K, R. v

Receipts from a lawful trade may be criminal property under the Proceeds of Crime Act 2002 where they represent, even in part, the pecuniary advantage obtained by cheating the Revenue. A mere failure to declare legitimate trading income does not itself convert the receipts into criminal property. The distinction is whether there is evidence of completed criminal conduct, such as cheating the Revenue, from which a tax or VAT advantage has been obtained. Where substantial unexplained cash discrepancies are accompanied by deliberately false records, it may be open to a jury to infer that the cash derives from criminal conduct, despite an inability to identify its precise provenance.

The prosecutor appealed under section 58 of the Criminal Justice Act 2003 from rulings of Judge Elwen at Southwark Crown Court that there was no case to answer on money-laundering counts.

The prosecution alleged that money from a lawful grocery business had been under-declared for income tax and VAT purposes, and that £200,000 of undeclared takings was to be transferred abroad. It also alleged that a money-transfer business had concealed a £5.9 million cash discrepancy through false customer records.

The judge considered himself bound by R v Gabriel [2006] EWCA Crim 229 to hold that takings from lawful trading could not be criminal property. The central issue was whether such takings could represent the benefit of cheating the Revenue for the purposes of section 340 of the Proceeds of Crime Act 2002.

1. Appeal allowed as against IK. The judge erred in withdrawing counts 1 and 2 from the jury. It was open to the jury to infer that the £5.9 million discrepancy was the product of criminal conduct and therefore criminal property.

2. A person who cheats the Revenue obtains a pecuniary advantage through criminal conduct within section 340(6) of the Proceeds of Crime Act 2002. The person is treated as obtaining a sum equal to that advantage. That sum is a benefit under section 340(5).

3. Undeclared business takings may represent that benefit, in whole or in part, within section 340(3)(a). In the paradigm example, the takings should have borne tax and VAT, and so represent the amount improperly retained through the completed cheat. The court was prepared to assume that a secret intention not to disclose trading levels would not alone convert legitimately received money into criminal property. The prosecution case, however, was that the cash represented the fruits of cheating which had already occurred.

4. R v Gabriel [2006] EWCA Crim 229 did not prevent that conclusion. The court agreed that non-declaration alone does not make profits from lawful trading criminal property. Properly read, however, that case did not hold that the lawfulness of the underlying business was invariably fatal to a money-laundering prosecution where there was a prima facie case of cheating the Revenue.

5. The unexplained discrepancy, the admitted false receipts and the false records supplied ample material for the jury to draw the necessary inference, notwithstanding that the prosecution could not identify the money's provenance. The acquittals of the other defendants remained, but counts 1 and 2 could proceed against IK.

• Court of Appeal (Criminal Division): Allowed the prosecutor's appeal under section 58 of the Criminal Justice Act 2003 and held that the no-case ruling on counts 1 and 2 could not stand as against IK: [2007] EWCA Crim 491.
• Southwark Crown Court: Judge Elwen ruled on 23 February 2007 that there was no case to answer on count 12 and, on 26 February 2007, ruled that there was no case to answer on counts 1 and 2 because of his reading of R v Gabriel [2006] EWCA Crim 229.