The Court of Criminal Appeal has issued a series of judgements clarifying the application of money laundering offences in mortgage fraud cases.
Essentially the court has ruled that:
- the creation of documents to enable mortgage fraud to occur is not the entering into an arrangement contrary to section 328 of the Proceeds of Crime and
- the granting of a mortgage over a property amounts to adequate consideration which is a defence to a s329 offence under the Proceeds of Crime.
The facts
The cases revolved around a mortgage broker and a number of clients who in 2005 submitted mortgage applications with false particulars. In each case the clients were convicted of acquiring criminal property contrary to section 329 of the Proceeds of Crime Act and they received sentences of 26 weeks imprisonment, suspended for 18 months.
The mortgage broker pleaded guilty to entering into an arrangement contrary to section 328 of the Proceeds of Crime Act and was sentenced to 22 months imprisonment.
Appeals by the clients
In 2009, the first client, Ms Kausar was given permission to appeal her conviction. In a unanimous judgement, the court held that if the property in question was acquired for adequate consideration, then no offence under section 329 will be committed.
At paragraph 8 of the judgement, the Court stated: ‘One of the issues that may arise under section 329 is whether the property in question was acquired for inadequate consideration.
If it was not so acquired, no offence under it is committed (subsection (2)(c)), and that is so even if the person who acquires it knows or suspects the property to be criminal property. If the person knows that it is criminal property, he will be guilty of the offence of handling, or in the present case, if he is a party to a fraud, obtaining a money transfer by fraud.‘
The court disagreed with the prosecution's submission that 'consideration' should not be given its usual contractual meaning. The court stated that consideration is a well known legal term of art and it was difficult to see why parliament should have used it if they intended another meaning.
Accordingly, as there was a written contract, namely a mortgage deed, which contained an undertaking to pay the mortgage advance with interest and conferred on the lender a charge over the property, Ms Kauser had provided consideration.
The court stated that there was no suggestion the interest was other than a market rate, or that in any other respect the consideration was inadequate. The court held that Ms Kauser should never have been charged with the offence or convicted of it.
Unsurprisingly, the other two clients, Mr Nawaz and Ms Noreen appealed and the differently constituted Court upheld the appeals.
They also allowed the appeal against Mr Nawaz's conviction for attempting to commit a breach of section 329, as even though consideration had not passed, it would not be right to uphold a conviction for an attempt when there would not have been an offence if the attempt was successful.
Finally the court referred to the further argument of whether the mortgage advance was criminal property once it was drawn down.
Because the appeal had been successful on other grounds, they did not consider the argument in detail. Instead at paragraph 13 they said: 'It may be necessary on some other occasion to resolve the question of whether property can be 'criminal property' for the purpose of section 329 only after some other criminal offence has been committed, or whether there can occur simultaneously the predicate offence which gives property its criminal character and also the acquisition of the same property that constitutes the offence under section 329'.
The last client, Ms Amir had her appeal heard in January 2011, which was granted unopposed.
Read the full judgements:
The mortgage broker’s appeal
In January 2011 the Court of Criminal Appeal heard the appeal from the mortgage broker, Mr Akhtar. The court held that at the time Mr Akhtar agreed to help submit false applications to the bank, the money was legitimately in the hands of the bank and was not criminal property.
At paragraph 21 the Court stated: ‘On [the Crown's] analysis an offence is committed where a defendant becomes concerned in an arrangement which facilitates the criminal acquisition of property. The statute requires an arrangement facilitating the acquisition of criminal property. There is a material distinction. Nor do we accept his submission that the property is criminal because that is its character when it leaves the mortgage company. Even if that were so, and there are difficulties with the analysis posed by section 340(5) as [the defence] points out, we do not accept that it is therefore criminal property at the time when the arrangement begins to operate.‘
The court was at pains to point out that the decision did not mean that Mr Akhtar could act as he did with impunity, but rather that he had been charged under the wrong statute. The fact that he was likely to have been convicted if he had been charged under the correct statute was no reason to uphold the original conviction.
Read the full judgement: R v Amir and Anor [2011]EWCA Crim 146
Does this change anything for solicitors?
Essentially the situation for solicitors is the same. When considering your conduct and your reporting obligations there are two questions you should consider:
- Is my client about to use my services to commit a criminal offence?
- Do I suspect that another person is engaging in money laundering?
If you suspect a client is about to commit mortgage fraud, your involvement with the transaction may amount to aiding or abetting that fraud. This will be contrary to law and to rule 1 of the code of conduct.
Further you may be in breach of your obligations to the lender client, if you fail to advise them of material facts relating to the retainer.
You should discuss your concerns with the client and express the importance of providing accurate information to the lender. Should your suspicions persist after these discussions and the client refuses to provide correct information to the lender, you can no longer act in the retainer.
You will need to advise the lender that you cannot act in the matter due to professional reasons.
It is important to remember that while defences of adequate consideration and consent may be open to money laundering charges, they will not be of assistance in response to charges of fraud.