The ruling propels UK law enforcement to increase its investigative powers under POCA, and businesses to enhance their supply chain due diligence.
On 27 June 2024, the UK Court of Appeal found that the National Crime Agency’s (NCA’s) decision not to launch an investigation into the importation of cotton products originating from the Xinjiang Uyghur Autonomous Region (XUAR) was unlawful. The XUAR is a region of China associated with alleged human rights abuses against the Uyghur people. Approximately 85%1 of Chinese cotton is grown in the XUAR, with the “vast majority” of cotton alleged to have been produced in facilities under conditions of “detention and prison labour”.2 This judgment overturns the High Court’s previous ruling on the matter,3 and has potentially significant implications for law enforcement practices and corporate supply chain management in the UK.
Background
The case, brought by the World Uyghur Congress (the Claimant), a non-governmental organisation advocating for the Uyghur people’s rights, challenged the decision of the NCA not to investigate potential offences under the Proceeds of Crime Act 2002 (POCA) and the Foreign Prison-Made Goods Act 1897 (FPMGA). The High Court had previously ruled against the Claimant in a judgment delivered on 20 January 2023, deciding that, absent sufficient specific evidence that a crime had been committed by identifiable individuals, an investigation into cotton imports was not to be launched. In his judgment, Mr Justice Dove clarified that, in order for an offence to arise under FPMGA and POCA, evidence would need to link a specific consignment of XUAR cotton to either a specific facility under Section 1 FPMGA or to specific evidence of criminal acts under POCA (see our previous blog post).4
Court of Appeal Ruling
The appeal raised two key issues concerning the interpretation and application of POCA and FPGMA. First, the Claimant argued that the NCA misinterpreted the law by requiring the specific identification of criminal property before initiating an investigation under POCA. It contended that investigations should be based on reasonable suspicions of criminal conduct rather than requiring pre-identified criminal property. The Court of Appeal agreed, finding that the NCA’s decision not to investigate under POCA was premised on “an error of law”.5 The Court confirmed that a potential lack of evidence to justify the seizing of goods at the border, or bringing a case to trial, would not preclude the launch of an investigation under POCA. The Court of Appeal unanimously expressed concern that the High Court’s previous ruling endorsed the proposition that “there is a need to establish criminal conduct or criminal property before an investigation under POCA can begin”.6 The Court of Appeal therefore concluded that “the question of whether to carry out an investigation” would be “remitted to the NCA for reconsideration”.7
Second, the Claimant contended that the NCA was wrong to assume that the payment of “adequate consideration” within a supply chain could cleanse the criminal status of property. According to Section 329(2)(c) POCA, a person is protected from prosecution if they acquire, use, or possess criminal property and if adequate consideration of fair market value is provided in exchange. As set out in the Court of Appeal’s judgment, the concept of criminal property is a “fluid one”, dependent on “the state of mind of the alleged offender” and, crucially, whether the alleged offender knows or suspects that the property has criminal origins.8 The Court of Appeal thus firmly sided with the Claimant, clarifying that Section 329(2)(c) does not permit criminal goods to no longer be “tainted” simply because the importer pays market value, as this would be “wrong in law”.9 The Court of Appeal stated that the provision of “adequate consideration” by someone who can rely on Section 329(2)(c) does not preclude the property from being “criminal property” in the hands of a third party with the requisite knowledge or suspicion. Further, if a purchaser has bought criminal goods bona fide and at a market value, any taint passes to the purchase price and the criminal property remains with the seller. This accords with Section 308(1) POCA, which provides that if a person disposes of recoverable property10 and the person who obtains it does so in good faith, for value, and without notice that it was recoverable, the property ceases to be recoverable.
Implications for UK Authorities and Businesses
The ruling imposes a stricter obligation on UK authorities to investigate potential breaches under POCA more proactively. Law enforcement agencies, including the NCA, must therefore take action based on reasonable suspicions and cannot defer investigations solely due to the absence of specific, pre-identified criminal property. However, law enforcement retains a wide discretion as to whether to investigate a matter, provided the decision is made on a lawful basis. The NCA will now be under pressure to investigate, or justify not doing so, labour conditions in XUAR.
For businesses, particularly those with complex supply chains, the decision underscores the importance of thorough due diligence. This case demonstrates how money laundering offences, as well as human rights violations, can be applied to commercial transactions. Companies must ensure they do not inadvertently engage with or benefit from forced labour, as this could expose them to legal actions under POCA. The judgment provided important clarification of the “adequate consideration” exemption and highlights that businesses can no longer rely on the defence that goods were purchased at market value if they have a reasonable suspicion of forced labour in their supply chains. This ruling has implications for companies considering whether they need to seek a Defence Against Money Laundering from the NCA, should they discover issues within their own supply chains or the supply chains of any target companies they may consider acquiring.
