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Criminalizing companies
A trend is growing of holding companies and their executives criminally liable and recovering assets if criminal activities in supply chains resulted in profits. Recent cases in Europe and the United States highlight this trend, although no such prosecutions have occurred yet in the UK. A June 2024 decision by the UK Court of Appeal, however, has paved the way for more money laundering investigations in the UK. The ruling allows for liability and asset recovery to be imposed even if companies had no direct suspicions but were on constructive notice of issues in their supply chains.
Liability for money laundering
- Criminal regime: Under the Proceeds of Crime Act 2002 (POCA), there are three main criminal money laundering offenses: concealing criminal property, arranging its acquisition, and acquiring or using it. These require knowledge or suspicion that the property is criminal.
- Civil regime: POCA also allows for civil recovery of criminal property, even without a conviction. The exemption under section 308 protects those who acquire property in good faith, for market value and without knowledge of its criminal nature.
- Regulatory regime: There are additional regulatory offenses for failing to report suspicions of money laundering and not meeting anti-money laundering obligations.
The new senior manager offense
Since December 2023, the UK’s Economic Crime and Corporate Transparency Act has made it easier to prosecute companies for economic crimes, including money laundering, by holding senior managers accountable for offenses committed within their area of responsibility (s.196). Alongside the Senior Manager Offence, ECCTA also introduced a new “failure to prevent fraud” offence, which has a wide ranging scope and is applicable to all companies, irrespective of where they are based, if the fraud has a U.K. nexus or victim (s.199).
The World Uyghur Congress case
The Court of Appeal’s decision in this case clarified that UK law enforcement can investigate and recover assets linked to money laundering in supply chains, even if goods were purchased at market value. This decision challenges previous interpretations and increases the risk of investigations and prosecutions for companies. The full decision can be found online.
Practical measures and next steps
- Due diligence: Conduct thorough checks on all parties in the supply chain and consider filing suspicious activity reports if necessary.
- Risk assessments: Evaluate the risks associated with the geographies and sectors in which the business operates.
- Representations and warranties: Ensure suppliers provide necessary representations and warranties in contracts.
- Internal training: Train employees and senior managers to identify and mitigate risks.
- Auditing the supply chain: Regularly audit the supply chain and maintain accurate records.
- On-site visits: Conduct on-site visits and meetings to ensure compliance and identify risks.
Companies should take these steps to mitigate the risk of criminal investigation or civil recovery related to money laundering in their supply chains.
- A 2024 UK Court of Appeal decision increases focus on money laundering in global supply chains, raising prosecution risks for companies involved
- UK authorities can now recover assets from companies lacking due diligence, posing significant financial risks for noncompliance
- Companies should enhance due diligence, risk assessments, supplier warranties, training, audits and site visits to reduce exposure