Money laundering - Court of Appeal approves tough approach

Of all the criticisms that might be levelled at the Proceeds of Crime Act 2002 (‘POCA’), lack of litigious possibility is not one of them. As POCA approaches its 17^th birthday, defendants continue to find points to take, whereas the courts continue to produce rulings which ensure that POCA remains the statutory gift that keeps on giving (or taking, depending on which side you find yourself).

To recap the basics: a confiscation order can be made following conviction, either at the application of a prosecutor or on the court’s own initiative, in order to deprive the offender of the benefit of his or her crime. In making the order, the court must assess the extent to which the offender benefitted (‘the benefit figure’) and then the assets which the offender has available to satisfy a confiscation order (‘the available amount’). If the available amount exceeds the benefit figure and, subject to considerations of proportionality, the ‘recoverable amount’ ordered for confiscation will be the benefit figure. If not, the recoverable amount will be capped at the available amount.

Whilst the available amount is the more commonly disputed figure in confiscation proceedings (how much does the offender say he or she has, and how much does the court think he or she has?), it is the calculation of the benefit figure which leads to the more vexed questions of law.

Assuming the ‘criminal lifestyle’ provisions (which can vastly increase the assets liable to confiscation) do not apply, the court must refer to s76(4) and (7) POCA when considering the benefit figure:

(4) A person benefits from conduct if he obtains property as a result of or in connection with the conduct…

(7) If a person benefits from conduct his benefit is the value of the property obtained.

For the offender subject to confiscation proceedings, this language is dangerously vague. The property need only be ‘obtained’, not ‘gained’ or ‘retained’, and not only ‘as a result of’ but alternatively ‘in connection with’.

For ‘straightforward’ acquisitive crime such as theft, the problem of vagueness has less acute consequences. Where the offender steals property as a result of dishonest conduct, the value of that property is the benefit.

However, calculating benefit is not always so simple. What about cases where the offender conducts business that is in some respects unlawful, but in all other respects legitimate? Or where the offender ‘obtains’ property ‘in connection with’ unlawful conduct, but does not retain it?

By way of an example of the former, in R v Del Basso and Goodwin[1], the Court of Appeal concluded that, where a park-and-ride business had been operated in contravention of planning conditions, the appropriate benefit figure was the turnover of the business obtained during the period of contravention. It was irrelevant that the businesses had incurred expenses in generating that turnover, or that neither of the offenders had personally retained any of the profit.

The recent judgment of the Court of Appeal in R v Fulton is an example of the latter.[2]

Mr Fulton worked as an account manager conducting foreign exchange services at a money services bureau (‘the MSB’). In April 2016, he was convicted of conspiracy to disguise, convert or transfer criminal property and sentenced to four-and-a-half years imprisonment, on the basis that he had carried out foreign exchange transactions knowing that the funds were the proceeds of Missing-Trading Intracommunity (also known as ‘MTIC’ or ‘carousel’) fraud, which had caused an estimated tax loss of around £17.2m. The MSB processed around £29.75m of transactions for the companies involved, of which Fulton handled around 60%.

At the confiscation stage, Fulton relied upon the Court of Appeal decisions in R v Sivaraman (an employee who assisted his employer in evading fuel duty was liable only for the increased wage he had received as a result, not for the full extent of the duty evaded) and R v Allpress & Ors (acting as a courier did not amount to ‘obtaining’ the criminal property). Fulton asserted that he was a mere employee of the MSB and so had never ‘obtained’ the funds that he had transferred. As such, he argued that his benefit figure should be limited to the commission that he received for carrying out the transactions, which was £4,206.12.

The judge disagreed and concluded that Fulton’s benefit figure was 60% of the transactions processed, which was £17.85m. His available amount was £104,228 and so a confiscation order was made in that sum.

Fulton appealed on four grounds:

The judge had erred in finding that he had ‘obtained’ the funds that he had transferred as an employee of the MSB.
Alternatively, the judge had erred in finding that his benefit should be assessed by reference to the total funds transacted by the MSB, rather than the amount of tax that had been evaded.
The benefit figure was disproportionate.
The confiscation order had the potential for multiple recovery. For example, an order for 100% of the transacted funds had also been made against Fulton’s employer. Had they both been fully enforced, 160% of the funds handled by the MSB would have been recovered.

The Crown accepted point (iv) and agreed that the order should be qualified so as to be enforced only to the extent that 100% of the transacted funds were not recovered from amongst all the co-defendants.

‘Obtaining’ property

On the first point of appeal, the court concluded that Fulton’s offending should be distinguished from previous ‘employee’ and ‘courier’ cases because, although technically he was only an employee, he had intentionally joined the conspiracy in order to launder what he knew to be the proceeds of crime. Money laundering was not his job, although his job had given him the means to do so. His commission was directly linked to the amount of money transferred.

By contrast, his acquitted co-defendant colleague had unwittingly assisted with laundering the funds. As such, he was in the position of the employee or courier who handled but did not ‘obtain’ the benefit.

It was irrelevant that Fulton did not obtain any legal interest in the funds and was not a signatory to, or sole controller of, the relevant bank account. The relevant point was that Fulton had access to the banking platform and exercised sole operational control of the transactions that he carried out, for which he did not require his manager’s approval. The court concluded that the manner in which he handled the funds was akin to his being brought a suitcase of cash that he then physically exchanged for another currency.

Funds transferred or tax evaded?

On the second point of appeal, the court agreed that the correct approach to confiscation in cases of tax evasion was that the benefit to the offender was the tax evaded, not the total ‘cost’ of the underlying enterprise[3]. However, this did not mean the same approach should be applied to those convicted of laundering the proceeds of tax evasion. Fulton had no liability to the evaded tax himself and so there was no reason to assess his benefit by reference to it.

The ‘plain language’ of the statute clearly intended that the benefit to be attributed to money laundering offences was the property obtained by the offender, as decided under the first ground of appeal. It was therefore not anomalous that, in some instances, those convicted of laundering criminal property would have a greater liability on confiscation than those convicted of the predicate offence. The safeguard against unjust orders being made as a result of this approach was the requirement that an order must not be disproportionate.

Was the order disproportionate?

Fulton argued that the order had been disproportionate on two grounds; first because the benefit figure had been calculated by reference to the full amount of funds transferred, not the amount of tax evaded. Secondly, because the benefit figure was vastly more than the gain actually realised by Fulton, even taking into account a proportion of his salary as well as his commission.

The first argument was essentially that raised in the second ground of appeal, and so failed.

With regard to the second argument, the court referred to the judgment in Waya, which had imposed the requirement of proportionality subsequently incorporated into POCA, and concluded that it was proportionate for a confiscation order:

To require a defendant to pay the whole of a sum which he had jointly obtained with others.
To require several defendants each to pay a sum representing property obtained successively amongst them.
To require a defendant to pay a sum representing the whole benefit of criminal conduct, without setting off expenses involved in that conduct.

Furthermore, proportionality did not require the court to consider the ‘real benefit’ obtained by the defendant.

The court noted that money laundering, by its nature, sought to mix legitimate and illegitimate funds and obscure criminal origins. It was difficult for a court to identify and isolate specific sums as criminal property in the manner in which Fulton was proposing it should. As such, it was not disproportionate for the benefit figure to be the total amount transferred by Fulton.

Business as usual

Prosecutors will be grateful that Fulton joins the body of law confirming that, whilst a confiscation order cannot be punitive, the court need not strive to be lenient nor resolve ambiguities in favour of the offender. Furthermore, the judgment emphasises that money laundering is distinct from the predicate offences generating the criminal property, in that confiscating the benefit of money laundering can justifiably result in a greater liability for the launderer than the fraudster, without necessarily trespassing upon the principle of disproportionality.

[1] https://uk.practicallaw.thomsonreuters.com/Document/IABBC0F10A98411DFBEFC9B477C7A50DD/View/FullText.html?originationContext=document&transitionType=DocumentItem&contextData=%28sc.Search%29&navId=2BCE53A5E9792C3622E0F2C67DB0D076&comp=wluk

[2] https://uk.practicallaw.thomsonreuters.com/Document/IE7C8BE90314811E9A67E83FAC71B6929/View/FullText.html?originationContext=document&transitionType=DocumentItem&contextData=%28sc.Search%29&navId=BB5AB1D72CE57CC4FBF1C5F0FAD0AEC0&comp=wluk

[3] https://uk.practicallaw.thomsonreuters.com/Document/ID9F19E8064BE11E1958991CDE217C624/View/FullText.html?originationContext=document&transitionType=DocumentItem&contextData=%28sc.DocLink%29&navId=ED6FC54456EBA094C743BD79B57BDDD1&comp=wluk

This article was originally published in Law360 and can be accessed here, behind a paywall.