Failure to disclose does not equate to negligence

Part 7 of the Proceeds of Crime Act 2002 (POCA) creates three types of offence all connected with money laundering. The first type criminalises means by which “criminal property”, a concept fundamental to the definition of money laundering, can be laundered. These are frequently described as the “substantive” laundering offences. The second type criminalises a failure to report knowledge or suspicion of this activity. The third criminalises conduct generically known as “tipping off”.

This article is concerned with this second type only. It challenges the conventional wisdom that the failure to disclose offences create a criminal liability founded on proof of an accused’s negligence. It contends that they require proof of an accused’s mens rea akin to recklessness.

The non-disclosure offence

The obligation imposed by POCA on a person to disclose their knowledge or suspicion of money laundering is contained in sections 330-332. The category of persons on whom it is imposed is far narrower than for the substantive offences. Whereas these can be committed by anyone, sections 330-332 can only be committed by persons who work in what POCA terms the “regulated sector”. It would therefore be a fallacy to believe that POCA creates a general duty on all to report a knowledge or suspicion of money laundering.

Sections 331 and 332 are not considered in this article. These concern an extremely small sub-set of individuals working in the regulated sector, nominated officers. The focus of this article is on section 330. The duty section 330 imposes and the offence it creates applies to anyone working in the regulated sector.

The scope of this sector is broad. It has been incrementally widened by ministerial fiat since POCA was implemented in 2003. Now it includes, for example, tax advisors, auditors and accountants. The offence under section 330 thus applies to an ever-increasing number of professional advisors.

Part 7’s overarching aim is to prevent criminals from enjoying the benefit of their acquisitive crimes. It recognises that criminals often seek the assistance of otherwise unrelated and untarnished businesses and advisors in order to assist them to retain this benefit. In an attempt to frustrate and to deter the provision of such assistance, section 330 imposes a duty to report on a person who works in a business which is regarded as particularly likely to render it. For those who work in the regulated sector, they are expected on pain of committing a failure to disclose offence, to undertake a valuable service to the public and to assist in the fulfilment of POCA’s aim. This failure to report offence imposes, in effect, a duty on those working in the regulated sector to consider when concerned with a business transaction whether it does, or may constitute, one of the substantive money laundering offences.

S330(1) sets out the ambit of the offence: ”A person commits an offence if the conditions in subsections (2) to (4) are satisfied.” The following four subsections (a subsection (3A) was later inserted) each set out a particular condition. All of them must be satisfied for the offence to be committed.

Subsection 330(2) sets out two alternatives. It states: “The first condition is that he – (a) knows or suspects, or (b) has reasonable grounds for knowing or suspecting, that another person is engaged in money laundering.”

Criminal liability pursuant to subsection 330(2)(a) is a familiar, to criminal lawyers at least, statutory method of criminalising conduct. It establishes a distinct mens rea. An individual who knows or suspects laundering but fails promptly to disclose or report their state of mind according to a method prescribed by subsection 330(4) is in jeopardy of committing this offence.

This article is concerned with the creation of liability by subsection 330(2)(b). It is the obverse of subsection 330(2)(a) in that it can only be committed by someone who did not know or suspect. What therefore in the absence of contending that the accused had either state of mind when not reporting, must a prosecutor prove instead?

The consensus of the learned authors of Archbold (2018) and of the leading specialist textbook “Mitchell, Taylor and Talbot on Proceeds of Crime” (which is reproduced in the CPS’s legal guidance) is that subsection 330(2)(b) is an offence committed by negligence. Archbold instructs its readers that section 330 (and section 331) “introduce a negligence test.” Accordingly, a person may commit an offence under it “even if he did not actually know or suspect” (para 26-22). The latter textbook endorses this interpretation: “The offence is committed by a person who has the necessary knowledge or suspicion but also where, in the circumstances, he should at least have suspected that the other person was engaged in money laundering. Thus conviction is possible on the basis of negligence…this means that conviction is possible even where the defendant did not suspect the nature of the transaction (i.e. liability for negligence)” (para VIII.038).

Bearing in mind that an individual convicted of this offence is subject to a maximum sentence of five years’ imprisonment and that ancillary professional ruin would accompany any conviction, it would be remarkable if Parliament had ordained that one could commit it based on mistake, ignorance and/or stupidity. One could be guilty of it despite not foreseeing or understanding that the transaction created a money laundering risk. Absent the common law offence of manslaughter by gross negligence, subsection 330(2)(b) would be unique amongst the calendar of serious criminal offences. Even this common law offence is a weak analogue however, as the courts have emphasised that mere negligence is insufficient to commit it; the conduct must be so reprehensible, so grossly out of order, to warrant criminalising.

Is negligence sufficient to send professional advisors to prison?

It is boldly submitted that these learned authors are mistaken. Their mistake is to overlook the condition which subsection 330(3) requires to be satisfied. This states: “The second condition is that the information or other matter – (a) on which his knowledge or suspicion is based, or (b) which gives reasonable grounds for such knowledge or suspicion, came to him in the course of a business in the regulated sector.”

Subsection 330(3) therefore restricts and clarifies how the offence can be committed pursuant to either subsection 330(2)(a) or (b). In both instances, the relevant information must have come to the advisor in the course of their professional work. But what does “came to him” mean? As regards subsection 2(b), it is submitted that these odd and ambiguous words mean that negligence alone is insufficient to create criminal liability. They do so by requiring proof that the information about which a prosecutor contends constitutes the reasonable grounds was at the material time actually known to the accused. These words mean more than that this information was merely available or accessible to him.

An example will illustrate. A conveyancing solicitor is alleged to have failed to have reported a suspicion concerning a mortgage fraud committed by her clients. The prosecutor lacking evidence sufficient to rebut her claim of lack of suspicion elected to charge her under subsection 330(2)(b). The prosecutor contends that the money movement information on her firm’s client account ledger concerning the property transaction constituted reasonable grounds to suspect this fraud. (Assume it is not alleged that the reasonable grounds emanate elsewhere). The solicitor in her defence claims never to have read this ledger and thus that none of its details were known to her. To be guilty of the offence, the prosecutor must prove despite her denial that she was aware of the information contained in that ledger. If the contents of this ledger do amount to reasonable grounds satisfying subsection 330(2)(b), she could only be guilty of the offence if she was aware of its contents. Her professional negligence, and indolence in failing to have read the ledger, would not be the foundation of her criminal liability. On the contrary, it provides her with an exclusion from it.

Liability is not based on a jury’s answer to the question as to whether a competent conveyancing solicitor would have realised that the ledger provided reasonable grounds to suspect a laundering risk. Rather, it is based on whether this solicitor i.e. the accused, read the ledger. If not, she is not guilty notwithstanding that she ought to have read it and that had she done so, it would have identified a money laundering risk. Thus subsection 330(3)(b) in relation to subsection 330(2)b) imposes liability akin to recklessness. The state of the accused’s knowledge has to be proven.

There is no jurisprudence concerned with subsection 330(2)(b). There are three reported sentencing cases of individuals convicted under subsection 330(2)(a). See most recently R v Swan and Woolf [2012] 1 CAR (S) 544. There is no reported case of anyone convicted under subsection 330(2)(b). Accordingly the issue of what is required to prove this offence and what the statutory words “came to him” mean is yet to be determined. In the meantime, one should be sceptical of the claim that negligence suffices.