Speed Read: Can you commit a money laundering offence if the predicate offence was not criminal at the time of its commission? In this case note, Natasha Reurts provides an overview of a recent decision of the High Court of Karnataka dealing with the retrospective application of the Indian Prevention of Money Laundering Act 2002 and draws out some points for consideration in relation to the UK AML regime.

Introduction

On 13 March 2017, the High Court of Karnataka delivered judgment in the case of M/S Obulapuram Mining Company Pvt Ltd v Joint Director of Enforcement, Government of India.[1] The decision quashes the retrospective application of provisions of the Prevention of Money Laundering Act 2002 against the petitioner.

Case Summary

In this case, the petitioner, M/S Obulapuram Mining Company, was accused of acquiring 1.8 metric tonnes of iron ore by extracting the material from outside a leased area between 21 June 2007 and 15 May 2009. These actions were said to have contravened sections 120B, 420 and 411 of the Penal Code as well as sections 13(1)d), 13(1)(e), read together with section 13(2), of the Prevention of Corruption Act 1988. The Obulapuram Mining Company challenged the actions brought by the enforcement authorities and an order under the Prevention of Money Laundering Act 2002. The petitioner argued that as the offences (contrary to the Penal Code) were “scheduled offences”[2] only included in the Prevention of Money Laundering Act on 1 June 2009, after the time of the alleged offending, that the company could not be prosecuted for contravening provisions of the Prevention of Money Laundering Act. This would be, the petitioner argued, a retrospective application of the money laundering laws and contrary to the general criminal law principles as regards the imposition of penalties. The assistant solicitor general referred to the High Court to section 5 of the Prevention of Money Laundering Act 2002 and submitted, in arguing that the proceedings should continue, that as the offences alleged against the petitioner were civil in nature, the Prevention of Money Laundering Act could be invoked retrospectively.[3]

The High Court of Karnataka held that the enforcement report and money laundering order were without jurisdiction and ordered it to be quashed.[4] The High Court stated, at paragraph 12: “The petitioner cannot be tried and punished for the offences under the PML Act when the offences were not inserted in the schedule of offences under the … Act. This would deny the writ petitioner the protection provided under clause (1) of the Article 20 of the Constitution of India. Article 20(1) of the Constitution of India prohibits the conviction of a person or his being subjected to penalty for ex-post facto laws.” [5] Consequently, the order was set aside and conviction against the accused company quashed.

Analysis

In the UK, section 340 of the Proceeds of Crime Act 2002 contains the curious subsection (4) which expands upon the requirements of “criminal property” and “criminal conduct”. The section references what the State is not required to prove in relation to establishing whether the property in question is criminal property for the purposes of the POCA regime. Section 340(4) states that it is “immaterial” who carried out, or benefited from, the underlying conduct and whether the conduct occurred before or after the passing of POCA.

Considering the decision of the High Court of Karnataka, what then would be the position in the UK had the same facts materialised, i.e. if a person were to commit an offence (the predicate offence) in 1975, would the “criminal property” resulting from the criminal conduct be considered “criminal property” for the purposes of POCA 2002? In essence, can you commit a money laundering offence if the predicate offence was not criminal at the time of its commission? Tweaked slightly, as the conundrum is often commonly referred to in dinner party debates: historically, if a person/company profits from slavery (the profit commencing at a time when slavery was not a criminal offence) and continues to profit post the criminalisation of slavery (but is no longer involved in slavery practices), should the person/company be able to keep the profits?

The rule of law and Article 7(1) of the European Convention on Human Rights (ECHR) provide the guiding principles. Article 7(1), which articulates the nullum crimen, nulla poena sine lege principle, provides that “no one shall be guilty of any criminal offence on account of any act or omission which did not constitute a criminal offence under national or international law at the time it was committed….” Thus, in answer to the dinner party debate: the law recognises that the person/company has committed no criminal offence and the person/company is allowed to keep the profits and continue to profit, so long as no further criminal offences are committed. The property would not be considered property as the underlying conduct was not criminal at the time.

Applying the above to a more relevant scenario, consider the following. A corporate obtains money through a legitimate tax avoidance scheme. Later, the tax avoidance scheme is criminalised, and it is now clear that the scheme constitutes tax evasion. Does the corporate commit an offence? By Article 7, it must follow that the corporate does not commit an offence, including potentially a money laundering offence.

Does this lead into murky water whereby a person would commit the offence prior to its entry into force and effective and, effectively, be ‘able to get away with it’? Arguably, so. But this is a fair, just and democratic approach. As uncomfortable as it may be, the rule of law and Article 7 require it to be so.

What about cases with an international element? Although principally concerned with extradition, the recent case of Serra & Another v Republic of Paraguay [2017] EWHC 2300 (Admin), the Queen’s Bench Division addresses the question head-on.[6] The Paraguayan offence of money laundering did not exist when the appellant’s companies obtained, allegedly fraudulently, $35million from another company, Cajubi. The appellants submitted that although they may have been engaged in a money laundering offence post July 2009 (when money laundering became an offence in Paraguay), but their conduct did not constitute an offence in the UK[7] and thus, they should not be extradited to face that charge. The previous court disagreed, finding that the conduct would have amounted to offences contrary to sections 327 and/or 329 of POCA. Counsel for the appellants advanced an argument that “a person cannot possess criminal property within section 329 of the 2002 Act if all that occurs is that he retains property which it was not unlawful for him to possess in the requesting state until a change in the law.”[8] In response to Counsel’s proposition, Lord Justice Burnett and Sir Wyn Williams stated: “[W]e see no difficultly with the concept that the possession of property which was not unlawful at a particular point in time may become unlawful by virtue of a prospective change in the law with the consequence that as from the date of the law change a person who retains such property or continues to possess it commits a criminal offence.” [9]

With the introduction of the Criminal Finances Act 2017, parts of which are not yet in force, there are bound to be gaps where offences are committed but no criminal prosecution could result. Indeed, changes to the law, are frequent. But changes in law set out in statutory instruments (as opposed to judicial decision) provide clearer answers: the new law would only apply prospectively. Interpretations of the law, however, are a different matter which make for hard cases – as is known from ‘changes in law’ cases like R v Jogee (Appellant), Ruddock v The Queen [2016] UKSC 8, [2016] 2WLR 681 (Jogee) and the numerous post-Jogee appeals that followed.