Geary, R v

On 7^th October 2009 in the Crown Court at Leeds before the Recorder of Leeds the appellant pleaded guilty on re-arraignment to entering into or becoming concerned in an arrangement which facilitated the acquisition, retention, use or control of criminal property for or on behalf of another contrary to section 328(1) of the Proceeds of Crime Act 2002 (“the Act”). On 20^th November 2009 he was sentenced by the Recorder to 22 months’ imprisonment.

He now appeals against conviction and sentence by leave of the single judge.

The conviction arises out of the part played by the appellant in an extensive fraud perpetrated by an Operations Manager of the Norwich Union Bank in York, John Taylor. There were two limbs to the fraud. Under the first Taylor used computer identities and passwords issued to himself and other employees of the bank to reactivate dormant accounts and steal the funds in them. He transferred the money to a friend of his, a serving police officer, Stephen Spellacy, who, using the false name “Hamilton”, laundered it by buying high quality watches and gold coins which could easily be converted into cash and which he later sold.

Taylor’s fraudulent activity came to light as a result of the second limb, which involved the diversion of £1,130,369 from one of Norwich Union’s trading accounts to accounts operated or controlled by his Taylor’s accomplices. One of the co-accused, Keith Swift, took charge of finding willing recipients who would help to launder the proceeds. After an attempt to transfer the funds into the account of his girlfriend failed the money was transferred to the account of another of the co-defendants, Peter Harrington, who in turn passed various amounts to others, including the appellant. Each of the final recipients retained part of the money as payment for his services. The appellant received a total of over £123,000, of which he retained a little over £5,000.

The appellant was charged on count 9 of the indictment with an offence contrary to section 328(1) of the Act. The particulars of offence were that he had

In his defence case statement the appellant said that he had been approached by Harrington, who had told him that he was about to become involved in divorce proceedings and had asked him to help him hide money from Mrs. Harrington. The appellant said that he had agreed to help Harrington by accepting the money into his account, spending some of it and then within a short period of time returning the balance together with the goods he had purchased. The purpose, obviously, was to reduce the amount Harrington would have to pay his wife in connection with the divorce. However, he said Harrington had misled him about the reason for wanting to transfer the funds because in reality there had been no divorce proceedings, either pending or in contemplation. He maintained that he was not guilty of the offence charged.

There was some discussion between the Crown and the defence about whether the case put forward by the appellant amounted to a defence in law. The Crown was willing to accept a plea to the count as charged because it took the view that the appellant was guilty of the offence even on the facts as he said he had believed them to be. However, the defence took the view that if the appellant’s account were accepted, he was not guilty. In the end on the second day of the trial the defence asked the judge to indicate how he would direct the jury and in response the judge said that in his view the facts as alleged by the appellant did not provide him with a defence. The appellant thereupon pleaded guilty on the following basis:

The grounds of appeal are that the appellant’s conviction is unsafe because, on the facts as he alleged them to be and as they were set out in his basis of plea, he was not guilty of the offence with which he was charged.

Before turning to consider the arguments it may be helpful to refer briefly to the provisions of the Act which are of most relevance to this appeal. Section 328(1), under which the appellant was charged, provides as follows:

“Criminal property” is defined for these purposes in section 340, the material parts of which provide as follows:

It follows from these provisions that property becomes criminal property only when a person obtains an interest in it as a result of, or in connection with, criminal conduct, that is, conduct which constitutes a criminal offence.

Mr. Enoch Q.C., who did not appear on behalf of the appellant at trial, submitted that on a natural reading section 328(1) is concerned with arrangements which facilitate the acquisition, retention, use or control of property which has already acquired a criminal characteristic as a result of someone’s having obtained an interest in it as a result of, or in connection with, criminal conduct. To put it in more colloquial terms, the section is directed at arrangements which make it easier for someone else to acquire, retain, use or control the fruits of crime. However, if the facts had been as the appellant believed them to be, the money Harrington asked him to look after would not have represented the fruits of crime. It would not have been criminal property because Harrington would not have obtained it as a result of, or in connection with, criminal conduct. The appellant would have had no reason to think or suspect that he had, and did not in fact do so. Accordingly, the mental element necessary for an offence contrary to section 328(1) was not present.

However, on behalf of the Crown Mr. Robertson Q.C. submitted that, on the facts as the appellant understood them to be, the money in question was or became criminal property when it reached his hands, because it was transferred to him pursuant to an agreement whose object was to defraud Mrs. Harrington and mislead the court. That involved a conspiracy to pervert the course of justice and the appellant obtained an interest in the money, and therefore a benefit, as a result of, or in connection with, criminal conduct. Alternatively, he submitted that the appellant committed the offence when he repaid the money to Harrington.

It was common ground that the actus reus of the offence was established in this case. The money which Harrington transferred to the appellant was criminal property, having been stolen by Taylor from the bank and transferred to Harrington, and the arrangement which the appellant entered into with Harrington facilitated its retention, use or control by Harrington. The only question is whether the appellant had the necessary mens rea to render him guilty. It is important to keep that firmly in mind because much of the argument was directed to a different question, namely, whether the facts set out in the appellant’s basis of plea constituted the actus reus of an offence (though not the offence described in the indictment) under section 328(1). As it turned out, that became an important part of the Crown’s argument.

There are two aspects to the mental element of the offence created by section 328(1): first, the defendant must intentionally or recklessly enter into an arrangement which facilitates the acquisition, retention etc. of criminal property by or on behalf of another person; second, he must know or suspect that the arrangement will have that effect. It follows that he must know or suspect that the property to which the arrangement relates is criminal property, that is, property that has been obtained as a result of, or in connection with, crime.

On the face of it the latter requirement is not satisfied in this case, not least because one of the facts set out in the basis of plea was that at no time did the appellant believe that the money he received from Harrington was the result of criminal activity. The arrangement was that the appellant would accept the money, hold it for a time and then return it to Harrington. That arrangement applied to money which, as far as the appellant was aware, was money which Harrington had obtained lawfully. The object of the arrangement, as understood by the appellant, may have been unlawful, but the arrangement was to use lawfully acquired money in an unlawful way; it was not to deal with money that had been acquired unlawfully.

Mr. Robertson sought to overcome that objection in two ways. He submitted that if the money had been transferred by Harrington to the appellant pursuant to a conspiracy to pervert the course of justice it would have become criminal property as soon as, or even before, it reached the appellant and that therefore the arrangement, viewed as a whole, was one that facilitated the retention, use or control of criminal property by Harrington. Alternatively, he submitted that the fact that the money had been transferred pursuant to a conspiracy to pervert the course of justice would have meant that it became criminal property in the hands of the appellant (having been acquired by him in connection with criminal conduct), that the appellant knew that, and that by retaining it and later returning it the appellant would have entered into or became concerned in an arrangement to facilitate its use or control by Harrington.

Mr. Robertson’s submissions raise two important questions, each of which concerns one aspect of the actus reus of the offence created by section 328(1): first, whether it is necessary for the property which is the subject of the arrangement to be criminal property at the time when the arrangement attaches to it; second, whether it is permissible for these purposes to separate out different aspects of the arrangement so that its implementation can be treated as both criminalising the property and then as facilitating its retention, use or control in its newly acquired criminal character, thus constituting the offence. In due course it will be necessary to consider how these questions impinge on the question of mens rea, but since they are both of some importance and were fundamental to Mr. Robertson’s argument we must first address them.

In our view the natural and ordinary meaning of section 328(1) is that the arrangement to which it refers must be one which relates to property which is criminal property at the time when the arrangement begins to operate on it. To say that it extends to property which was originally legitimate but became criminal only as a result of carrying out the arrangement is to stretch the language of the section beyond its proper limits. An arrangement relating to property which has an independent criminal object may, when carried out, render the subject matter criminal property, but it cannot properly be said that the arrangement applied to property that was already criminal property at the time it began to operate on it. Moreover, we do not accept that an arrangement of the kind under consideration in the present case can be separated into its component parts, each of which is then to be viewed as a separate arrangement. In this case there was but one arrangement, namely, that the appellant would receive money, hold it for a period and return it. To treat the holding and return as separate arrangements relating to property that had previously been received is artificial.

Approaching the matter purely on the language of the section, therefore, we would reject the Crown’s submissions. However, our attention has been drawn to a number of authorities on the meaning and effect of sections 327-329 of the Act which Mr. Robertson submitted supported his argument and to these we now turn.

The first in point of time is R v Loizou [2004] EWCA Crim 1579, [2005] 2 Cr.App.R. 37. In that case the defendant was charged with transferring a sum of money which she knew or suspected constituted criminal property contrary to section 327(1)(d) of the Act. The Crown submitted that it was entitled to prove its case by establishing that the relevant sum in cash became criminal property within the meaning of section 340 simply by reason of the transfer. At a preparatory hearing the judge ruled that if the money was transferred for a criminal purpose, it became criminal property and established the actus reus of the offence.

On appeal this court held that an interlocutory appeal did not lie in that case and declined jurisdiction, but it nonetheless expressed its view on the issue in the following terms:

In Kensington International Ltd v Republic of Congo [2008] 1 W.L.R. 1144 a question arose whether the payment of a bribe would constitute an offence under section 328(1) on the part of the person who paid it. In paragraph 67 of my judgment, with which May and Carnwath LJJ. agreed, I said:

R v Loizou was not cited to the court in that case and the decision proceeds on what the court perceived to be the natural meaning of the section.

R v Izekor [2008] EWCA Crim 828 (unreported) was decided in this court a little over three months after judgment was delivered in Kensington International. The appellant was indicted on 30 counts of acquiring criminal property contrary to section 329(1)(a) of the Act by transferring funds belonging to his employer to accounts in the names of former employees. Of those counts 29 related to individual sums that he was accused of having stolen; the final count reflected the general deficiency. The appellant was acquitted on all but the final count. He said that he had transferred the funds on the orders of one of the directors who was entitled to receive them as dividends. The main issue before the court concerned, in the words of Moses L.J., “the extent to which the prosecution are allowed to face both ways in pursuing a case, on the one hand, contending that witnesses they call are witnesses of truth who, if believed, will prove a case of deception and, on the other hand, still seeking to uphold a conviction on the basis that a key witness they called was not telling the truth”.

Mr. Robertson relied on paragraph 14 of the judgment, in which the court expressed the view that an admission made by the appellant to his own solicitor that the director in question had told him to transfer the money to the disguised accounts to avoid declaring it to the Revenue and that he knew he was being asked to do something wrong was a clear admission of an offence under section 329. He submitted that it supported the conclusion that acquiring funds for a criminal purpose amounts to acquiring criminal property.

We note that neither R v Loizou nor Kensington International appears to have been cited to the court and indeed the judgment does not contain any extended discussion of the interpretation of section 329. That is not surprising since it was not the subject of the appeal. The comment on which Mr. Robertson sought to rely was in our view obiter and insofar as it suggests that the same act can both render property criminal and at the same time constitute the acquisition of criminal property for the purposes of section 329 of the Act we respectfully doubt whether it is correct.

The next decision to which our attention was drawn was R v Fazal [2009] EWCA Crim 1697, [2010] 1 W.L.R. 694. In that case the appellant had allowed another person, B, to make use of his bank account to deposit and withdraw the proceeds of fraudulent transactions. The defendant was charged with converting criminal property, contrary to section 327(1)(c) of the Act. The prosecution case was that the money had been converted from one kind of property into another with the assistance of the defendant, who had made his account available for the purpose, knowing or suspecting that the deposits constituted the fruits of crime and were therefore criminal property. The defendant’s case was that although he had permitted B to make deposits and withdrawals from the account he had not known or suspected that the moneys were the proceeds of fraud. At the trial an issue arose whether, assuming the necessary mens rea existed, the defendant's conduct could amount to converting criminal property for the purposes of the section. The judge ruled that it could and the defendant was convicted on all counts. On appeal this court held that, by allowing his bank account to be used in that way with his full co-operation, knowledge, approval and authority, the defendant had committed successive acts of converting criminal property.

The passage in the judgment on which Mr. Robertson principally relied is to be found in paragraphs 21-23, in which the court deals with the argument that the defendant himself was not guilty of the offence since the acts in question were carried out by B. The court’s response was that since B acted with the appellant’s authority, the appellant was himself responsible for the conversion of the property into different forms. The court expressed the view that when the money was credited to the defendant's account, when it was retained in it and when it was withdrawn from it there were successive acts of converting criminal property because new choses in action came into being.

Insofar as Mr. Robertson submitted that this case supports his argument that one and the same act may both render property criminal and at the same time constitute dealing with criminal property we are unable to agree with him. The appeal did not give rise to that question and, no doubt for that reason, neither R v Loizou nor Kensington International were drawn to the court’s attention. We do not consider that any support for the Crown’s case can be derived from that decision.

Finally, it is necessary to refer briefly to two other authorities which, although not specifically relied on by either party, were mentioned in argument. They are R v Gabriel [2006] EWCA Crim 229, [2007] 1 W.L.R. 2272 and R v I K [2007] EWCA Crim 491, [2007] 1 W.L.R. 2262.

In R v Gabriel the defendant was charged with having possession of criminal property contrary to section 329(1)(c) of the Act. The property in question was money which had been derived from trading in lawful goods, but which the defendant had failed to declare to the authorities when applying for benefits or to the Revenue for tax purposes. The court held that a failure to declare income did not by itself render the money criminal property, notwithstanding that the defendant might have been guilty of benefit fraud or tax fraud.

In R v I K the defendant assisted his father in running a money transfer business which the Crown alleged was used to launder the proceeds of criminal conduct. He was charged with an offence contrary to section 328(1) of the Act. Another defendant, MR, was charged with cheating the Revenue by failing to declare part of the takings of his grocery business and laundering the undeclared takings by transferring them abroad using the defendant’s business. The Crown's case against the defendant was that the money of which the Revenue was cheated by MR was criminal property. At the start of the trial the judge ruled that there was no case to answer against MR in respect of laundering the undeclared takings because they were the proceeds of legitimate trading. He also ruled that in the absence of evidence that part of the money transferred abroad by the defendant had come from another source there was insufficient evidence that any of it was criminal property.

On appeal this court held that although profits from dealing in legitimate goods did not become criminal property simply by reason of the trader’s failure to declare them for tax, the failure to declare them might give rise to an offence if a prima facie case of cheating the Revenue was made out, since the effect would be that the trader would thereby obtain a pecuniary advantage as a result of criminal conduct and by reason of section 340(6) would be taken to have obtained a sum of money equal to the amount of tax of which the Revenue had been deprived. In that case the prosecution had succeeded in establishing a prima facie case of cheating the Revenue on the part of MR and to the extent that the money which the defendant had transferred abroad on his behalf represented tax lost to the Revenue it constituted criminal property. The judge had therefore been wrong to withdraw the case against the defendant from the jury.

In our view neither of those decisions advances the argument in the present case, although it can be said that each proceeds on the footing that criminal property must already have come into existence in order for an offence to be committed under section 328 or 329. To that extent they may be said to support the appellant’s case.

Part 7 of the Act, as the heading indicates, is concerned with money laundering and sections 327, 328 and 329 are all directed to dealing with criminal property in one way or another. In each case the natural meaning of the statutory language is that in each case the property in question must have become criminal property as a result of some conduct which occurred prior to the act which is alleged to constitute the offence, whether that be concealing, disguising, converting, transferring or removing it contrary to section 327 or entering into or becoming concerned in an arrangement which facilitates its acquisition, retention, use or control by another contrary to section 328. We think that the same must be true of acquiring, using or having possession of criminal property contrary to section 329(1). Moreover, it follows from what we have said that the only authorities directly in point on the interpretation of sections 327 and 328 support that conclusion.

Finally, we should add that we consider it important in the interests of legal certainty that legislation of this kind should be interpreted in accordance with its natural and ordinary meaning. The Crown’s argument in this case involves interpreting section 328(1) in an artificial way in order to encompass conduct to which it does not naturally refer. even if it is possible by stretching its language to interpret the section in the manner suggested by Mr. Robertson, we do not think that it ought to be interpreted in that way in order to extend its ambit to ensure that the appellant’s conviction is upheld.

This brings us back to the question of mens rea. It was common ground that the facts set out in the basis of plea had to be accepted as proved for the purposes of the appeal. However, as we have pointed out, one of the facts set out in the basis of plea was that at no time did the appellant believe that the money he received from Harrington was the result of criminal activity (and in our view belief must for these purposes be taken to include suspicion). It is difficult to see, therefore, how the appellant could have had the necessary mens rea to commit the offence simply by receiving the money from Harrington, even if, contrary to the opinion expressed earlier, the mere receipt was sufficient to render it criminal property for the purposes of the arrangement which they had entered into.

However, on the assumption that the purpose for which the money was transferred to the appellant involved perverting the course of justice, so that it became criminal property in his hands, the appellant, who knew the purpose for which it had been transferred to him, did know or suspect that he was then dealing with criminal property. For the reasons we have already given, we do not think that simply holding the money and returning the bulk of it to Harrington (together with the goods he had purchased with part of it) was sufficient to constitute the actus reus of the offence with which he was charged, but he could in our view have been charged with an offence of converting or transferring criminal property contrary to section 327(1)(c) or (d). It is unnecessary and undesirable to give a strained and unduly broad interpretation to section 328(1) in order to bring within it conduct that falls within other sections of this Part of the Act.

For these reasons we have reached the conclusion that the facts set out in the appellant’s basis of plea do not disclose an offence contrary to section 328(1) of the Act and that the appeal must therefore be allowed.

We would wish to add only this. Much of the difficulty in this case has arisen from the fact that the basis on which the appellant was prepared to plead guilty departed radically from the case being made against him by the Crown. The judge was placed in a difficult position: on the second day of the trial he was asked to indicate how he would be minded to direct the jury if they were to accept the appellant’s account and for that purpose had the benefit of brief argument without any citation of authority. No skeleton arguments were prepared and he was expected to reach a decision without time for proper reflection. In our view it would have been more satisfactory all round if the Crown had taken a little more time to consider the implications of the appellant’s account and, if necessary, had sought leave to amend the indictment to include an additional count which more accurately reflected the appellant’s state of mind as reflected in the basis of plea.