UK companies risk prosecution after National Crime Agency’s failure to investigate cotton imports from the Uyghur region is ruled unlawful

In this blog, Leigh Day’s Anthony Hayward and Matthew Renshaw examine how the judgment in the case of World Uyghur Congress v National Crime Agency [2024] EWCA Civ 715, on 27 June 2024, which overturned a previous High Court decision in 2023, sends a clear and important message to UK corporates: ensure the integrity of your supply chains or face the possibility of prosecution.

Background: Human Rights Abuses in XUAR

The Uyghurs are an ethnically and culturally Turkic people living in East Turkistan, an area in Central Asia that has essentially been occupied by China since 1949. Since 2017, The People’s Republic of China is widely reported to have committed severe human rights abuses against the Uyghurs. This exploitation has strong links to the cotton industry, where thousands of Uyghurs have been made subject to state-organised forced labour programmes. This large-scale exploitation of the Uyghurs, as well as the fact that 85% of cotton grown in China comes from the XUAR, was not disputed in this case, which predominantly examined the NCA’s failure to investigate UK cotton importations for money laundering offences under the Proceeds of Crime Act 2002 (POCA). 

Case Background

In April 2020, the World Uyghur Congress [WUC] (a non-governmental organisation that promotes the collective interests of the Uyghurs) presented evidence to the NCA regarding these human rights abuses being committed in the XUAR. One of two key issues argued by the WUC was that the NCA should have investigated consignments of cotton goods originating from the XUAR under POCA, which is a cornerstone of the UK’s framework for investigating money laundering and recovering the proceeds of crime. The WUC alleged that cotton originating from the XUAR constituted criminal property under the Act and its trade amounted to criminal conduct.

The NCA declined to investigate, stating:  

1. An offence under POCA does not arise in the absence of identifying a specific consignment of cotton that is the product of criminal property (i.e. forced labour).
   
2. Where it was possible to identify a specific consignment of cotton, it could not be deemed criminal property once someone in the supply chain had paid ‘adequate consideration’ (market value) for them. This intervening payment for criminal property within the supply chain would have the effect of “cleansing” it such that someone who subsequently acquired the property would be exempt from prosecution under POCA.

The WUC challenged the NCA’s failure to investigate by judicial review, however this was dismissed by the High Court in its January 2023 judgment.

Appeal 

After a legal appeal by the WUC, which was heard between 15-16 May 2024, the NCA conceded that:

1. It was not necessary to identify a specific product as criminal property before commencing an investigation into whether a money-laundering offence has been committed.
   
2. The possibility of someone in the supply chain having paid ‘adequate consideration’ for the criminal property does not preclude an investigation being made under POCA, although the NCA contended this was an immaterial issue that did not impact its decision. 

The appeal examined whether the NCA had made an error in their interpretation of the law when refusing to open an investigation into the consignments of cotton products under POCA. The Court of Appeal granted the appeal and referred the issue back to the NCA for reconsideration.

Impact of the case 

In the absence of UK legislation banning products produced in Xinjiang, similar to the forced labour law agreed to by EU institutions in April 2024 and the even more rigorous Uyghur Forced Labour Prevention Act enacted in the US in 2021, it is important that the UK regulatory framework is as robust as it can be. Importantly, this decision clarifies that companies cannot evade investigation and prosecution under POCA by arguing that market value was paid for the relevant goods somewhere in the supply chain. It sets the expectation that the NCA will lead a thorough investigation into imports from the Uyghur Region and prosecute any UK retailers who are profiting from forced labour. 

In light of this regulatory development, it is important that victims of forced labour have access to legal avenues to secure compensation for what happened to them. Victims may be able to use civil law to achieve this should the NCA’s investigations reveal the identities of individual companies that have acted improperly and/or unlawfully.

Claims can be pursued by victims of human rights violations against British companies where those violations have taken place in the company’s supply chain. For example, Leigh Day is representing Malaysian migrant workers in an important appeal hearing which will take place at the Court of Appeal in November 2024. The appeal relates to a 2023 High Court decision to deny workers, who allege forced labour and dangerous working and living conditions at a Malaysian factory, the ability to sue two Dyson companies and a Malaysian company in the English Courts.

The claimants argue that the courts of England & Wales are the only forum in which they have a realistic prospect of obtaining justice. The 2023 decision was the first time in these type of proceedings since the UK’s withdrawal from the EU that the English courts had heard a challenge under what is known as forum non conveniens. This is a legal doctrine by which the courts can decline jurisdiction for hearing a case on the grounds there is a more appropriate and convenient forum. Brexit has meant that people making this type of claim lost the benefit of EU regulations that prevented the defendants from challenging jurisdiction on these grounds. As a result, the Dyson appeal hearing is an important moment for determining the future access to justice of victims of human rights abuses linked to the activities of UK companies and their supply chains internationally.

Conclusion

The overturned decision in favour of the World Uyghur Congress provides an important clarification to the UK’s regulatory powers. However, ensuring that UK supply chains are free from forced labour will not be achieved through regulation alone. Only with strong regulation in tandem with legal redress mechanisms and more rigorous legislation, will a strong deterrent to UK companies profiting from forced labour be forged, and the integrity of UK supply chains guaranteed.