Speed read: Jonathan Fisher QC considers the Law Commission’s Part 2 POCA reform proposal and implications for the SAR reporting.
One of the most difficult aspects in the application of the reporting obligation in some AML cases is the determination of whether a person, individual or corporate, has benefited from criminal conduct. This is particularly true in cases involving commercial criminal offences where the quantification of financial benefit is not always obvious. This briefing note discusses the issues and whether the Law Commission’s recent proposals to supplement the definition of “benefit” will be impactful.
The difficulty arises in the context of section 330 of the Proceeds of Crime Act 2002 (POCA), which obligates a person working in the regulated sector to disclose to the National Crime Agency (NCA) information which causes them to know, suspect or have reasonable grounds for knowing or suspecting, that another person is engaged in money laundering. By section 340(11), money laundering is defined to include an act which constitutes an offence under section 327, 328, or 329, these being the principal money laundering offences. Each offence is associated with the handling of criminal property which is defined in section 340(3) as “a person’s benefit from criminal conduct”. Section 340(5) provides that a person benefits from conduct “if he obtains property as a result of or in connection with the conduct”.
In cases involving commercial criminality such as bribery, breach of economic sanctions or insider dealing, issues concerning the precise identification of criminal property have arisen. Where a contract has been made following payment of a bribe, are all payments made pursuant to the contract to be categorised as criminal property (i.e., the gross figure), or alternatively, is the criminal property to be treated as confined to net benefit which the company retains after production costs have been deducted (i.e., the net figure)? The same issue arises in a case where a contract has been made in breach of sanctions. Similarly, in a case involving insider dealing, is the criminal property represented by the gross total of monies obtained from the sale of share, or the net balance after the cost of the shares has been deducted? The conventional answer in these cases is that it is the gross figure which represents the benefit obtained from criminal conduct. In reaching this conclusion, the answer reflects the position under the criminal confiscation provisions in section 76 of POCA. These provisions are couched in the same terms as the provisions as section 340.
The matter is not without significance. Section 330(5)(b) requires a disclosure to the NCA to describe the whereabouts of the criminal property. Whilst it is not necessary to identify the exact amount of the criminal property, where is a statutory reference to identifying “the whereabouts of the laundered property so far as he knows it”, it is helpful for the person making the report to have these matters in mind. However, the resonance of the dichotomy between the net and gross figures under the criminal confiscation is more pronounced. When calculating the amount in which a criminal confiscation order is to be made, the Crown Court begins by assessing the benefit from criminal conduct obtained by a convicted person, and for this purpose the difference between the gross figure and net figure may be significant. The problem is that when the Crown Court uses the gross figure, it is treating monies as obtained benefit which the convicted person does not have, and which reflects a notional rather than an actual benefit figure.
This is one of the problematic issues which the Law Commission has recently been considering in its project entitled “Confiscation under Part 2 of the Proceeds of Crime Act 2002”, Consultation Paper 249, 17 September 2020. The Commission has provisionally concluded that the solution to the problem can be found in the introduction of the notion of “gain” into the equation. Under the new approach, in deciding a person’s benefit from criminal conduct, the Crown Court should determine what the defendant gained as a result of or in connection with the criminal conduct and make an order that the defendant’s benefit’s benefit is equivalent to that gain (paragraph 12.282). The Commission noted that the notion of “gain” is a term of longstanding application in the context of criminal law, and by section 5(3) of the Fraud Act 2006 it is defined simply as “keeping what one has, as well as … getting what one does not have”.
The question is whether this proposed change will have any impact on the definition of criminal benefit in the context of the regulated sector’s reporting obligation under section 330 of POCA. In the generality of money laundering cases, the answer is “probably not”. The change will be noticeable in predicate money laundering cases where a professional launderer retains a commission of five per cent for laundering criminally obtained monies through their bank account. Whereas under the existing law, a confiscation order would be made in the gross sum of money laundered, under the proposed change the order would be made in the sum of five per cent. Also, in commercially orientated money laundering cases involving, for example, bribery, breach of sanctions or insider dealing, determining benefit by reference to gain leaves it open to argue that the benefit in terms of gain should be referenced by the net rather than the gross figure. However, in most money laundering cases reported by the regulated sector, the change is unlikely to make any great difference.
There is nothing to suggest in the Law Commission’s report that it considered the possible impact of amending section 76 of POCA on the definition of criminal property in section 340 for money laundering reporting purposes. This does need some thought, and if the terms of section 76 are to be amended, the provisions in section 340 would need to be similarly altered. The legislature must avoid a situation whereby, unintentionally, there are different definitions of “benefit from criminal conduct” in the same statute.