Fulton & Anor, R. v

MR JUSTICE POPPLEWELL: On 25th April 2016 in the Crown Court in Manchester, the appellants were convicted on one count of conspiracy to disguise, convert or transfer criminal property. The substantive offences are money laundering, contrary to section 327 of the Proceeds of Crime Act 2002 ("POCA"). On 13th June 2016 they were sentenced at the same court by Her Honour Judge Goddard QC, who had presided over the trial. Wood was sentenced to 7 years' imprisonment. Fulton was sentenced to 4½ years' imprisonment. They appeal against sentence with leave of the single judge on one limited ground.

The money laundering was part of an MTIC fraud, that is a Missing Trader Intra Community fraud, which involves cheating the Revenue of VAT or its equivalent in other EU countries by a missing trader failing to pay or account for the tax which he actually receives from a trader in another EU country to whom he had sold or purported to sell goods. It is one variation of what is commonly called a "carousel fraud". In this case, the missing traders were predominantly in Germany with at least one other in the Czech Republic.

The United Kingdom part of the money laundering was perpetrated through a number of companies under the control of Mohammed Aslam who gave instructions for transfers on their behalf, although he was not a director or other officer of those companies. The money transfers were made through more than one money service bureau ("MSB"). Monies were exchanged from one currency into another and payments were made into and out of accounts in the name of the companies by the MSB. One of the MSBs performing those operations was Omnis FX Capital ("Omnis").

Wood was the sole director of Omnis which he had set up in about 2008 and which operated from a small office in Truro. Wood was an experienced foreign exchange trader and well aware of the money laundering regulations. He was authorised as a fit and proper person and was the designated Money Laundering Reporting Officer for Omnis.

The two account managers in the office were Fulton and Hart. Fulton was also an experienced FX trader. The two account managers processed all the payments which involved payment into and out of the company's accounts and exchanging money from pounds sterling to euros and vice versa. The ultimate destination of the monies varied, but at least some was paid into UK accounts which were under the control of a student who was himself acting indirectly under the instructions of Mr Aslam. There was no, and indeed no apparent, commercial rationale for exchanging sums between pounds sterling and euros.

Omnis had a "know your customer" file for each company, but the appellants paid little or no regard to the files. There was no due diligence carried out and Fulton, Hart and Wood dealt with Mr Aslam despite the fact that he was not the named customer for any of the companies and was not a named officer or employee.

HMRC carried out a number of compliance visits to Omnis and on each occasion Fulton and Wood gave the impression that they were fully complying with the money laundering regulations.

The transactions at Omnis for which these appellants were convicted took place between March and November 2011. During that period the estimated tax loss to the European Revenue Authorities from the MTIC fraud was put at about £17½ million. Not all of that was caused by the money which the companies passed through Omnis because there were at least two other MSBs which were used.

There were 597 transactions in the relevant period which involved sums totalling about €35 million passing through the Omnis accounts for the companies involved in the MTIC fraud. That was treated as equivalent to about £30 million. Of those 597 transactions, Fulton was responsible for handling 362.

In her careful sentencing remarks, the judge accepted that as far as both Fulton and Wood were concerned there had been an initial period of trading prior to March 2011 which was legitimate. She observed, correctly, that it was obvious to both Fulton and Wood that they were dealing with Mr Aslam and not with the named directors of the companies, notwithstanding that Mr Aslam's name and details were contained nowhere in the client file. Transcripts of recorded calls showed that both Wood and Fulton were well aware that this was not legitimate trade but the laundering of illegal funds. Mobile phones and Skype were used for communications in order that there would be no record kept of them. The judge went on to record that Mr Wood was the Money Laundering Reporting Officer for Omnis, that both Wood and Fulton were trained in anti money laundering procedures and that had they applied those procedures suspicious activity reports would have been raised and the conspiracy would have been stopped in its tracks. She accepted that Wood and Fulton may not have known that the initial source of the money was a European VAT fraud, but both knew that it was money laundering and were prepared to take the risk of whatever unlawful activity gave rise to the funds in order to increase Omnis's turnover.

In applying the Sentencing Council Guidelines for Fraud, Bribery and Money Laundering Offences, she treated the relevant harm as being the sum of approximately £30 million which had passed through the accounts and the total tax at risk of approximately £17½ million.

She referred to the personal mitigation available to both appellants. At the age then of 49, Wood had no previous convictions or cautions. There were positive testimonials to his character and his work in the community. A prison sentence would have a severe effect on his family and there had been a significant delay in the case coming to court. In Fulton's case, she observed that he, also then 49, had no previous convictions or cautions. He had been in the army serving his country. He had personal testimonials from friends and family. There were difficulties with his young adult son which were identified in the pre-sentence report, which would place additional burdens on his wife. He had suffered a serious motorcycle accident in about 2003 resulting in lasting injuries and he was in constant pain and had suffered from depression. It was said that those difficulties would make prison especially hard on him and he too had suffered the additional strain of the delay in the case coming to court.

The judge identified the roles which each appellant had played. In Wood's case he was the director of Omnis. It was his job as Money Laundering Reporting Officer to prevent money laundering. There had been an HMRC visit in 2010 to highlight the need to make suspicious activity reports, in the face of which, instead of following the guidance, Wood had actively sought to acquire Mr Aslam’s later illegitimate business. Although others MSBs were used, Omnis' part in the laundering of the proceeds of the fraud was a very significant part. Wood was to be categorised as bearing high culpability in Category A. He was in a position of trust. He had played a leading role. He was responsible for others being involved in the money laundering. The criminal activity was planned, it was sustained and it extended over many months.

The level of harm based on the figures which we have identified was put as in Category 1. The guidelines which applied to Wood therefore give a starting point of 10 years based on £30 million worth of harm and a range of 8 to 13 years. The judge took a starting point below that in the guidelines of 8 years to reflect Wood's role and all the circumstances of the offending. She then discounted it by a year to reflect his good character and personal mitigation, resulting in a sentence of 7 years.

Turning to Fulton, she put him in the medium culpability Category B. He played a significant part, including taking responsibility for registering the companies used in the fraud and liaising with Mr Aslam to make every effort to get them through the registration process. The guidelines provide that for Category 1B the starting point is 7 years, again based on £30 million harm, and a range of 5 to 10 years. The judge recorded that Fulton did not make a significant personal financial gain. His motivation was to increase Omnis's business and so create some commission for himself and commission for others. Considering his role over the significant period of the money laundering, she took a starting point of 6 years. From this she deducted 18 months to take account of his good character, personal mitigation and health difficulties, resulting in a sentence of 4½ years.

The sole ground of appeal for which permission was granted is that the judge was wrong to treat the harm as falling within Category 1 of the guidelines. The submission which has been made to us by Mr Stuart, succinctly and skilfully, is that the relevant figure which should have been taken is the tax loss to the foreign revenue authorities from the money laundering activity conducted by Omnis. The sums which went through the accounts of the companies using Omnis would have represented the total value of the vatable goods which were being notionally sold in order to perpetrate the fraud. The tax on those sums was 19 per cent in Germany and 20 per cent in the Czech Republic. Accordingly, so it was argued, if the total sum going through the Omnis accounts was some £30 million, the tax loss attributable to those activities was 19 or 20 per cent of that figure. A calculation company by company produced a total tax loss on that basis of about £6.1 million. The figure of £17.5 million which the judge referred to was the tax loss directly referable to the companies which held Omnis accounts but it was not the amount of the tax loss referable to the money that passed through Omnis from those companies because the companies used other MSBs.

On behalf of Fulton, it was further submitted that since he was only involved in about 60 per cent of the trades the relevant figure in his case is 60 per cent of that, namely about £3.6 million.

The appellants relied on the case of R v Ahmad [2012] EWCA Crim. 391, [2012] 1 WLR 2335. In that case the defendants were charged with cheating the Revenue. A missing trader fraud had enabled £12.6 million to be fraudulently reclaimed from the Revenue. The means by which that fraud had been perpetrated involved some £72 million passing through accounts controlled by the defendants, being the amount necessary to pay for the goods in respect of which the fraudulent transactions had or had purportedly taken place.

At paragraph 31 of the judgment of this court, Hooper LJ described the money which the conspirators had had to put up in a carousel fraud as money "priming the pump". In confiscation proceedings, the judge at first instance had taken the benefit which the defendants had obtained to be the £72 million which had gone through the accounts, uplifted by way of adjustment for inflation to a figure of some £92 million. In allowing the appeal the court held that the benefit which the defendants had obtained was only the £12.6 million claimed from the Revenue. The appellants say by analogy that the relevant amount to be used in this case is the VAT of which the foreign revenue authorities were deprived.

Section 327 of POCA creates the offence of money laundering in relation to criminal property. Criminal property is defined in section 340 of the Act as follows:

The money laundering activities which are prohibited by section 327(1) comprise (a) concealing criminal property, (b) disguising criminal property, (c) converting criminal property, (d) transferring criminal property and (e) removing criminal property from England and Wales. Fulton and Wood were charged with the activities described in sub-paragraphs (b), (c) and (d), that is to say disguising, converting and transferring.

It is inherent in the concept of money laundering by transfer, disguise or conversion that criminal property will often be moved into a financial system and mixed with other money within it. That is what allows it ultimately to be absorbed into the economy and enjoyed by criminals without it being capable of being traced to the original crime. Money laundering often involves a complex web of transactions. The money laundering operation is designed by criminals to provide a benefit which is a different benefit from, and an additional benefit to, that which is gained from the underlying crime. The additional benefit lies in the money laundering operation itself because the criminal hopes thereby to be able to enjoy the fruits of the underlying crime without detection. The separate offence of money laundering is thus widely drawn in section 327 covering activity which extends to something which "represents" and only in part and only indirectly, the criminal property obtained from the underlying crime.

That being so, the criminality of the money laundering offence has to be gauged in the first instance by the nature and scale of that activity, not the nature and scale of the underlying crime. It is the money laundering activity, which is separate criminality from the underlying crime, which falls to be sentenced. In money laundering it is the whole amount involved, not merely that part which comprises criminal property, which impacts on the system. The financial system is damaged if it is used for money laundering and the damage is to be measured by the sums which are employed in that harmful activity. The scale of the harm is measured by the scale of the funds which include criminal proceeds or as it is colloquially put “dirty money”, not by the amount of dirty money itself.

Moreover, money laundering offences can be committed by those who are unaware of both the nature and scale of the underlying criminal activity. In R v Lonnie Augustus Smith [2015] EWCA Crim. 333, Sharp LJ said at paragraph 8:

This approach is reflected in the Sentencing Council Guideline which provides tables categorising harm by reference to the scale of the money laundering activity, not the underlying offence which provides the criminal proceeds which are being laundered. On page 36 of the Guideline, harm is to be identified by reference to two boxes, Harm A and Harm B. Harm A provides:

Harm B provides:

The guidance therefore distinguishes between (1) the money laundering amount and (2) the harm caused by the underlying offence. The wording of Harm B recognises that the second may be something which the court cannot identify. The table at page 37 of the Guideline is set out by reference to the six categories of harm determined by applying the Harm A criteria. They are clearly based on the amount of the money laundering activity, not the amount of the criminal proceeds being laundered. This is as one would expect and in accordance with principle for the reasons we have identified.

The appellant's reliance on the case of R v Ahmad is misplaced. That was a case involving the substantive offence for cheating the Revenue, not a money laundering offence. Moreover, and critically, the present case is not concerned with any question of benefit for the purpose of confiscation proceedings which is what was in issue in Ahmad. It is concerned with sentencing and the sentencing guidelines. The sentencing exercise starts by examining the scale of the offence which these defendants conspired to commit. That was the offence of money laundering. The Guideline therefore directs attention to the scale of that criminal activity. What benefit each defendant may have received from that activity is a consideration which falls to be taken into account at a later stage, in determining the defendant's role and culpability and in taking into account all the circumstances of the case.

As to Fulton's additional point, the number of transactions in which he was directly involved does not affect the scale of the conspiracy with which he was charged and convicted. He was not charged with the specific offences. The scale of the conspiracy falls to be determined by the categorisation of the harm in accordance with the guidelines. The extent to which he participated in that conspiracy falls to be reflected in the categorisation of his role and where within the range he should be placed. The judge properly reflected this in treating him as falling within Category B and in taking a starting point of 6 years, not the starting point of 7 years suggested in the guideline based on harm of £30 million.

It follows that the judge made no error in taking the £30 million figure in this case as the relevant amount for determining the category for the purposes of the Guideline. She was correct to treat the activity of these appellants as falling within Category 1. We detect no error in her sentencing remarks or decision. The sentences were not excessive, let alone manifestly so.

The appeals will be dismissed.