ESG in the boardroom

Strengthening ESG compliance

Navigating POCA risks in your supply chain

The judgment in R (World Uyghur Congress) v NCA has significant implications for corporate governance and supply chain risks. The ruling challenges the traditional interpretation of the Proceeds of Crime Act 2002 (POCA), heightening the need for companies to prioritise transparency and ethical sourcing within their supply chains to meet and exceed their environmental, social and governance (ESG) objectives.

Previously, it was commonly accepted that where criminality existed in a supply chain, payment of fair value for goods in the supply chain would “cleanse” the supply chain from that point onwards and the goods would cease to be the proceeds of crime. The Court of Appeal’s ruling clarifies that this is no longer the case. Instead, it places a greater responsibility on companies to conduct thorough due diligence on their supply chains.

This judgment reiterates the critical role that comprehensive ESG practices play in modern corporate operations and the need for proactive measures to safeguard against ethical and legal pitfalls.

Key take-aways

Accountability and governance

Boards with direct responsibility for overseeing supply chains and ensuring transparency in sourcing practices should be aware that they can no longer simply pay fair value to “cleanse” goods of criminality. Effective and robust governance measures are essential for managing supply chain risks, and boards should implement protocols for flagging concerns around suppliers, ensuring proactive management and mitigation of these risks.

Human rights compliance

Companies can no longer claim ignorance if goods or materials they source are tainted by criminality, such as slave labour. Forced labour practices have now become a major focus of global human rights campaigns. Boards should ensure their sourcing practices are examined through an ESG lens, focusing on jurisdictions with a higher risk of human rights violations, taking measures to ensure their supply chains are rigorously vetted. Avoiding associations with human rights violations is crucial to maintaining a positive public image and avoiding financial repercussions.

Exposure to liability under the POCA

This judgment increases companies’ exposure to prosecution under the POCA. If a company knows or suspects that sourced goods are tainted by human rights abuses, it may be subject to criminal liability under the POCA, potentially leading to a criminal conviction, and fine for the company and prison for individual employees. The low threshold for suspicion means merely suspecting goods are tainted by criminality can expose a company to the risk of prosecution.

Seeking legal protection

In light of the judgment, boards of companies with any reason to suspect that they are dealing with goods tainted with criminality should consider the mechanisms available to protect themselves from a money laundering offence. This could involve reporting concerns to the National Crime Agency and seeking a defence against money laundering.

Practical steps for boards to take

Supply chain due diligence

Boards should ensure they have visibility over their supply chains through robust due diligence procedures extending beyond their immediate suppliers. Consider supply chain mapping and third-party audits to combat and detect criminality in supply chains. Boards should also ensure their due diligence procedures align with the broader ESG objectives of their companies.

Robust policy implementation

To meet their ESG objectives, and mitigate the risk of liability under POCA, boards should implement strict policies reflecting international human rights standards. Company policies should outline how to monitor supply chains and align with ESG objectives.

Strengthening governance protocols

Boards could reinforce governance mechanisms by setting up dedicated ESG committees or appointing senior executives responsible for overseeing ESG objectives. Where possible, encourage board level engagement with implementing ESG focused measures.

Staff training

Training staff to detect instances of criminality within the supply chain, such as forced labour, will likely help to mitigate the risk of liability under POCA. Staff should be educated on the implications of this judgment, so they are aware of the risks of turning a blind eye to criminality within the supply chain. Educate staff on reporting protocols for any suspicions of criminality in the supply chain and any other ESG related non-compliance more generally.

Reporting

Boards should include supply chain risk reporting in their wider ESG reporting frameworks. Transparency in addressing ESG issues is crucial as stakeholders are increasingly more interested in ethical businesses practices.

In summary

The judgment reflects the evolving view of ESG risks within legal and corporate frameworks. Boards should proactively enhance supply chain due diligence, improve policies, and embed robust governance protocols in line with ESG objectives to avoid legal, financial, and reputational consequences. For detailed guidance, please get in touch with the contacts below for expert advice on economic crime compliance.

Authors: Ben Cooper and Meghan Millward

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at January 2025. Specific advice should be sought for specific cases. For more information see our terms and conditions.

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Date published

31 Jan 2025