| CRIME — Proceeds of crime — “Criminal property” — Money exchange business dealing with cash representing undeclared turnover of legitimate business — Whether cash proceeds of cheating the Revenue — Whether cash amounting to criminal property — Proceeds of Crime Act 2002, ss 328, 340
Regina v K [2007] EWCA Crim 491
CA: Dyson LJ, Crane J and Judge Radford: 8 March 2007
Unpaid tax which was the product of cheating the Revenue was a pecuniary advantage and could amount to “criminal property” within the meaning of s 340 of the Proceeds of Crime Act 2002, even where the trade whose profits were liable to income tax or whose turnover was subject to VAT was a legitimate trade.
The Court of Appeal, Criminal Division, so held when allowing an appeal by the Revenue and Customs Prosecutions Office, pursuant to s 58 of the Criminal Justice Act 2003, against rulings made by Judge Elwen at Southwark Crown Court on 23 and 26 February 2007 at the start of the trial of the defendant, IK, on charges of money-laundering, contrary to s 328(1) of the Proceeds of Crime Act 2002, and false accounting. It was alleged that between April and December 2003 IK assisted his father, SK, in running KME, a money exchange business which arranged transfers of money from the United Kingdom to Pakistan, and that they dishonestly concealed £5.9m worth of cash transactions and manufactured false documents purporting to be true records of the money transfers. Counts 1 and 2 charged SK and IK with money-laundering. In relation to count 11 which charged MR, a co-defendant, with cheating the Revenue, the prosecution case was that MR had systematically cheated the Revenue of income tax and VAT by under-declaring the takings of his legitimate grocery business and transferring to KME for transmission to Pakistan sums of money which had not been declared. Count 12, which charged SK and MR with money-laundering, related to the sums, totalling £200,000, so transferred representing, at least in part, the tax and VAT of which the Revenue had been cheated. Judge Elwen ruled that there was no ease to answer on counts 1, 2 and 12.
DYSON LJ, in the reserved judgment of the court, said that the judge had acceded to an argument advanced on behalf of SK and MR in relation to count 12 that the £200,000 cash was the proceeds of legitimate trading and was not criminal property within the meaning of s 340(3) of the 2002 Act. He had considered that he was bound by R v Gabriel [2006] EWCA Crim 229; [2006] Crim LR 854, para 20, in which Gage LJ said: “we do not agree ... that profits made from trading in legitimate goods, without declaring the profits to the Inland Revenue ... could in any circumstances convert the profits into criminal property”. In their lordships’ judgment, a person who cheated the Revenue obtained a pecuniary advantage as a result of criminal conduct within the meaning of s 340(2). Accordingly, MR was to be taken to have obtained a sum equal to the value of the amount of which the Revenue was cheated, and that sum was a benefit by reason of s 340(5). The question was whether the undeclared takings “constitutes a person’s benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly)”: s 340(3)(a). The prosecution submitted that it was open to the jury to infer that part of the £200,000 represented the fruits of cheating which had already taken place. In their lordships’ judgment it could not have been intended that the money-laundering provisions of the 2002 Act, particularly those relating to the obtaining of benefit in the form of a pecuniary advantage, should not extend to the fruits of cheating the Revenue and the judge was not bound by R v Gabriel so to hold. Their lordships agreed that profits made from trading in legitimate goods without declaring the profits to the Revenue did not become criminal property simply by reason of the failure to declare profits. The profits were not of themselves illegal or criminal property: they were the product of a business carrying on a lawful trade. Their lordships did not consider that the court in R v Gabriel went as far as Judge Elwen thought. It was the failure of the Recorder in that case to dispel the jury’ s assumption (by their question) that a failure to declare income “per se gave rise to criminal property” which led to the court allowing the appeal. The difference between R v Gabriel and the present case was that in the present case, as was not disputed, the prosecution had made out a prima facie case of cheat. Accordingly, the judge was wrong to withdraw count 12 from the jury. Since the judge was wrong to rule as he did in relation to count 12, the basis on which he ruled on counts 1 and 2 had also to fall away. The prosecution’s appeal against the judge’s ruling in relation to counts 1 and 2 was allowed in so far as it affected IK.
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