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Jamas Hodivala KC: “Corporate liability for money-laundering in supply chains”

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In this ESG article, Jamas Hodivala KC examines “Corporate liability for money-laundering in supply chains”


When you use your mobile phone or drive your electric car, or wear your jeans, put on your shirt or wash your hair, or use a host of other day-to-day products, you probably never stop to think where all the component parts or ingredients originated, or how the product has been manufactured. As consumers we principally care about price, product quality and functionality. We probably don’t stop to consider whether the product or clothing we are using represents the proceeds of crime.

Dove J. was recently asked to consider this issue relating to garments made using cotton manufactured in the Xinjiang Uyghur Autonomous Region of China (“the Region”), in R (World Uyghur Congress) v Home Secretary, HMRC and NCA [2023] EWHC 88. There was expert opinion evidence, news articles and committee reports (but no direct factual witness evidence) before Dove J that China was committing large-scale human rights abuses in the Region including forced labour in the cotton industry. Evidence showed that 30% of the world’s cotton originates from China, of which 85% of that originated from the Region. The Claimant argued: (i) Border Force, the NCA and HMRC had misdirected themselves or fettered their discretion regarding the prohibition on importation of the goods, contrary to s.1 of the Foreign Prison-made Goods Act 1897, s.1 of the Modern Slavery Act 2015 and s.51 of the International Criminal Court Act 2001 (crimes against humanity); and (ii) there was a separate duty to investigate offences regarding importations of these goods, pursuant to ss.327-329 of the Proceeds of Crime Act 2002.

The claim failed on all grounds for a number of fact-specific reasons:

  • The threshold in s.1 of the 1897 Act was high: the Defendants had not misdirected themselves when requiring evidence linking a specific consignment of goods to manufacture in a facility that met the definition of “a foreign prison”, although it was not necessary to identify which prison;
  • Evidence that imported cotton goods might have been manufactured from forced labour or prison labour in the Region was insufficient to show that specific goods had been imported in breach of prohibition in the 1897 Act;
  • Before the Proceeds of Crime Act 2002 duties were engaged, there needed to be specific proof in relation to a particular consignment that an alleged offender knew or suspected that the goods were criminal property. There was no specific proof of the origins of any consignment in this case;
  • The judgment of agencies such as the Defendants regarding their investigatory or enforcement powers would not be lightly disturbed. The Defendants took the view that evidence required for any prosecution was located in China and co-operation from the Chinese authorities was unlikely, so there was little merit in commencing an investigation that would inevitably go nowhere.

The judgment provides a useful analysis of issues relating to a growing Environmental, Social and Governance (“ESG”) focus on supply chains, relevant to corporate compliance and white-collar crime lawyers.

 

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