R v GH [2015] UKSC 24

A fraudster used fake insurance websites to dupe victims into paying money into bank accounts opened by the respondent. The Supreme Court held that money obtained by fraud became criminal property on receipt, so a section 328 POCA arrangement to retain it was chargeable.

Facts

The respondent, GH, opened two bank accounts (one with Lloyds and one with Barclays) shortly before a fraudster, B, launched a ‘ghost’ website (AM Insurance) falsely purporting to sell motor insurance. B took control of the documentation and bank cards. Between September 2011 and January 2012, members of the public were deceived into paying a total of £594,143 into the two accounts for non-existent insurance cover. GH was charged under section 328(1) of the Proceeds of Crime Act 2002 (POCA) with entering into or becoming concerned in an arrangement which he knew or suspected facilitated the retention, use or control of criminal property by or on behalf of B.

At the close of evidence, the Recorder upheld a submission of no case to answer on the basis that no criminal property existed at the time GH entered into the arrangement. The Court of Appeal dismissed the prosecution’s appeal, holding that the money had not become criminal property at the time the arrangement began to operate on it. The prosecution appealed to the Supreme Court.

Issues

Lord Toulson identified four issues:

• Whether section 328 requires the property to constitute criminal property prior to the arrangement coming into operation.
• Whether the property must exist at the time when the defendant enters into or becomes concerned in the arrangement.
• Whether sums received into the respondent’s accounts constituted criminal property before being paid into those accounts.
• Whether the actus reus of the offence was committed by reason of the arrangement facilitating the retention, use or control of the money paid in.

Arguments

Appellant (Prosecution)

Mr Kennedy Talbot QC submitted that the established Court of Appeal authorities (Loizou, Kensington, Geary, Amir and Akhtar) were wrong, and that conduct could simultaneously cause property to become criminal and constitute the section 328 offence. Alternatively, he argued that the money paid by victims represented a chose in action (the contractual obligation to pay the price), making it criminal property on receipt. Further, he argued that the arrangement facilitated B’s retention, use and control of the money, which was criminal property in B’s hands by virtue of the fraud on the victims.

Respondent

Mr Tim Owen QC argued that section 328 requires criminal property to exist at the time the defendant enters into the arrangement, relying on the contrast between the present tense in sections 327-329 and the past tense in section 340(4). He argued the case was indistinguishable from Geary.

Judgment

The Supreme Court (Lord Toulson giving the leading judgment, with which Lord Neuberger, Lord Kerr, Lord Reed and Lord Hughes agreed) allowed the appeal.

Criminal property must pre-exist the arrangement

The Court endorsed the unbroken line of Court of Appeal authority that ‘criminal property’ under sections 327, 328 and 329 means property obtained from criminal conduct separate from that which is the subject of the charge. The sections target dealings with ‘dirty money’ rather than the use of clean money for criminal purposes. This interpretation accords with the natural meaning of the provisions, the Explanatory Notes (describing money laundering as the conversion of proceeds of crime), and the relevant Council Directives. Moses LJ’s description of these sections as ‘parasitic’ offences was endorsed.

Property need not exist when the arrangement is made

The Court agreed with the Court of Appeal that section 328 does not require the criminal property to be in existence at the time the arrangement is first made. The offence is complete when the arrangement begins to operate on property which is then criminal property, and the defendant knows or suspects this. To illustrate, arrangements for transportation of illegally imported drugs would attract liability whether or not the goods had been imported at the moment the arrangement was made.

Chose in action argument

The Court rejected the prosecution’s argument that the victims’ payments represented a chose in action constituting criminal property. The prosecution had failed to identify or prove the nature of any proprietorial right – whether a bilateral or unilateral contract had existed was not established on the evidence. Lord Toulson cautioned that abstract references to a chose in action without a clearly articulated basis are ‘a recipe for confusion’.

Distinction from Geary

Crucially, the Court distinguished R v Geary. In Geary, the money was Harrington’s lawfully owned property throughout and bore no criminal taint independent of the arrangement. In the present case, however, the character of the money changed: it was lawful in the hands of the victims at the moment of payment, but became criminal property in B’s hands by reason of the fraud, independently of the arrangement between B and GH. There was no artificiality in recognising this. GH had therefore entered into an arrangement to retain criminal property for the benefit of another, contrary to section 328.

Pleading

The Court criticised the indictment’s use of the words ‘would facilitate’; it should have alleged that the defendants entered into an arrangement which, as they knew or suspected, facilitated the retention, use or control of criminal property.

Implications

The decision clarifies the operation of sections 327, 328 and 329 of POCA in cases of fraud. Where property is obtained from victims by deception, it becomes criminal property in the hands of the fraudster on receipt, and a third party who has agreed to facilitate its retention through bank accounts may be guilty under section 328, even though the money was lawful in the victims’ hands at the moment of payment.

The Court reaffirmed that criminal property must derive from criminal conduct separate from that which constitutes the money laundering offence itself, but distinguished situations where, as part of the same transaction, property changes character on transfer between parties. The judgment preserves the analytical framework of Geary while explaining its limits: Geary involved property that bore no criminal taint independent of the arrangement, whereas here the fraud on the victims created the criminal quality independently.

Lord Toulson expressed obiter doubt about Moore-Bick LJ’s dictum in Geary suggesting the defendant there could have been charged under section 327, for similar distinguishing reasons. The Court also reiterated the broader caution against using POCA offences inappropriately where conduct is sufficiently covered by substantive offences (such as handling stolen goods under the Theft Act 1968), referring to Wilkinson and Rose.

The decision is of practical importance to prosecutors, defence practitioners, banks and financial institutions concerned with reporting obligations. It clarifies that the wider interpretation contended for by the prosecution – which would have extended liability to anyone dealing with ‘clean’ funds intended for criminal use – is not supported, thereby maintaining proportionate limits on the reach of the money laundering regime.

Verdict: Appeal allowed. The Supreme Court held that the trial judge’s ruling of no case to answer was erroneous. The money received from the victims became criminal property in B’s hands by reason of the fraud perpetrated on the victims (independently of the arrangement between B and the respondent), and the arrangement between B and the respondent for its retention was capable of constituting an offence under section 328 of the Proceeds of Crime Act 2002.

Source: R v GH [2015] UKSC 24