Modern Slavery | UK Regulatory Outlook July 2024

Court of Appeal decision expands potential supply chain risk for businesses

A landmark ruling by the Court of Appeal in R (on the application of World Uyghur Congress) v National Crime Agency, has put greater pressure on the National Crime Agency (NCA) to use its investigation powers to examine criminality within supply chains in relation to money laundering and highlights to businesses the risks associated with knowingly, or with suspicion, importing goods made using forced labour.   

The case centred on the NCA decision not to use its powers under the Proceeds of Crime Act (POCA) to investigate money laundering offences or start civil recovery investigations related to the importation of cotton products from the Xinjiang Uyghur Autonomous Region of China (XUAR). The World Uyghur Congress (WUC) provided substantial evidence indicating that these products were produced through forced labour and other human rights abuses by the People's Republic of China. The High Court initially dismissed WUC's claim, prompting an appeal. The Court of Appeal examined whether the NCA had misinterpreted two key legal points: the necessity of identifying specific criminal property before starting an investigation under POCA, and whether the involvement of a person in the supply chain who can claim an exemption under section 329(2)(c) of POCA "cleanses" the criminal property, preventing its recovery. The Court of Appeal clarified that the NCA does not need to know that recoverable property exists before beginning an investigation, as the investigation's purpose may be to determine that fact. Perhaps even more significantly, it also clarified that the section 329 exemption, does not prevent property from being "criminal property'' for the purposes of other offences such as section 327 and section 328 POCA.

This decision raises the prospect of UK businesses potentially handling criminal property and committing money laundering offences (for example, converting it, transferring it, or removing it from the UK contrary to section 327), because of forced labour or other criminality in their supply chains, even if the products from those supply chains are obtained for “adequate consideration” (triggering the section 329 exemption).

This development reinforces the importance of supply chain transparency to ensure there is no forced labour (or other criminality) in supply chains. With the increasing emphasis on supply chain obligations, driven by emerging legislation such as the Corporate Sustainability Due Diligence Directive and the Forced Labour Regulation, a comprehensive approach to understanding and mitigating supply chain risk should be high on board agendas. Businesses need to set up the structures and systems to understand who is doing what in their supply chains, to have adequate oversight going forward, and ensure they have the levers they need to respond quickly and effectively when issues arise. 

Corporate Sustainability Due Diligence Directive published in Official Journal

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