The Appeal Court has ruled that lawyers and judges are safe from the Proceeds of Crime Act, but that is no help to adjudicators, arbitrators, valuers or clients
A year ago in Building, Judge Anthony Thornton set out in graphic terms the risks of committing an offence under Section 328 of the Proceeds Of Crime Act 2002. Section 328 provides that: “A person commits an offence if they enter into or becomes concerned in an arrangement that they know or suspect facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person.”
People had thought that this legislation dealt with money laundering in the context of drug trafficking and organised crime. Judge Thornton showed how the legislation covered anyone concerned in an arrangement that might facilitate the acquisition of criminal property.
The examples he gave were valuers, certifiers, arbitrators or adjudicators dealing with applications for payment or disputes where there was a suspicion that another party might acquire criminal property. The definition of criminal property is very wide and could be money. Examples include loaded tenders that might be used fraudulently, or dodgy invoices used to support payment applications, or dishonest representations as to the quantity of work done. If someone comes within the section, their only defence is to notify the National Criminal Intelligence Service and await consent to proceed or to show that they intended to make disclosure and have a reasonable excuse for not so doing.
The drafting of the section is so wide that lawyers in ordinary litigation have been concerned that the litigation process itself might be “an arrangement that facilitated by whatever means the acquisition of criminal property”. Similarly, a settlement could constitute “an arrangement” caught by the legislation. The legislation would also affect mediators, adjudicators and arbitrators who in conducting the process may become concerned in an arrangement and so need to disclose and await consent to proceed to avoid criminality.
The impact of the legislation has been so great that in the Court of Appeal decision of Bowman vs Fels in March, the Law Society, the Bar Council and the NCIS were all represented to allow the court to clarify the position.
The court found that the legislation had gone further than was required. It was held that the conduct of litigation by legal professionals or entering into settlements in an litigious context did not come within section 328 of the act. This decision was based largely on the policy of defending access to legal proceedings and the right of access to legal advice on a private and confidential basis. Importantly, a suggestion that would have limited the scope of section 328, namely that there needed to be some shared purpose on the part of the person concerned to facilitate the wrongdoing, was expressly rejected.
People had thought that this legislation dealt with money laundering in the context of drug trafficking and organised crime. Judge Thornton showed how it covered certifiers, arbitrators and adjudicators
The judgment is helpful to lawyers but what about valuers, arbitrators and adjudicators, or the client considering whether to make payment in response to a suspicious looking application? Arbitration has in certain contexts been treated as amounting to “legal proceedings” so might enjoy the same protection as that given to litigation in the courts. adjudication differentiates itself from arbitration and legal proceedings and so may have difficulty relying on the same exemption.
Until there is some further judicial authority on whether arbitration or adjudication constitute “an arrangement” or some broader public policy principle is invoked to exempt them, arbitrators and adjudicators should be cautious. From the Bowman case it appears that steps in the process prior to making the decision or award may not constitute becoming concerned in an arrangement. If arbitrators or adjudicators are suspicious but in the event award money that on balance of probabilities they consider lawfully due then it may be argued that at the time of “the arrangement” there was no suspicion and disclosure was not required. However, if that is wrong and disclosure still might be required before making the award or decision, in the context of adjudication, that gives rise to problems with “tipping off” when adjudicators notify parties of a delay. It could also invalidate their decision if they render it out of time.
For those valuers, certifiers and clients who suspect the acquisition of criminal property, the law is still uncertain. Arguably it may only be the act of valuation or payment that constitutes becoming concerned in an arrangement that facilitates the acquisition of the criminal property – but the court left open the question of how far a person who had given advice or been involved in negotiations might retrospectively be considered as having committed the offence.
The judgment confirms the special status of legal professionals and legal privilege as a matter of public policy but leaves much to be done to ascertain the boundaries for those outside these narrow confines. In practice, suspicion of the potential acquisition of criminal property may be rare. Where it does arise the circumstances will need to be carefully considered before concluding that disclosure is not necessary.
Tim Willis is a partner in the Birmingham law firm the Wilkes Partnership