enforcement agencies – to require proof of actual money laundering.

Thus the CPS has resolved that a person in the regulated sector (A) can face criminal conviction and a potential custodial sentence of up to five years if he fails to report money laundering by another person (B), even if B was not, in fact, laundering. Assuming A does not make a report, A’s suspicion that B was laundering – or the fact A should have been suspicious that B was laundering – is a sufficient condition of A’s criminal liability. This is a remarkable conclusion – and a questionable one.

First, it turns section 330 into a thought crime that can be committed by mistake. Suppose B is running a legitimate business but handles its financial affairs using unconventional methods. A mistakes B’s unconventional methods as indicators of money laundering but does not report his suspicions. The jury must convict A on the basis that A has made a mistake, which is that having (wrongly) become suspicious about B, A failed to report his (unfounded) suspicions. This is a perverse basis on which to found criminal liability – it is tantamount to saying that A is guilty of failing to report suspicions the prosecutor accepts A should not have formed. A could avoid committing the offence through the simple act of reporting, but because A’s suspicions were unfounded, any report A might have made would not have alerted his MLRO (or the NCA) to any criminality, nor would it have prevented any money laundering, which the Scottish court in Ahmad described as one of the key purposes of section 330.

Secondly, the result is even more perverse if the prosecutor accepts that A was not subjectively suspicious, but alleges that A should have been suspicious. The reasonable grounds for A’s suspicion are a constituent element of the offence. The prosecutor can only prove this element of the offence with evidence that demonstrates that A wrongly failed to become suspicious that B was doing an act that constituted a principal money laundering offence.[9] And B can only commit a principal money laundering offence if he deals with “criminal property”, which requires that B is in fact dealing with the proceeds of crime. Thus if the prosecutor adduces no evidence that B was in fact dealing with the proceeds of crime, there is no evidence upon which a jury could be satisfied that A should have been suspicious of B. The guidance ignores this paradox and proceeds on the illogical assumption that a person is guilty of a criminal offence who should have been suspicious of money laundering, even though, on the evidence, there was no money laundering about which he should have been suspicious.

Thirdly, the CPS guidance leads to the anomalous result that a person cannot escape conviction under section 330 by proving that no money laundering was taking place, but could escape conviction by proving that money laundering was happening overseas in circumstances where it would be lawful (see section 330(7A)).

Fourthly, in policy terms, the new CPS guidance is an incentive for those in the regulated sector to make reports about every matter that crosses their desks, however nebulous or insignificant, because that is the only way to guarantee immunity from criminal liability. It does not encourage better reporting. On the contrary, it exacerbates the well-documented problem of the regulated sector inundating the NCA with defensive reports the NCA does not have the time and resources to process. It is therefore difficult to see how the guidance will fulfil the aim of assisting law enforcement, which the Scottish court in Ahmad described as the other key purpose of section 330.

The CPS notes enigmatically that its amended guidance is necessary to “[remove] the historical barriers to making use of this piece of law.”[10] The CPS does not spell out what these “historical barriers” are. There is no English authority constituting such a barrier; no English court has ever considered whether Ahmad was correctly decided. Perhaps the barriers are therefore of the evidential variety, in particular the difficulty in obtaining credible and admissible evidence of money laundering from foreign jurisdictions. If that is right – and given the absence of binding case law – one can hardly blame the CPS, NCA and SFO for promulgating guidance on section 330 that makes it easier to prosecute. But whether the guidance is correct as a matter of law is another matter. Given the doubts raised in this article, one positive outcome from the guidance may be the development of binding English appellate authority on section 330 that will determine whether the CPS have got it right.

Andrew Smith, Partner

[1] Money Laundering Offences | The Crown Prosecution Service (cps.gov.uk)

[2] https://nationalcrimeagency.gov.uk/who-we-are/publications/534-sars-in-action-issue-5-june-2021/file

[3] The new guidance states that it does not apply to the alternative knowledge-based ways of committing the section 330 offence, i.e. an individual in the regulated sector who receives information that caused him to know, or that provides reasonable grounds for knowledge, that another was engaged in money laundering.

[4] [2004] UKHL 50

[5] [2008] EWCA Crim 2

[6] [2008] EWCA Crim 1354

[7] [2015] EWCA Crim 1252

[8] [2009] HCJAC 60

[9] “Laundered property” in section 330(5) refers to “money laundering”, which is separately defined in section 340(11) as including a principal money laundering offences (and kindred inchoate offences).

[10] See footnote 2