It is not often that a family law blog warns ordinary hard-working honest family lawyers that they might be unwitting criminals. This is that blog. You should read it.

Remember POCA, NCIS and all that?

One of the common results of the necessity for parties to financial remedies to give candid, full and frank disclosure of their finances is that the disclosure includes evidence of illegality which has produced property which is the proceeds of crime within the meaning of the Proceeds of Crime Act 2002 (POCA).

Those readers who were in practice in the period between POCA 2002 coming into force and the Court of Appeal’s decision in Bowman v Fels [2005] EWCA Civ 226 on 8 March 2005 will have painful memories of financial remedies proceedings being placed on ice and hearings being adjourned at the last minute to await notification of the suspected criminal property to the National Criminal Intelligence Service (the precursor to the National Crime Agency (NCA)) to await their consent being given (as it almost always was) to continuation of the proceedings pursuant to s 335 of POCA. It was usually triggered by a suspicion that a party had failed to declare all their income for tax purposes. The sums in question were often relatively trivial but nonetheless a suspicion of tax evasion with the result that there were potential proceeds of crime in the matrimonial asset ‘pot’.

Bowman v Fels helpfully held that pursuit of the ordinary course of litigation did not fall within the concept of ‘becoming concerned in an arrangement which facilitates the acquisition, retention, use or control of criminal property’. It thus allowed litigation which concerned assets which might be criminal property to continue in the normal way without requiring the consent of the relevant authorities and without the risk of the lawyers committing a criminal offence.

Bowman v Fels only dealt with the conduct of litigation over potential criminal property. It did not deal with status of fees which were paid to a lawyer for bona fide work done for a client whose assets included criminal property. The received wisdom, endorsed by guidance issued by the professional bodies and endorsed by the Government, was that s 329(2)(c) of POCA provided a defence to any money laundering offence which would otherwise result from the receipt of and dealing with criminal property because the lawyer ‘acquired or used or had possession of the property for adequate consideration’, the consideration being the provision of legal services to the client.

That no longer seems to be correct, and every practising lawyer needs to be aware of that.

What does Chinese cotton have to do with the fees paid to family lawyers?

China is one of the world’s largest producers of cotton. Some 85% of Chinese cotton is grown in the Xinjiang Uyghur Autonomous Region of China. There are widespread reports and allegations of human rights abuses in Xinjiang, which include allegations that forced labour is used to produce cotton there.

In R (World Uyghur Congress) v National Crime Agency [2024] EWCA Civ 715 the applicants challenged the NCA’s decision not to investigate the importation of Chinese cotton into the United Kingdom on the basis that, amongst other things, it was criminal property within the meaning of POCA. One of the NCA’s reasons for not investigating the importation was their reliance on s 329(2)(c) of POCA so that cotton bought by a bona fide purchaser for value was not tainted as criminal property. The NCA’s understanding of the law was that the Chinese cotton in the hands of the bona fide purchaser would not be criminal property, whereas the money paid by the purchaser to the producer in China would be criminal property in the hands of the producer.

In other words, the NCA had interpreted the provisions of POCA in the same way that lawyers have been doing for over two decades when their fees for bona fide services are paid from a client’s criminal property. The assumption was that the provision of adequate consideration ‘cleansed’ the criminal property and broke the chain of transmission of criminal property.

The Court of Appeal held that this was a misreading of POCA. POCA creates three distinct money-laundering offences:

(1) concealing, disguising, converting, transferring criminal property, or removing such property from England and Wales, or from Scotland or from Northern Ireland (s 327);

(2) entering into or becoming concerned in an arrangement which the person knows or suspects facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person (s 328); and

(3) acquiring, using or possession criminal property (s 329).

Importantly, the definition of ‘criminal property’ in POCA is very broad and contains a subjective element. Section 340(3) provides that property is criminal property if:

‘(a)⁠ it constitutes a person’s benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly), and

(b)⁠ the alleged offender knows or suspects that it constitutes or represents such a benefit.’

Note the ‘or suspects’.

All three offences contain a defence if the person concerned makes ‘an authorised disclosure’ to the NCA and obtains appropriate consent to the activity before it is carried out (i.e. as was the norm in proceedings where the existence of criminal property was suspected until the decision in Bowman v Fels – see above).

However, the defence that the person ‘acquired or used or had possession of the property for adequate consideration’ specifically only applies to the s 329 offence of acquiring, using or possession criminal property. It does not apply to the offences pursuant to s 327 or s 328. The Court of Appeal explained the position as follows (at [36]):

‘Section 329(2)(c) would afford protection to the purchaser while he had the property in his possession even if he knew it was criminal property, but it would not protect him if, for example, in that knowledge, he transferred it to someone else, or took it out of the country and thereby became potentially liable under section 327(1)(d) or (e).’

Therefore, a lawyer who carries out work for a client and who is then invoiced for that work and pays for it from money which is criminal property has a defence to the s 329 offence of acquiring or possessing the criminal property. However, the criminal property is not thereby ‘cleansed’. It remains criminal property in the lawyer’s hands and, if the lawyer knows or suspects that it is criminal property, possibly the receipt itself and certainly any further dealing with that property may constitute an offence under ss 327 or 328.

There are reasons to question the correctness of the decision in the World Uyghur Congress but, for now, it defines the law. Whether the Court of Appeal was fully conscious of the full practical implications of its decision is unclear. Likewise, it is not clear whether POCA was actually intended to have the effect the Court of Appeal has found it to have. The Court of Appeal decision has caused great consternation in the commercial world for the effect it has on supply chains involving property which is or which may be criminal property. It clearly is a matter of real concern for lawyers. That is especially so for family lawyers who get an unusually detailed view into their client’s affairs due to the disclosure obligations in financial remedy proceedings, with the result that the grounds of suspicion of the existence of criminal property arise more often than in other types of work.

Many family practitioners will have had experience of cases where some part of the assets under consideration in divorce may fall within the definition of criminal property. Although Bowman v Fels says that it is permissible to continue with the normal course of financial remedy proceedings notwithstanding that suspicion, the decision in the World Uyghur Congress case creates real reason for concern about the receipt of fees from such a client for work properly done in good faith.

Even if your client has never done anything remotely criminal, the property from which your fees are paid might still be criminal property. Most obviously that will be if the fees are paid from a lump sum paid by the other party who has obtained the property as a result of criminal activity, but there may be circumstances where neither spouse has been involved in criminality but they have property which is derived from criminal property. Chinese cotton on the bed, for example.

So what should family lawyers do if they suspect their fees are paid in whole or in part from criminal property?

This blog article cannot be taken to be advice or guidance. Every lawyer confronted with the spectre of fees being paid from what is suspected to be criminal property will need to consider the legal position and their duties.

Th Bar Council have published a Practice Note which states that:

‘Even in cases where adequate consideration has been provided, where the funds in possession of the recipient are criminal property, they will remain criminal property where the recipient either knows or suspects that they are the proceeds of crime. Only persons who receive such funds without notice of their criminal nature receive them as clean funds.’

The Practice Note also provides the following advice:

‘Accordingly, a barrister who receives payment for fees knowing or suspecting that the funds received are criminal property may be in possession of criminal property even if they give adequate consideration for those monies. Receiving such fees, without the required consent, could expose the barrister to potential criminal liability for the offences of being a party to a “transfer” within the meaning of s 327 or an “arrangement” within s 328 of the Act. A subsequent conversion or transfer of those monies could also expose the barrister to criminal liability under s 327 of the Act. A barrister who finds themselves in such a position should therefore give careful consideration as to whether they should make a Defence Against Money Laundering disclosure to the National Crime Agency.’

There has also been an addendum amendment to the Anti-Money Laundering Guidance for the Legal Sector 2021. This includes the warning that:

‘Practitioners should also note that the Court in Bowman v Fels was not asked to and did not express a view as to whether the ‘ordinary conduct of litigation’ exemption applies to the receipt of legal fees. Caution should therefore be had as to the source of funds received for the payment of fees.’

It goes on to note that:

‘Provided that the fee that you have agreed represents “adequate consideration” (within the meaning of s 329(2)&(3)) of POCA you will not have committed the s 329(1) offence of acquiring, using or possessing criminal property’

But:

‘if you receive payment for fees knowing or suspecting that the funds received are criminal property you may be in possession of criminal property even if you give adequate consideration for those monies. Receiving such fees, without the required consent, could expose you to potential criminal liability for money laundering offences, such as being a party to a “transfer” within the meaning of s 327 or an “arrangement” within s 328 of the Act. A subsequent conversion or transfer of those monies could also expose you to criminal liability under s 327 of the Act. You should therefore give careful consideration as to whether you should make a POCA s 338 “authorised disclosure” (aka a “Defence Against Money Laundering” disclosure, or “DAML”) to the National Crime Agency.’

Oh dear. Here we go again.