Divorce, hiding assets and money laundering
An interesting case came before the Court of Appeal recently.
The defendant, Michael Geary, was appealing against his conviction for "entering into or becoming concerned in an arrangement which facilitated the acquisition, retention, use or control of criminal property for or on behalf of another, contrary to section 328(1) of the Proceeds of Crime Act 2002".
He had been approached by a friend of his, Mr Harrington, who told him his marriage was in trouble and he wanted to hide some money from his wife in the event of divorce and a financial claim from her.
Mr Geary agreed to receive some money from Mr Harrington, keep it for a while, buy some things for Mr Harrington with some of it and then return the goods and the rest of the money to Mr Harrington in cash - except for a few thousand pounds which he would retain for his trouble. Mr Geary did exactly that.
What Mr Geary neither knew nor suspected was that Mr Harrington was misleading him. Mr Harrington had obtained the money from a contact of his, who in turn was laundering the proceeds of a theft / fraud from Norwich Union. Mr Harrington was using Mr Geary to unwittingly launder some of the money from the theft / fraud.
Police investigations into the theft / fraud eventually led to Mr Geary who was charged with the s328 offence.
Mr Geary was told that even if he knew or suspected nothing of the true criminal source of the funds, what he thought he was doing would have been an offence of conspiring to pervert the course of justice and conspiring to defraud Mrs Harrington (by helping Mr Harrington to mislead the divorce courts and his wife about his assets).
So, the prosecution argued, the money received by Mr Geary from Mr Harrington was money which he (Mr Geary) suspected to be proceeds of a crime (a conspiracy to mislead the divorce courts and Mrs Harrington) and he had 'entered into an arrangement' to facilitate Mr Harrington's retention of it. Therefore he was guilty of the offence.
At the start of his trial the judge agreed with the prosecution that Mr Geary's "defence" (that he knew nothing of the theft / fraud and was embarked on a different crime altogether) was actually no defence to the s328 charge. Faced with that, Mr Geary changed his plea to guilty.
But Mr Geary then appealed against his conviction on the grounds that the judge was wrong to say he had had no valid defence.
The Court of Appeal quashed the conviction under s328. They held that Mr Geary had been convicted of the wrong offence. He should have been convicted of transferring and of converting criminal property under s327, but since he had not been charged with that offence he could not now be convicted of it, so he left the court a free man.
The Appeal Court's logic was interesting.
The definition of 'criminal property' is that it is an asset which the alleged offender knows or suspects to be proceeds of a crime. (The full definition is a bit more complex - but that's the heart of it.)
As Mr Geary neither knew nor suspected the money which he received from Mr Harrington was anything other than Mr Harrington's own legitimate funds it did not become criminal property (from Mr Geary's perspective) until he had received it (and thereby started the crime of concealing it from the divorce courts and Mrs Harrington).
So Mr Geary could not be guilty of entering into an arrangement involving criminal property because (in his mind) it only became criminal property by virtue of the arrangement being put into effect. To be guilty of the s328 offence the property (in this case money) had to be criminal property before the arrangement took effect.
Also the court found that there was a single "arrangement" which involved receiving the money, buying some things, and returning the things and the cash. So it was not possible to say that, for example, the returning of the cash was a separate "arrangement" which had commenced after the money had become criminal property (in Mr Geary's mind) and which would then be an arrangement contrary to s328.
Once Mr Geary had received the money as (he believed) part of a plan to mislead the divorce courts and defraud Mrs Harrington, then the money became 'criminal property' (from Mr Geary's perspective) and the purchase of goods by him was 'converting criminal property', and the returning the cash to Mr Harrington was 'transferring criminal property' - both of which are money laundering offences.
And of course if Mr Harrington's story about a divorce had been true, then his possession of the cash and goods received from Mr Geary would also have been a money laundering offence (under s329).
So the key legal point is that an arrangement to use lawfully acquired money in an unlawful way will not be caught by s328. What s328 catches is an arrangement pertaining to money or other assets which were already 'criminal property' before the arrangement existed.
It also confirms that if a person, say Mr X, believes that money or assets are proceeds of a crime - but in fact they are not proceeds of that crime but they are proceeds of a different crime, Mr X's mistaken belief does not affect whether Mr X is guilty of money laundering (although it may have a bearing on the sentence which he receives on conviction).
Perhaps another key point for accountants is that husbands who defraud their wives (or ex-wives) by dishonestly concealing assets in their divorce proceedings thereby commit a criminal offence which may trigger an obligation to report under the Money Laundering Regulations 2007 and s330 PoCA 2002. (And of course wives who dishonestly conceal their assets in divorce proceedings are equally guilty.)