Introduction
The state now has power to forfeit, in civil recovery proceedings, the proceeds of conduct taking place overseas which “constitutes” or is “connected with” a gross human rights abuse or violation (“GHRA”) [1].
The term “connected with” is widely drawn and includes “profiting” from a GHRA. Moreover, a person might engage in conduct that is “connected with” a GHRA even though the person has no knowledge of the GHRA. As such, some commentators, including city law firms [2], have argued that property acquired through such conduct is recoverable, regardless of the state of mind of the person engaging in the conduct. If correct, this view raises the spectre of civil recovery orders against institutions such as banks who might unwittingly profit from conduct “connected with” a GHRA.
The view, however, appears to be overstated. For property to be recoverable as the proceeds of crime it is still necessary to show that it was obtained through “unlawful conduct”. In the present context this would require proof that the conduct “connected with” the GHRA (through which property is obtained) would, if it had taken place in the United Kingdom, have involved the commission of a criminal offence. To prove such an offence would always (it appears invariably) require the prosecutor to prove knowledge of the GHRA.
Accordingly, and as explained below, property that was innocently acquired through conduct “connected with” a GHRA could not be the subject of a recovery order. To obtain such an order it would always be necessary to show, as a starting point, that the person engaging in the “connected” conduct had knowledge of the GHRA.
The provisions
Property that is, or represents, property obtained through “unlawful conduct” is recoverable in civil proceedings in the High Court (s.266 of the Proceeds of Crime Act 2002 (“POCA”)) or (in relation to cash, listed assets and bank balances) in the Magistrates’ Court [3].
The definition of “unlawful conduct” is to be found in section 241 of POCA [4]. Conduct is “unlawful” if it satisfies one of three conditions. The first two conditions (s.241(1) and s.241(2)) appeared in POCA as it was enacted. The third condition (s.241(2A)), was added by an amendment brought about by section 13(3) of the Criminal Finances Act 2017.
By reason of these three conditions, conduct is “unlawful conduct” if it occurs:
(i) In part of the United Kingdom and that conduct is unlawful under the criminal law of that part (s.241(1)).
(ii) In a country or territory outside the United Kingdom and it satisfies a double criminality requirement (viz. it is unlawful under the criminal law applying in that country or territory and, if that conduct occurred in a part of the United Kingdom, it would be unlawful under the criminal law of that part) (s.241(2)).
(iii) In a country or territory outside the United Kingdom and constitutes, or is connected with, the commission of a GHRA, and if that conduct occurred in a part of the United Kingdom, it would be an offence triable under the criminal law of that part [5] (s.241(2A)).
Conduct is therefore “unlawful” under the third condition if it “constitutes” or “is connected with” the commission of a GHRA. These terms are defined in section 241A of POCA.
Conduct will “constitute” the commission of a GHRA where it constitutes the torture [6] (or cruel, inhuman or degrading treatment or punishment) of a person, and three conditions are satisfied (summarised below):
(i) The person subjected to the torture etc. had sought either to expose illegal activity carried out by a public official or to obtain, exercise, defend or promote human rights and fundamental freedoms.
(ii) The conduct is carried out in consequence of that person seeking to expose the illegal activity, etc.
(iii) The conduct is carried out by a public official, or a person acting in an official capacity [7], in the performance or purported performance of his or her official duties.
Conduct is “connected with” the commission of a GHRA if it is conduct by a person that “involves”:
(i) acting as an agent for another in connection with activities relating to conduct constituting the commission of a gross human rights abuse or violation;
(ii) directing, or sponsoring, such activities,
(iii) profiting from such activities, or
(iv) materially assisting such activities.
Analysis
The provisions are readily analysed by reference to an example [8]. Suppose a person, A, is paid a salary by an overseas government to run a prison camp. The purpose of the camp is to hold and torture persons because they have promoted human rights. They are also forced to work in inhuman conditions and thereby generate a profit for the overseas government. Such conduct is not contrary to the criminal law of the overseas state. Person A invests his salary in property in London. The property is recoverable because it is the proceeds of conduct (running a prison camp) which is “unlawful”, i.e. the conduct constitutes the commission of a GHRA and such conduct would, if it occurred in the United Kingdom, be unlawful under the criminal law (it being a criminal offence in the United Kingdom to engage in torture).
Adapting the example, suppose another person, B, is occasionally hired to repair the electricity generator, which is necessary to keep the prison secure and functioning. Given that B’s conduct keeps the prison operational, it could be said that his conduct is “connected with” a GHRA, in that it “involves … materially assisting … activities relating to conduct constituting the commission of a [GHRA]”. A question however arises as to whether B must have a particular state of mind for his conduct to count as conduct “connected with” a GHRA.
Conduct may be “connected with” a GHRA even if it is relatively remote, i.e. if it “involves… activities relating to conduct constituting the commission of a [GHRA]”. For example, conduct which “materially assist[s]” such activities would be caught. But must the person giving the assistance know, or be reckless, as to the commission of a GHRA which his conduct is materially assisting? Or is it sufficient that the conduct does, in fact, materially assist the GHRA, regardless of the person’s state of mind? Some commentators have argued for the latter approach and suggested that a bank might engage in “unlawful conduct” where it “inadvertently assisted” a GHRA.
The question of whether the conduct defined by section 241A(5) incorporates a knowledge requirement is, however, moot, because, whatever the position, before such conduct could count as “unlawful conduct”, it would have to be shown that, if it occurred in a part of the United Kingdom, it would be a criminal offence in that part. To return to the example, for B to be criminally liable for providing material assistance in connection with a GHRA it would be necessary to show that he committed some offence as a principal or (perhaps more likely) that he was liable as an accessory, i.e. that he provided the assistance with the intention of assisting the relevant crime (torture). If B believed the prison to be a conventional prison and had no knowledge of the mistreatment taking place then, plainly, his conduct would not be “unlawful conduct” because, had the conduct occurred in the United Kingdom, he would have committed no offence there. To state the obvious, it is not a criminal offence to repair an electricity generator without knowledge that such conduct will assist in the commission of a criminal offence.
It may be helpful to give further illustrations:
(i) Bank C invests in the prison camp run by A. Even if Bank C’s conduct counts as “connected” conduct (on the basis it is “sponsoring” activities which do in fact relate to conduct constituting a GHRA) the investment is not “unlawful conduct” unless the bank invested having knowledge of the nature of the camp in which it was investing.
(ii) Bank C receives dividends which represent the overseas government’s profits from forced labour. Even if Bank C’s conduct counts as “connected” conduct (on the basis it is “profiting” from activities which do in fact relate to conduct constituting a GHRA) the receipt of such dividends could not, itself, count as “unlawful conduct” if the bank had no guilty knowledge [9].
Conclusion
The central concern expressed by commentators is that the amendments brought about by the Criminal Finances Act 2017 have increased the risk that the property of innocent persons is liable to be recovered. This concern appears to be misplaced, for two reasons.
First, even if the question of whether conduct is “connected with” a GHRA is a matter of strict liability, such conduct could not establish the basis for a recovery order unless it was also “unlawful conduct”. viz. the conduct would involve the commission of a criminal offence in the United Kingdom, if it had occurred there. Proving “unlawful conduct” will always (it appears invariably) require proof of knowledge of the relevant GHRA.
Second, to the extent that POCA permits the recovery of property which is the proceeds of a third party’s crime, this has always been the case and was unaffected by the amendments to POCA. Provided persons act reasonably and in good faith then, even if they find themselves in possession of property which can be traced to the criminal conduct of a third party, they ought to be able to bring themselves within the ‘good faith’ defences (see Footnote 9).
[1] The power was introduced by one of the so-called Magnitsky amendments to the Proceeds of Crime Act 2002, see the Criminal Finances Act 2017, section 13, which came into force on 31 January 2018.
[2] See, for example, Retroactive Corporate Liability for Human Rights Abuses, Pillsbury Winthrop Shaw Pittman LLP (Lexology, 2017), and Focus on Regulation, Hogan Lovells, 14 May 2018.
[3] See, respectively, Chapters 3, 3A and 3B of Part 5 of POCA.
[4] The definition applies to all forms of civil recovery, whether brought in the High Court or Magistrates’ Court.
[5] The offence must either be triable “on indictment” or triable on indictment or summarily (in the vernacular this is known as triable ‘either-way’). Offences which would be triable only summarily are not caught.
[6] Defined in section 241A(6) as the “intentional infliction of severe pain or suffering on another person”.
[7] The condition is also satisfied where the conduct is carried out by a person falling within section 241A(4)(b): in summary, a person acting at the behest of a public official, or a person acting in an official capacity.
[8] The example is taken from the Government’s impact assessment: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/621192/Impact_Assessment_-_CF_Act_Overarching.pdf at p.18.
[9] It is perhaps far-fetched to suggest that a bank would invest, or accept dividends, where it had relevant knowledge that it was assisting or profiting from a GHRA. Note, however, that even where the bank has no knowledge, the dividends are prima facie recoverable in the hands of the bank. This is not because the bank has, itself, engaged in “unlawful conduct” but because it is in possession of property which is, in fact, traceable to property obtained through the “unlawful conduct” of the overseas government. In such a case, however, the bank would be in a position to argue that, although the profits were recoverable in the hands of the overseas government, they ceased to be recoverable in the bank’s hands: this would be the case if the dividends were obtained in good faith, for value and without notice that they were recoverable (s.308(1)). Alternatively, the bank could avoid a recovery order if it could bring itself within the defence in section 266(4) (in summary, this is a form of change of position defence). It has always been the case that property, in the possession of a third party and which is or represents the proceeds of crime, is liable to be recovered unless the possessor can bring itself within the ‘defences’ just outlined. The changes brought about by the Criminal Finances Act 2017 did not alter that basic framework but rather extended the definition of “unlawful conduct”.
