This article was first published by Law360 on February 15, 2023.
A recent UK High Court decision1 clarifies the risks for companies operating in the UK being criminally investigated in respect of forced labour and other human rights abuses occurring in their overseas supply chains.
Mr. Justice Dove’s judgment was handed down following a judicial review application brought by the World Uyghur Congress (the Claimant, an NGO) against three UK government agencies concerned with the supervision of the UK’s borders: His Majesty’s Revenue and Customs (HMRC) and Border Force, together responsible for UK customs and revenue policy and operational matters; and the National Crime Agency (NCA), responsible for the investigation of serious and organised crime in the UK (together, the Defendant).
The Claimant’s concerns centred on forced labour and other human rights abuses committed against the Uyghur people in the production of cotton in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China (XUAR). The cotton is then exported out of China to the UK, amongst other destinations. The Claimant’s position was that the Defendant’s failure to investigate the presence of cotton from the XUAR in the UK value chain stemmed from a misinterpretation of two laws: the Foreign Prison-Made Goods Act 1897 (FPMGA); and the Proceeds of Crime Act 2022 (POCA). The arguments and findings in respect of each theory of liability are considered further below.
The Claimant’s first case theory was that the Defendant ought to have been investigating the presence of cotton from the XUAR in the UK using the powers available to it under section 1 of FPMGA and the associated power under section 139 of the Customs and Excise Management Act 1979. Section 1 of the FPMGA provides as follows (emphasis added):
Justifying the decision not to investigate under section 1 of the FPMGA, the Defendant argued that the standard required to establish that the relevant goods are prison-made is high. It must be proved by evidence tendered to the satisfaction of the relevant officer, to the civil standard of proof (i.e., on the balance of probabilities), that the specific goods were in fact made in a foreign prison. The legislation, “envisages the production of evidence linking a specific consignment of goods to a specified facility meeting the definition of a foreign prison. It is a necessary requirement to establish evidentially such a connection between the originating location and a particular shipment of goods.”
The Defendant also contended that the legislation requires proof of an unbroken chain between the imported goods and their manufacture in a foreign prison, and whilst it was accepted that circumstantial evidence could be relied upon, there still needs to be sufficient evidence to prove the link. The Claimant was unable to point to any specific instance of criminality and circumstantial evidence of statistical risks of criminality is not a substitute for proof.
Though the judgment makes clear that there is undisputed evidence of instances of cotton being manufactured in the XUAR using prison labour as well as forced labour, this does not in and of itself satisfy the proof required by section 1 of FPMGA. The link between a specific consignment of goods and their manufacture in a foreign prison still needs to be proved for the prohibition under section 1 to be made out. Mr. Justice Dove found the Defendant’s approach to section 1 FPMGA to be legally sound and did not uphold the Claimant’s complaints in relation to it.
The Claimant’s second case theory was that the Defendant ought to be investigating money laundering offences under POCA, specifically sections 327 (concealing criminal property), 328 (entering into an arrangement which facilitates money laundering) and 329 (the acquisition, use and possession of criminal property), on the basis that cotton goods from the XUAR could be criminal property and trading them criminal conduct.
Whilst the Defendant accepted in principle that offences contrary to section 1 of the Modern Slavery Act 2015 and / or section 51 of the International Criminal Court Act 2001 are capable of constituting “criminal conduct”, the Defendant argued that on the available evidence POCA offences could not be made out on three fundamental grounds.
- First, in respect of all three substantive money laundering offences (under sections 327, 328 and 329), section 340 of POCA requires that any criminal conduct and resultant property is clearly and specifically identified2. The Defendant submitted that POCA does not engage with a case where there is alleged or suspected offending on the one hand, and property on the other, but where it is not possible to establish the connection between them. In the absence of identifying a specific consignment of goods that is the product of the relevant criminality, no POCA offence can arise. An inference or a suspicion that a consignment may be derived from criminal conduct is not sufficient.
- Second, in respect of section 328 of POCA, it must be proved both that the property concerned is criminal property and that the person accused knew or suspected that they were facilitating money laundering. Establishing this additional mental aspect creates further difficulties in proving the offence.
- Third, in respect of section 329 of POCA (the acquisition, use and possession of criminal property), the statute expressly provides that it is a defence if a person acquired or possessed criminal property for adequate consideration3. The Defendant noted that at any point in a long and complex international supply chain, the chain could be broken by the payment of adequate consideration in any of the transactions involved.
Mr. Justice Dove also found in favour of the Defendant’s approach to POCA.
What then is the likely practical impact of this judgment for companies operating in the UK with long and complex overseas supply chains, concerned that their supply chains are not tainted by forced labour or other human rights abuses?
The judgment ought not to be seen as as an incentive for companies to ease back on their supply chain risk management and due diligence procedures. Whilst it is correct that the judgment reinforces the high evidential threshold that must be cleared by UK law enforcement agencies to commencing criminal investigations under POCA, it is equally clear from the judgment that the NCA has left open the door to supply chain human rights investigations being brought on that basis. Indeed, both the NCA, in its evidence, and Mr. Justice Dove, at the conclusion of his judgment, kept open the possibility that the intelligence picture may change at any time and that further and better evidence may be identified in another case that does meet the requirements under POCA.
Given that abuses may occur in the context of a company’s own activities or via its commercial relationships with suppliers at some other point in the chain, and the coming into effect last year of the Uyghur Forced Labour Prevention Act in the United States (with its rebuttable presumption that goods manufactured wholly or in part in the XUAR were produced using forced labour), it is clear that the judgment is far from an invitation to complacency.
1 EWHC 88 (Admin)
2Per R v Montila  1 WLR 3141;  UKHL 50; and R v GH  1 WLR 2126;  UKSC 24
3Section 329(c); and Hogan v DPP  1 WLR 2944;  EWHC 978 (Admin)