When is an arrangement criminal for the purposes of section 328 POCA?
On 22 April 2015 the Supreme Court handed down judgement in the case of R v GH. At trial the Respondents faced an indictment which consisted of a single count contrary to section 328 POCA 2002 reading: between the first day of August 2011 and the 13th day of January 2012 entered into or became concerned in an arrangement which they knew or suspected would facilitate the retention, use or control of criminal property, namely money received into a Lloyds Bank account ¦ and a Barclays bank account ¦ from the sale of motor insurance through the [AM Insurance] website, by or on behalf of [B]. The underlying offence and background facts involved an individual,’B’, setting up a number of’ghost’ websites purporting to offer insurance products. B recruited individuals to open bank accounts for the purpose of channelling the funds received from customers.’H’ was one such individual recruited. H opened two bank accounts and a total of £591,143 was paid into them by customers purchasing non-existent insurance products. The case was put against H on the basis that although they may not have known the details of the fraud, the circumstances surrounding the opening of the accounts were such that H must have known or at least suspected that B had some criminal purpose. A submission of no case to answer was made mid-way through the trial on the basis that at the time the arrangement was made, by virtue of the fraud had not yet operating, no criminal property was in existence and consequently the section 328 offence could not bite.
This was accepted by the Recorder presiding over the trial and a not guilty verdict entered. The matter went to the Court of Appeal who dismissed an appeal by the Crown. It reasoned that although it is not required that the criminal proceeds (the fraudulently obtained money) exists at the time of the arrangement (the fraud in this matter had not commenced at the time of the agreement between B and H but was a precursor to the fraud), for the offence to bite property must be criminal at the time the arrangement becomes operational. The following question was therefore posed of the Supreme Court: Where, by deception, A induces the payment of money to a bank account opened for that purpose by B (pursuant to an arrangement with A to receive and retain that money), then may B commit an offence contrary to section 328 of the Proceeds of Crime Act 2002, on the basis that the arrangement to receive and retain the money in that bank account can be treated as both rendering the property’criminal property’ and facilitating its retention, use or control? In other words, when the money is paid into the account by virtue of a deceptive act, does the money amount to criminal property when it is paid, and does its payment into the account constitution retention, use or control of the money.
The court considered the Crown’s appeal, and whether a line of Court of Appeal authority was correct in deciding that it was a prerequisite to the offences created by sections 327-329 of POCA (the POCA offences) that the property alleged to be criminal property must have that quality or status at the time of the alleged offence. The court considered the construction of the POCA offences, reverting back to the explanatory notes to POCA and the underlying Council Directive. The court acknowledged that extending the application of the offence to encompass situations where an individual knew or reasonably suspected that proceeds would be connected to a future offence would considerably enlarge the obligations on banks and other financial institutions that already have extensive reporting requirements.As to whether the existence of criminal property at the time of the arrangement was a prerequisite of the offence, the Respondent, GH, argued that the court must take a snapshot view of the position at the time the Defendant entered into the arrangement, on the basis of the use of the present tense in the wording of the POCA offences. In effect at the time the Defendant entered into the arrangement the criminal property must already be in existence for the offence to be made out. The court disagreed and upheld the Court of Appeal’s decision on this point, namely that it does not matter whether the criminal property existed when the arrangement was made. What mattered for the offence was that the property should be criminal at the time that the arrangement operated on it. The court then went on to matters in relation to the point at which the property became criminal. It outlined that:The character of the money did change on being paid into the respondent’s accounts.
It was lawful property in the hands of the victims at the moment when they paid it into the respondent’s accounts. It became criminal property in the hands of B, not by reason of the arrangement made between B and the respondent but by reason of the fact that it was obtained through fraud perpetrated on the victims.The court therefore considered that the arrangement was capable of being an offence under section 328 POCA, namely H’s entering into an arrangement to retain criminal property for the benefit of another. H had not acquired criminal property because at the time of transfer it was not criminal property “ it only became criminal property at a time following the transfer. Therefore when the arrangement to retain the property for the benefit of B kicked in the money must have been criminal property, i.e. it was criminal property whilst in the bank accounts of H and under the control and direction of B’s hands. Consequently the trial judge had misdirected itself in relation to the submission of no case to answer.
The judgement will allow banks and financial institutions a sigh of relief as it does not extend the application of the offences to encompass situations where they know or reasonably suspect the property been paid into accounts will subsequently become criminal property. There is a material difference between an arrangement which facilitates the acquisition of criminal property (which the offence requires) and an arrangement which facilitates the criminal acquisition of property. However the court also sought to offer guidance about when the POCA offences should be used, to manage the extension of the application through it not been a requirement that criminal property exist at the time of the arrangement. The court considered analogous the position of a thief, not being guilty of acquiring criminal property by virtue of the act of stealing from the lawful owner, but could be guilty of a POCA offence by subsequently using, concealing or transferring it. It was acknowledged that the ambit for these offenses was wide, particularly in its nature as a parasitic offence, but that it would be bad practice for the prosecution to add additional counts unless there was a proper purpose in doing so, for example the identity of the individual involved in the predicate offence was unclear but a subsequent act could be shown. Proceeds of Crime Act offences continue to be complex and very fact specific.
Expert advice can be provided by Peters & Peters Solicitors LLP, telephone 0207 822 7777. Richard Padley is a Barrister at 5 Paper Buildings and is currently on secondment to Peters & Peters