APPEAL COURT, HIGH COURT OF JUSTICIARY
Lord Justice General Lord Osborne Lord Eassie	[2011] HCJAC 13 Appeal No: XC477/07 OPINION OF THE COURT delivered by THE LORD JUSTICE GENERAL in APPEAL by ATHIF SARWAR Appellant; against HER MAJESTY'S ADVOCATE Respondent: _______

Appellant: Jones, Q.C., Mitchell; Paterson Bell, Edinburgh

Respondent: Brodie, Q.C., A.D.; Crown Agent

10 February 2011

The indictment

[1] The appellant was indicted along with Mansoor Khan ("the co-accused") in the High Court at Glasgow on two charges under section 327(1) of the Proceeds of Crime Act 2002. These were:

"(1) having on numerous occasions between 24 February 2003 and 25 April 2003, both dates inclusive, received various sums of money totalling the amounts specified in column 1 of the schedule attached hereto from 6 companies or businesses specified in column 2 of said schedule amounting in cumulo to £845,137.73 by electronic transfer into a business account held in the name of United Wholesale (Scotland) Limited, you ATHIF SARWAR being Managing Director of said United Wholesale (Scotland) Limited and you MANSOOR KHAN ALSO KNOWN AS TONY KHAN being the Assistant Manager of said United Wholesale (Scotland) Limited did on numerous occasions between 24 February 2003 and 25 April 2003, both dates inclusive, at United Wholesale (Scotland) Limited, 164-166 Maxwell Road, Glasgow and elsewhere in Scotland, conceal, disguise, convert or transfer criminal property within the meaning of the aftermentioned Act, namely monies amounting in cumulo to £564,698.14 in that you did convert to cash or goods said monies amounting in cumulo to £564,698.14 and thereafter transfer said cash or goods to a person or persons meantime to the Prosecutor unknown all in order to conceal or disguise the nature, source, location, disposition, movement or ownership of said monies: CONTRARY to the Proceeds of Crime Act 2002, Section 327(1); and

(2) having on numerous occasions between 24 February 2003 and 25 April 2003, both dates inclusive, received various sums of money totalling the amounts specified in column 1 of the schedule attached hereto from 6 companies or businesses specified in column 2 of said schedule amounting in cumulo to £845,137.73 by electronic transfer into a business account held in the name of United Wholesale (Scotland) Limited, you ATHIF SARWAR being Managing Director of said United Wholesale (Scotland) Limited and you MANSOOR KHAN ALSO KNOWN AS TONY KHAN being the Assistant Manager of said United Wholesale (Scotland) Limited did on 25 April 2003 at the premises of United Wholesale (Scotland) Limited, 164-166 Maxwell Road, Glasgow, conceal, disguise, convert or transfer criminal property within the meaning of the aftermentioned Act, namely £280,439.59 of monies in that you did transfer said £280,439.59 from the business account held in the name of said United Wholesale (Scotland) Limited to a bank account held in the name of C4Less: CONTRARY to the Proceeds of Crime Act 2002, Section 327(1).

SCHEDULE 1

COLUMN 1	COLUMN 2
£202,310.94	Bayfleet Limited
£91,073.01	A R Communications & Electronics Ltd
£453,210.55	Mobile Heaven Europe Limited
£14,308.65	Westpoint Services Limited
£1,300.73	Feasacom Limited
£82,933.85	Mac
£845.137.73	TOTAL	"

[2] The opening date of 24 February 2003 was selected by the Crown because that was the commencement date of the relevant provisions of the 2002 Act (superseding earlier legislation) but, as will be described below, the series of transactions which is germane to the charges began in December 2002. That series was brought out by the defence in evidence in the course of the Crown case.

The verdicts

[3] The jury by a majority found the appellant guilty of both charges. The Crown withdrew charge (2) against the co-accused. The jury, again by a majority, found the co-accused not guilty of charge (1).

MTIC Fraud

[4] The United Kingdom Treasury loses billions of pounds every year as a result of a remarkably simple piece of criminal conduct called MTIC ("Missing Trader Intra-Community") fraud. The essentials of the scheme are that, first, an importer buys goods from a seller in another European Union State. The goods are zero rated in the exporter's State but liable to VAT on their acquisition by the importer in the United Kingdom. The goods will be physically small but high value commodities such as mobile telephones or computer components. Secondly, the importer will sell the goods on to another trader in the United Kingdom, charging and collecting VAT on that sale. Thirdly, that purchaser will sell the goods on to other traders in the United Kingdom. Each will charge and reclaim VAT. A number of further onward sales may follow, with VAT on each occasion being charged and reclaimed. Finally, the goods will be sold by the final United Kingdom purchaser to a trader in another European Union State. On such a sale VAT is chargeable at zero rate but the exporter can reclaim the VAT which he has paid. Meantime, the original importing company or at least the persons controlling it, will have disappeared, without ever having accounted for the VAT which it charged and received.

[5] The individuals involved in the importing company require to extract the VAT element on the sale price they receive from the banking system, without disclosing their identities or whereabouts. For that reason, the apparent directors of the company involved may be real people, but they will have had no connection with the company. Their identities will have been stolen for that purpose. Alternatively, the company may have real identifiable office bearers, and may even be trading, but have had its whole identity "hijacked" for the purpose of the fraud. Thus, the name of an existing company may be used, but the fraudsters will employ on its stationery a different contact address and telephone number etc from the real entity. The subsequent traders may be genuine, although the principals of some of these may well know that a scam of some sort is being perpetrated, given that from small beginnings and no significant assets they may suddenly acquire millions of pounds worth of business. At all events, the fraudsters will have to secure access to the proceeds of the fraud from the banking system in a manner untraceable, or at least not readily traceable, to them as individuals. The way in which this may be done provides a further element characteristic of an MTIC fraud. It is that the trader buying the goods from the importer, or one of the subsequent traders, will not pay directly to the importer or other seller but to some third party. The payments will be passed through the third party's books in such a way that the fraudsters will be able to extract cash or its equivalent from that third party in due course. The proceeds of the fraud are thus laundered through the third party, so disguising or assisting in disguising their true provenance. The third party may or may not be aware that monies being passed through it are the proceeds of fraud.

[6] In the context of an MTIC fraud, large sums may be transferred through the bank accounts of various companies. Some of these sums may be destined to pay for actual goods acquired. It is only the VAT element (17.5% of the value) which is siphoned off from the Treasury. It is not the totality of the large third party payments that constitute the proceeds of crime, at least on the theory that the goods purchased actually exist. It is the VAT percentage "reclaimed" from the Treasury, having been paid to the defaulting importer, that constitutes the proceeds of the fraud.

[7] It was not in dispute at the trial that sums totalling £845,137.73 had, between 24 February and 17 April 2003, been received by electronic transfer (CHAPS) into the bank account of United Wholesale (Scotland) Limited ("United") from the six companies mentioned in the schedule to the indictment and that these sums were the proceeds of an MTIC fraud. If the whole series of payments received (from 17 December 2002) is taken into account, the total so received was £1,205,828.77. In the period from 17 December 2002 payments were received from three further companies: Federal Import and Export Limited, Lark Trading Limited and Cortachy Limited.

The statute

[8] Part 7 of the Proceeds of Crime Act 2002 is concerned with money laundering. Section 327 provides:

"(1) A person commits an offence if he -

(a) conceals criminal property;

(b) disguises criminal property;

(c) converts criminal property;

(d) transfers criminal property;

(e) removes criminal property from England and Wales or from Scotland or from Northern Ireland.

(2) But a person does not commit such an offence if -

(a) he makes an authorised disclosure under section 338 and (if the disclosure is made before he does the act mentioned in subsection (1)) he has the appropriate consent;

(b) he intended to make such a disclosure but had a reasonable excuse for not doing so;

(c) the act he does is done in carrying out a function he has relating to the enforcement of any provision of this Act or of any other enactment relating to criminal conduct or benefit from criminal conduct.

(3) Concealing or disguising criminal property includes concealing or disguising its nature, source, location, disposition, movement or ownership or any rights with respect to it."

[9] Section 338 ("authorised disclosures") provides:

"(1) For the purposes of this Part a disclosure is authorised if -

(a) it is a disclosure to a constable, a customs officer or a nominated officer by the alleged offender that property is criminal property,

(b) ...

(c) the first or second condition set out below is satisfied.

(2) ...

(3) The second condition is that -

(a) the disclosure is made after the alleged offender does the prohibited act,

(b) there is a good reason for his failure to make the disclosure before he did the act, and

(c) the disclosure is made on his own initiative and as soon as it is practicable for him to make it."

[10] Section 340 ("interpretation") provides:

"(1) This section applies for the purposes of this Part.

...

(3) Property is criminal property if -

(a) it constitutes a person's benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly), and

(b) the alleged offender knows or suspects that it constitutes or represents such a benefit.

...".

The background
[11] The appellant's family over many years have built up substantial business interests in Glasgow. Towards the end of 2001 it was decided to de-merge from those interests the wholesale cash and carry business at Maxwell Road, Pollockshields. This was to be operated by United, a private company of which the appellant was appointed managing director. He was then about 21 years of age. His father, Mohammed Sarwar MP, was a co-director, although he played no part in the day-to-day operations of the business. Mohammed Sarwar, his wife and two of his other sons held the majority of the shares of United, the appellant being a minority shareholder.

[12] The turnover of United was substantial. At the material time it was about £67 million per annum. The company had about 80-85 employees and about 3,000 customers.

[13] The premises at Maxwell Road comprised a warehouse on the ground floor, with certain offices on an upper floor. Goods were collected by customers from bays in the ground floor area. Sometimes goods were pre-ordered for collection. There were six tills situated near the customer entrance/exit at which sales (by cash or on credit) were transacted. Adjacent to these tills were two rooms, one functioning as a credit control (or bank control) room, the second functioning as the cigarette room in which cigarettes in bulk were sold, there being two further tills in that room at which the sale of cigarettes was processed. Beyond this second room was a cigarette store. In the same vicinity was a cash room. In the first of these rooms Farooq Raza, the credit controller, worked. The chief cashier Mohammed Younas, worked in the cash room. On the upper floor were a general office, occupied by members of the accounts department, and two smaller offices, one of which was occupied by the appellant. Those working in the accounts department included Mr Melvyn Gaya, CA, the financial controller, Mrs Rabeena Hameed, the office manager, and Mrs Brenda Anderson, an accounts assistant. Among the other staff of United were a general manager (who did not give evidence) and the co-accused, the assistant general manager. At the relevant time the co-accused was about 39 years of age.

The customer

[14] The circumstances in which the monies from the nine companies were said to have been paid into United's bank account were spoken to in evidence in the course of the Crown case. On a date not later than 17 December 2002 a telephone call was made to United's premises. According to Mr Raza the call was taken by the co-accused who passed the telephone to Mr Raza and told him to take details of a new customer ("the customer"). Details were obtained and recorded on a customer registration form of the kind kept by United for that purpose. The details were inserted in handwriting on the form. The writer was not identified in evidence, Mr Raza testifying that, as he was busy at the time, he had asked someone else to write down the details. The details recorded were:

"BUSINESS NAME ASIF AHMED

CUSTOMER NAME MR ASIF AHMED

BUSINESS ADDRESS 241 MORNY SIDE RD. EDIGHBRGH EH10 (sic)

BUSINESS TELEPHONE 07729721803".

Although there was a place on the form for the customer's signature, the form was not signed. Mr Younas subsequently explained that a signature was not necessary when a customer, who was to be a cash customer, registered by telephone. Several weeks later (on 6 January 2003) these details were entered on to United's computer system and a customer number (7467) allocated. It was noted that the customer was a cash customer entitled to a 2% discount. Mr Raza explained that he had processed the registration on 6 January along with a number of other new customers. On the computer entry the customer's address was altered to "241 Morning Side Road, Edignburgh" (sic).

[15] Mrs Hameed, whose duties included monitoring United's bank account statements (from National Westminster Bank) and its daily cash summary sheets, testified that at some point the co-accused had approached her and enquired if it was acceptable for a customer to put money in advance into United's bank account. She had told him that this was acceptable. A similar arrangement existed between United and its suppliers. She gave to the co-accused details of United's bank account so that such payments could be made. Some time later the co-accused advised her that the customer had put, or was about to put, a specific sum into United's bank account and asked her to check that it had been received. Mrs Hameed, having checked the bank statements, found a payment in by CHAPS in the amount in question. Although she could not recall in evidence what the amount was, it appears that this must have been the payment of £26,807.87 credited to the account on 17 December 2002, the payer being Federal Import Export Limited. The same figure was recorded in the cash control sheet as being applied to the purchase of goods to that value on 21 December. Further payments in of £29,150.19 and £19,367.47 were made on 19 and 20 December respectively, these being balanced (subject to a variance of a few pence) on the cash control sheet with purchases made on 23 December. Payments in continued to be made until 17 April 2003 by which time they totalled, as earlier mentioned, £1,205,828.77. Initially these payments were recorded on the cash control sheets as being balanced by purchases made within a few days. Later, more sums were paid in than were withdrawn by the value of goods recorded as purchased, such that as at 25 April 2003 there was a credit in the customer's favour of £280,439.59. The last payment in was made on 17 April.

Business with the customer

[16] The evidence disclosed that individuals purporting to be acting on behalf of the customer purchased goods from United, commonly cigarettes in bulk. United was able to sell cigarettes to this customer at nominal cost price as it received a discount from its suppliers for volume. In many cases goods to a particular value were ordered in advance and made up for collection by the customer's representatives. According to the evidence, the explanation given by the customer for making payments by CHAPS in advance was that he did not want his representatives to be carrying large amounts in cash. As payment had been made in advance, it was necessary, if the total transactions were to balance (as they evidently did), that some arrangement be put in place to record that goods to a stated value had been purchased against the pre-payments. The system devised was that, in respect of each purchase, an "IOU" was created for the relative amount (with a reference to Asif Ahmed) and placed in the till. At the end of each working day the contents of the till (cash, the IOUs and other modes of payment, such as cheques) were reconciled against the goods recorded as purchased. There was no evidence to suggest that on any day during the relative period there was any significant discrepancy. In respect of each day a Daily Cash Summary Sheet ("DCSS") was made up (the following day) on a printed form by the downstairs staff - ordinarily Mr Younas or, if he was off, Mr Raza. On the first page of the DCSS there was entered the total sums received on the day at each till, with these totals being broken down. Goods purchased against the IOUs were treated as cash purchases. On the second page a reconciliation was set out. On it the amount represented by IOUs (not necessarily in respect of purchases that day) from this customer were entered as "Payment by DD" and deducted from the cash total. The DCSS was sent to the accounts department. The IOUs were then destroyed. It was, of course, necessary that an account be kept of the amounts received ostensibly from the customer and the amounts supplied against the purchase of goods. This was done in the accounts department. Initially (in December 2002) this was done on a notepad but from early January 2003 Mrs Anderson, on the instructions of Mr Gaya, kept a spread sheet in which she entered (under "In Bank") the amounts received by CHAPS and (under "Cash Control Sheet") the amounts applied against goods. Although some confusion was originally caused when the name of the paying company changed (see below), it was possible, without difficulty, to identify the payments received from this customer: he was the only one from whom advance payments were made by CHAPS into United's bank account. There was no question of the accounts department not appreciating what, at least in broad terms, the staff on the ground floor were doing in accounting terms when dealing with this customer. Mrs Hameed, according to her evidence, was in virtually daily communication with the co-accused in relation to the state of this customer's account. Illustrative of this is the DCSS from 6 March 2003 (which was placed before us), as read with the entry from the same date in Mrs Anderson's spread sheet. On the former the sum of £33,752.34 is entered by way of deduction under the entry "payment received by DD"; on the spread sheet the same figure is entered under the "credit control sheet" column.

[17] Initially the amounts received and the value of the goods sold were kept in close balance: at the end of December there was a 66p balance in favour of United and about the middle of January a 1p balance in favour of the customer. Thereafter the customer's credit balance began to build up: by the end of January it stood at £44,651.50, reducing at the end of February to £23,583.51; by the end of March it stood at £195,600.14 and by 17 April at £280,439.59.

[18] According to Mr Younas (and also to the co-accused when he came to give evidence on his own behalf) a tally cash sheet was kept in Mr Younas's office recording on a running basis the amount paid in by the customer (supplied by Mrs Hameed, as she confirmed in evidence) against the value of goods supplied (derived from the IOUs). This was said to have been based on a similar system used for credit customers. The object was to ensure that goods were not supplied to a value beyond the amount pre-paid by the customer. The amount to be deducted as "payments received by DD" in respect of any day was identified by the co-accused after consideration of the current state of the tally. Sometimes the deduction was of a precise figure, at other times of round sums. With the exception of the 66p balance in December, the customer was always in credit. Sometime after business with the customer ceased and the balance due to him had been repaid, Mr Younas, according to his evidence, threw away the tally cash sheet. The prosecutor suggested to him towards the end of his examination that he was making up his account of the existence and use of the tally sheet. The witness denied this. There was no contrary evidence.

[19] As earlier narrated, the first payment by CHAPS transfer was made to United by a company styled Federal Import Export Limited. United's bank statement, unsurprisingly, gave no explanation as to why this payment (which was of £26,907.87) was being made. When this was noticed, it was drawn to Mr Gaya's attention, probably by Mrs Hameed. He asked the appellant to tell him what this payment was. The appellant replied that he would check it out with the co-accused and come back to him (Mr Gaya). Mr Gaya had also noted that there was a deduction on the DCSS. The appellant returned and told him that the money was from a customer in Edinburgh having an interest in shops in Stirling and Fife who wanted to do business but did not want to send his staff through carrying large amounts of cash. He instructed Mr Gaya that, as long as the customer paid money in advance, he could get goods to that value and should be treated as a cash customer. The co-accused was going to look after the account. The customer's name was not mentioned. The next two payments were also made by Federal Import Export Limited. On 10 January a payment was made into United's account by the same method but by a differently styled company (Lark Trading Limited). This was also noticed in the accounts department. Mr Gaya asked about it. According to his evidence he asked both the appellant and the co-accused "but it was [the co-accused] that gave me the answer this time". It is not clear from this passage of evidence whether the appellant was present when the co-accused gave his answer. The answer was that the payments, albeit from different payers, related to this one customer. They were then so treated.

The arrival of Customs
[20] On Wednesday 23 April 2003 two customs and excise officers (Mr Kerrigan and Ms Loftus) called unexpectedly at United's premises. Customs were interested in one of the companies (Bayfleet Limited) which had been making payments to United. Bayfleet was suspected of "hijacking" VAT numbers. The officers met the appellant and spoke to him about Bayfleet payments to United, of which they had a list. They also gave him a summary of what constituted an MTIC fraud. The appellant denied knowledge of the nature and extent of these payments and gave to the officers the impression that he was unaware of Bayfleet. According to Mr Kerrigan "generally what I recollect [the appellant] said was that he can only recall [advance payment] ever happening once, and that was for a sum of about £8,000". The appellant told the officers that he would need to get his accountant to look into it and that he would get his accountant to call Mr Kerrigan later that day. Ms Loftus kept a day book in which she recorded: "Visit to United Wholesale, Athif Sarwar asked to verify payments made into the account of Bayfleet, detailed the dates and amounts of the payments to him. Agreed to discuss with accountant and arrange an appointment". She also further testified, apparently reading from her notebook: "Sarwar stated that a lot of customers paid money into their account and then retrieve that amount in stock, but could not confirm at this stage if these payments had been made for this purpose." Before leaving the officers advised the appellant that, in the event of the suspected MTIC fraudsters being in touch, he (the appellant) should not alert them to Customs' interest in the transactions. There is no suggestion in the evidence that on that or on the following day they advised the appellant against terminating United's business relationship with the customer.

[21] Mr Gaya, according to Mr Kerrigan, telephoned him later that day providing certain information about Bayfleet payments. Mr Kerrigan and Ms Loftus returned the next day (Thursday 24 April) when Mr Gaya, who had in the meantime investigated the matter, told them about the arrangements which the co-accused had made with the customer, who was named as Mr Ahmed. The customer's details as recorded in United's database were provided to the officers. The operation of the customer's account through the "payments received by DD" system was explained, a DCSS form being produced. Mrs Hameed was not at work that day. It was arranged that the officers would return the following Monday when it was expected that she would be available for interview. The appellant was told that Customs now believed that United was the unwitting recipient of a money laundering exercise.

[22] The following day (Friday 25 April) was, on any view, a day of some drama. Its events are best seen through the eyes of Mr Gaya, whose truthfulness and accuracy the Crown did not impugn. On his arrival for work that morning Mr Gaya was told to come to a meeting in the appellant's office. Present there, as well as the appellant, was an individual who identified himself as one of Mr Ahmed's staff. The appellant, in Mr Gaya's presence, questioned this individual and told him that United was not going to supply him with any more cigarettes because of manufacturing restrictions. A document to that effect, in Mr Gaya's handwriting, was handed to the individual, who became agitated and said he wanted Mr Ahmed's money back. He spoke by telephone to his "boss" from whom he received details of the bank account to which he wanted "Mr Ahmed's money", that is, the balance of pre-paid but unexpended monies, to be transferred. The bank named was the Bank of Ireland, the account being in the name "C4less". Mr Gaya obtained from Mrs Hameed, who in the event was at work that day, the balance figure. She identified it from the information on the spread sheet as £280,439.59. The appellant agreed to transfer this sum by CHAPS to "C4less". Mr Gaya instructed Mrs Hameed to prepare the necessary documentation which was signed by the appellant and faxed to United's bank.

[23] The individual then left. The premises were monitored by CCTV cameras. The appellant instructed the CCTV company to come to the premises and extract footage showing the individual. The resultant extract was subsequently handed over by the appellant to the customs officers. It was not, in the event, possible to identify the individual from that footage - he was wearing a hood and hat. The appellant asked the co-accused to follow the individual out of the premises and to note the make and registration number of the car in which he drove off. The co-accused left to do so, subsequently noting that the car was a silver BMW or Mercedes with the number plate K527 ACS (or G). No such car could be traced.

[24] At some point while the individual was still on the premises Mr Gaya telephoned Mr Kerrigan's office. His purpose was to let Mr Kerrigan know that someone from Mr Ahmed was on the premises and that the balance was being repaid. This call was made on Mr Gaya's initiative, though the appellant agreed that he should do so. Mr Kerrigan was not available. A message was left that he should call Mr Gaya. There were further attempts later that morning to contact Mr Kerrigan, who eventually responded. In the result Mr Kerrigan and Ms Loftus came to the premises that afternoon, when they were given an account of the morning's events. The CCTV footage was handed over, as was the information (such as it was) about the individual's car. Mr Kerrigan was informed of the balance which had been repaid. Although the appellant pointed out that it might yet be possible to stop the CHAPS transfer, it appears that Mr Kerrigan did not take up that suggestion. The following Monday United voluntarily made over to the officers its relevant bank statements and the spread sheet, with the particular payers identified on it.

[25] It was a central element in the Advocate depute's position before us that, although not invited to do so by the trial Advocate depute, the jury was entitled to conclude that the visit of the individual to the premises and what occurred there was a "sham" orchestrated by the appellant, its purpose being to provide a pretext for United to return the balance to a person or persons whom the appellant knew to be fraudsters. This, it was submitted, pointed to knowledge by the appellant that each and all of the payments made to United by the various companies throughout the period of the libel were the proceeds of criminal property and thus fixed him with the requisite mens rea for the crimes charged. We shall require to return to this submission in due course. At this point, however, it may be noted that Mr Gaya, who was present virtually throughout the relevant events, did not think it was a sham. Further, Mrs Hameed, whose credibility and accuracy were not impugned by the Crown, testified that after the balance had been identified and the CHAPS transfer form prepared and signed, the appellant followed her out of his office, where in her presence he was quite angry that the amount of the balance was so high. If the Crown are right, this was a further piece of dramatic acting by the appellant.

[26] Further investigations by Customs revealed that there was no person with the name "Asif Ahmed" trading from 241 Morningside Road, Edinburgh or from any other closely related address. C4less was a legitimate currency exchange business through which a substantially larger sum had been laundered as part of the MTIC fraud. Neither it nor any of its officers was prosecuted, although we were informed that a warning letter had been issued to it.

The procedural history
[27] At the end of the Crown case counsel for the appellant submitted that the appellant had no case to answer. The first argument in that submission was directed at both charges and questioned the competency of proceeding under the 2002 Act rather than legislation in force when the transactions commenced. It is now recognised that this branch of the submission was not sound. Counsel also submitted to the trial judge that there was insufficient evidence on charge 1 as respects both the actus reus and the appellant's state of knowledge. The Crown in response submitted (1) that there was sufficient evidence that the appellant knew or suspected that the money going into United's account was the benefit of crime and (2) that there was sufficient evidence that he had "processed" such money. The trial Advocate depute identified a number of adminicles of evidence, including the appellant's position in United, his knowledge of payments being made by a customer in advance of purchase of goods and the appellant's responses, both to the customs officers in April and at a subsequent interview under caution in August 2003 (to which we shall return). No reliance was placed on any alleged "sham" on Friday 25 April.

[28] The trial judge repelled the submission. In explaining his decision at that time he identified four features, namely, the appellant's position in the company, the size of the amounts being paid into its account, the "unusual circumstances" of these payments and the view that these payments "do not appear on some of the evidence to have been properly recorded in accordance with appropriate accounting practice in the books of the company". He does not appear to have addressed the actus reus of the crime.

[29] The trial proceeded. The appellant gave evidence in his own defence, as did the co-accused. It was not suggested at any point in the cross-examination of the appellant that the events of Friday 25 April 2003 were a sham which he had orchestrated.

[30] The appellant, having been convicted, sought leave to appeal against his conviction. In due course the trial judge prepared a report on the case. This is a detailed and wide-ranging document. In it he gives close consideration to the evidence and identifies other adminicles (including the possible "sham") on the basis of which the jury would, in his view, have been entitled to hold that the appellant had the requisite mens rea. The Crown before us relied, at least to some extent, on that additional material. The trial judge explains that in determining the no case to answer submission, as well as in his subsequent charge to the jury, he had proceeded on the basis that the Crown had to prove that the appellant knew that the payments were the proceeds of an MTIC fraud; suspicion was, in this case, not enough. It is not clear that the Crown, either in its response to the no case to answer submission or in its address to the jury, so restricted its case; but that is no longer of importance since the Advocate depute before us proceeded on the basis that proof of knowledge was in the present case essential. This was perhaps inevitable given his reliance, to a very substantial extent, on his proposition that the jury was entitled to conclude that the episode of 25 April was a sham.

The Crown submission on charge (1)
[31] The Advocate depute acknowledged that the case against the appellant on charge (1) was circumstantial. The nature of an MTIC fraud was that the fraudsters required to have confidence that they would be able to extract, in cash or in goods, from the target company the money that they had put into it for laundering purposes. Although charge (1) had referred to converting and transferring cash as well as goods, it was not now suggested by the Crown that, apart from the transfer on 25 April referred to in charge (2), there had been conversion or transfer other than in the form of goods. The appellant was the managing director of United with authority to authorise financial transactions, as he had done on 25 April. The payments into United's bank account had been made (during the libelled period) by six companies with no demonstrable connection between any of them and the customer, named as Ahmed. Although at the trial the Crown had questioned whether there was such a customer, it could not now gainsay the proposition that someone so describing himself had made contact with United and supplied information which led to his registration as a customer. Central to the Crown's position (now) was that the visit of the individual on 25 April was a sham orchestrated by the appellant, and designed to mislead both Mr Gaya and the customs officers, the objective being to provide an apparently legitimate basis for repaying in excess of £280,000 to the fraudsters. The proximity in time of this repayment to the visits by the customs officers was significant. There was evidence (from the appellant's interview in August 2003 and from Mr Gaya's evidence) that steps had been taken on 24 April to frame a letter terminating United's relationship with the customer. It was acknowledged that an innocent trader might wish to be rid of monies he had reason to believe were the proceeds of fraud, but the action of the appellant had to be viewed against the whole circumstances. There were discrepancies, especially on timing, between the appellant's account of the visit at interview and Mr Gaya's evidence. The evidence pointed to a piece of "ham acting" rather than to an "out of the blue visit by the individual" - though it was acknowledged that it had not been suggested to the appellant at the trial that this was all a sham. The CCTV extract suggested that the individual was seeking to conceal his identity. The fact that the appellant had seen fit to make a transfer of more than £280,000 on the say-so of somebody he had apparently never before seen to a customer whom he had never met was itself suspicious. The appellant had not even asked to speak to the customer on the telephone when the individual had contacted him to obtain the payee bank details. The evidence pointed to the appellant being aware that the relationship with the customer involved more than one transaction. His awareness of this was to be contrasted with his explanation to the customs officers on 23 April that he was aware of only one customer paying cash in advance and that of about £8,000. It was accepted that a false denial did not establish the truth of the converse (Bovill v HM Advocate 2003 SCCR 182, at paras [23] - [24]); but a false denial could as an adminicle of evidence go to the state of the appellant's knowledge. It was accepted that neither version of what the appellant had reportedly said on 23 April (from Mr Kerrigan and Ms Loftus respectively) had been put to the appellant when interviewed by customs officers later in 2003. The amount of business placed by the customer with United was notable - on one calculation 6-7% of United's turnover during the two month period of the libel. It was not suggested that the monthly management accounts (to which the appellant had access) were in terms which would have alerted him to any unusual dealings. Nor was it suggested that he would in the course of his activities as managing director have had access to other financial records. It was, however, incredible that the appellant was unaware of this customer whom he had described as a "customer from heaven". United was very much "the appellant's business". The Crown did not now seek to rely on the "commission" suggestion (that being a suggestion, discussed by the trial judge in his report, that since two figures in the spread sheet reconciliation constituted the same percentage of other figures, the former represented payment to United of a commission). It was now accepted that an actual person (whether or not Asif Ahmed was his real name) had registered under that name as a customer of United and had purchased goods from the company. "Convert", which was not defined in the statute, had to be given its ordinary meaning (Lowrie v HM Advocate 2010 JC 25, at para [25]). Here the actus reus under charge (1) was constituted by the appellant allowing United, over which he had control, to accept monies from the launderer and exchange goods for them.

Discussion of charge (1)
[32] Property is criminal property if, but only if, the alleged offender knows or suspects that it constitutes or represents a person's benefit from criminal conduct (2002 Act, section 340(3)). In the present case, regard being had to the position adopted by the Crown before us, that means that, if the Crown was to secure a conviction of the appellant on charge (1) it was incumbent on it to prove beyond reasonable doubt that, whenever the appellant did any act which might amount to an actus reus, he knew that the monies being paid into United in exchange for goods were, or represented, the benefit of criminal conduct.

[33] The case against the appellant was, as the Advocate depute acknowledged, wholly circumstantial. No witness spoke to him having such knowledge. Nor did any documents point to that state of mind. As already narrated, at the close of the Crown case counsel for the appellant made a submission that by reason of insufficiency of evidence he had no case to answer on charge (1). The question for the trial judge at that stage was whether "the several circumstances taken together [were] capable of supporting the inference beyond reasonable doubt that" the appellant, with the requisite knowledge, converted the monies being paid into United by the customer during the period of the libel. The passage quoted is taken from Little v HM Advocate 1983 JC 16 at page 20, cited with a approval in Megrahi v HM Advocate 2002 JC 99 at para [33]. We leave aside for the present (but shall return to) the question of conversion by the appellant and address first the question of his knowledge.

[34] There was no evidence that the appellant knew, or had had any personal dealings with, Asif Ahmed (or any person so describing himself) or any other person involved in the MTIC fraud at any point prior to the monies representing the criminal property being first paid into United's bank account. There was accordingly no basis on which it was, or could be, claimed that the laundering of the proceeds of crime through United was a pre-arranged exercise in which the appellant was complicit. All depended on knowledge acquired by him after dealings with Ahmed began but, at least if the libel was to be proved to its full extent, by 24 February 2003. Reliance was placed by the Advocate depute at trial and also before us on the status of the appellant as managing director of United. That he had overall management of United's financial affairs is demonstrated by the fact that on 25 April he was able, without consulting any other director, to instruct the CHAPS transfer for more than £280,000 from United's bank account to the Bank of Ireland account. There was also evidence from Mr Gaya that the appellant exercised authority over him to allow credit to certain customers to whom Mr Gaya would have refused such a facility. But the existence of that managerial authority goes no distance to establishing what actual knowledge the appellant had, prior to 23 April, of the nature of the monies being paid into United to fund Ahmed's purchases. In an interview with customs officers in August 2003 the appellant, referring to his position as managing director, said "I'm the A-Z you know 'cos it's a family business ... no one sits back and says I'm ... the general manager and I'm not gonna do this". Mr Raza at one point in his evidence said that the appellant "controlled everything", which he later explained as meaning that he had overall charge at the Maxwell Road premises. But, unsurprisingly in an enterprise the size of United, its managing director did not have personal knowledge of the day-to-day dealings of the company with individual customers. United had a substantial staff, including several personnel in its accounts department (headed by a chartered accountant of many years' experience), who had responsibility for managing its finances. There was undisputed evidence in the course of the Crown case that the appellant saw only the monthly management accounts, which on their face did not identify anything about the Ahmed transactions as such. There was no basis on which it could be said that, prior to 23 April, the appellant saw, or had reason to see, any IOUs, tally sheets or spread sheet detailing United's transactions with Ahmed. Even if he had, it is doubtful whether this would have alerted him to the monies being, or representing, the proceeds of crime - other than, possibly if he had seen the spread sheet towards the latter stages of the transactions, by which time the monies had accumulated a substantial credit in the customer's favour; when this state of affairs came to the appellant's knowledge on 25 April he was, according to Mrs Hameed, angry. There was no evidence that he was shown the spread sheet at any relevant stage. There was, it is true, evidence that he knew something about the customer. When the first pre-payment was recorded in United's bank account Mr Gaya enquired of the appellant what this payment was. The appellant, according to the evidence, then made enquiry of the co-accused, and apparently on the basis of the information provided by the latter, was able to advise Mr Gaya that the customer was someone who had an interest in shops in Stirling and Fife and wished to make pre-payments electronically in order, while having the advantages of being a cash customer, to avoid his staff carrying large sums of cash on their persons. The appellant may also - the evidence on this point is ambiguous - have early in 2003 acquired knowledge that the customer was making pre-payments through more than one company. There was, however, no evidence that the appellant knew, until at least 23 April, anything about the amounts of the monies being paid into United's account or had reason to know (or even suspect) that these monies were anything other than legitimate payments for goods made in the ordinary course of trade. There is nothing unusual about a customer, in particular one having a range of business interests, making payment for goods through more than one source. It should be noted at this point that pre-payment by a customer for goods was not an unprecedented arrangement for United. As was brought out in the course of cross-examination of Mrs Anderson, several customers had previously made such pre-payment arrangements. None of these had done so by CHAPS payment, but the use of an electronic banking facility was no reason to suppose that the sums were of illegitimate provenance. The response made by the appellant to the customs officers on 23 April about instances of prepayment (in whichever version) cannot reasonably be construed as designed to deceive. That this customer was viewed by the appellant as "a customer from heaven" - in that he paid in advance for goods supplied - did not, of itself or, in our view, with any other circumstances, point to knowledge that these pre-payments were the proceeds of crime. It was at no stage suggested to Mr Gaya by the prosecutor that Mr Gaya had, or ought to have had, the requisite suspicion or knowledge, even though Mr Gaya's familiarity with the relative dealings was plainly much more extensive than that of the appellant.

[35] At the forefront of the Advocate depute's submission was the contention that the jury was entitled to conclude that the visit of "Mr Ahmed's representative" was a sham or charade orchestrated by the appellant and that this pointed to the appellant having the requisite knowledge. It was not suggested that Mr Gaya was party to any sham or charade. His honesty was not put in issue. Accordingly there was no basis for doubting that an individual purporting to represent Mr Ahmed arrived at the premises on the morning of 25 April, was seen in the appellant's office and told then (probably in confirmation of what he had been told downstairs) that United was no longer going to do business with Mr Ahmed; that that individual then demanded the return to his principal of the amount of his credit in United's books; that that demand was acceded to; and that, in due course, details of the transferee account having been obtained, a transfer of that credit was authorised and made by CHAPS.

[36] It was not clear from the Advocate depute's submission to us whether the co-accused was to be regarded as party to the charade. However that may be, both the appellant and "Mr Ahmed's representative" must, on the Crown's hypothesis, have been actors (in the dramatic or theatrical sense). The objective, it is to be presumed, was to release the balance of funds from United to the fraudsters before it could be seized by Customs; and to do so in a manner which might appear to justify that course of action. It is somehow to be posited that such release would be in the interests of the appellant. But the appellant could have no such interest unless he was privy to the whole laundering exercise. The argument thus becomes circular: the appellant had the requisite knowledge of the whole laundering exercise because he orchestrated the charade, but the inference that he orchestrated the charade depends on the proposition that he had full knowledge of the whole laundering exercise. In the absence of some otherwise firm basis for the proposition that the appellant had that full knowledge, the characterisation of the 25 April episode as a charade orchestrated by him has no reasonable foundation and could not reasonably be used as a basis for imputing to the appellant knowledge that the monies paid into United from 24 February 2003 (or earlier) were the proceeds of crime. The central pillar upon which the Advocate depute before us sought to base the Crown case thus collapses. It may be recalled in passing that it was not at the trial suggested to the appellant that the episode of 25 April was a charade orchestrated by him. The evidence tends to point in the opposite direction. Once it is accepted, as it was before us, that there was in fact a customer (whether truly named Asif Ahmed or not) who traded with United and who made payments in advance for goods actually purchased, there is nothing untoward in a representative of that customer having attended at the premises on Friday 25 April for the purpose of making further purchases. Nor, customs officers having advised the appellant a day or two earlier that they had reason to believe that payments made on behalf of the customer were the proceeds of crime, is there anything untoward about a decision having been made by the appellant to cease doing business with that customer; indeed a draft of a letter to that effect had apparently been prepared on Thursday 24 April. Once that decision was made and intimated, it was natural that the customer should demand repayment of any credit in United's books. That is what happened. Without risking disclosure to the customer or his representative of Customs' interest in the transactions (which the appellant had been expressly advised to avoid) the demand may have been difficult to resist. Mr Gaya, who effectively witnessed the whole episode, did not regard it as a sham. Mrs Hameed's evidence of the appellant's angry reaction to his receiving the information as to the amount of that credit tends to support the genuineness of the appellant's position. In all the circumstances we are satisfied that no fact-finder acting reasonably could have concluded that the episode of 25 April was a sham or charade orchestrated by the appellant.

[37] In these circumstances an essential basis for the Crown's contention before us is undermined. We should, however, say something about certain other aspects of the case upon which reliance was placed. The first was the status of the appellant as managing director of United. This we have already discussed (para [34]). For the reasons there given, that status, on the evidence, did not in fact give the appellant any access to the day-to-day financial transactions with the customer or otherwise give him knowledge that the monies paid into United's bank account were the proceeds of crime.

[38] Once it is accepted that on the evidence the appellant had no access to the details of the transactions with the customer, any inference sought to be drawn from the manner in which such transactions were processed becomes irrelevant to his knowledge. There may, no doubt, have been some unusual aspects to the accounting procedures, but they were all explained in evidence as extensions of existing legitimate practices and were intelligible. Any singularity in these procedures does not touch on the appellant's knowledge. As noted earlier, the Crown no longer relies on the "commission" suggestion - an accounting exercise which again was intelligibly explained in the evidence.

[39] In the whole circumstances we are quite satisfied, accepting as we do Mr Jones' submission to that effect, that there was no basis in the evidence on which a jury, properly directed, could find beyond reasonable doubt that the appellant knew that the monies paid by CHAPS into United's account during the period of the libel were the proceeds of criminal conduct. The submission of no case to answer in respect of charge (1) ought to have been upheld. In these circumstances the appeal against conviction on charge (1) must be allowed.

The actus reus
[40] It should be noted, however, that there is a remaining difficulty for the Crown in supporting the conviction on that charge. It narrates that the appellant "did convert to ... goods said monies amounting in cumulo to £564,689.14 and thereafter transfer said ... goods to a person ...". It is, however, plain that the transactions effected (of exchange of goods for the monies and transfer of the goods) were transactions carried out not by the appellant personally but by United. It is difficult to see that there was, on the part of the appellant, any actus reus which could be the basis of a charge under section 327(1); a charge under section 328 ("arrangements") might have been more apt. It is not, however, necessary to come to any definite conclusion on this issue.

Charge (2)
[41] The appellant was also convicted on charge (2). This relates to the transfer in cash from United's bank account to the account with the Bank of Ireland in the name of C4less of the balance of the monies then held in the customer's account (£280,439.59) following the arrival by Ahmed's representative on Friday 25 April. By that stage the appellant knew or suspected that the monies paid to United from the several corporate sources were the proceeds of an MTIC fraud and that accordingly any balance held by United was the proceeds of crime. That balance was accordingly, in a question with the appellant, at that stage criminal property. However section 327(2) provides that a person does not commit an offence under section 327(1) if certain conditions are satisfied. It was accepted by the Advocate depute before us that this was not a statutory defence, in respect of which any onus lay on the accused, but a qualification to the offence, such that it was for the Crown to negative it.

[42] At the trial an issue had been raised, in his address to the jury, by counsel for the appellant about this qualification. Before he charged the jury the trial judge, in the jury's absence, heard legal submissions from the parties on this issue. At that stage counsel relied on section 327(2)(b). Before us, however, although section 327(2)(b) was still relied on, the primary emphasis was on section 327(2)(a), as read with section 338(3). Before discussing this issue, however, a preliminary matter requires to be addressed.

[43] In his note of appeal the appellant advances two grounds of appeal (grounds 5 and 6) which, taken together, can be considered to be directed against conviction on both charges (1) and (2). No further ground of appeal (in so far as insisted in) is apt to cover a challenge to conviction on charge (2). The burden of grounds of appeal 5 and 6 is that no reasonable jury could have convicted the appellant unless the co-accused was also convicted. The matter sought to be argued before us by way of challenge to the conviction on charge (2) was quite different. It is summarised below. However, in the course of these proceedings the parties were directed to lodge Notes of Argument. They eventually did so some months prior to the hearing of the appeal. In his Note the appellant canvassed the line of argument summarised below. In its responding Note the Crown addressed that line of argument. Although it was an unfortunate omission by the appellant not to seek at an earlier stage leave to amend his grounds of appeal, the Crown did not suggest that it had suffered any prejudice; nor would it have been necessary to seek a further report from the trial judge in order to address the issue. In these circumstances we shall, under section 110(4) of the Criminal Procedure (Scotland) Act 1995, grant leave to the appellant to found on this additional matter.

[44] The burden of this challenge to the appellant's conviction on charge (2) is that, on the evidence, the jury would have been entitled to find that the appellant made an authorised disclosure under section 338 in that he made (on the afternoon of Friday 25 April) a disclosure to customs officers that the balance of the funds lately held by United to the credit of the customer was criminal property (section 338(1)(a)), that that disclosure was made after he did the prohibited act (transfer of those funds) (section 338(3)(a)), that there was a good reason for his failure to make the disclosure before he did the act (the circumstances of the visit of Asif Ahmed's representative and the unsuccessful steps taken to advise Customs as to what was happening) (section 338(3)(b)) and that the disclosure was made on the appellant's own initiative and as soon as it was practicable for the appellant to make it (when the customs officers came to United's premises that afternoon) (section 338(3)(c)). However, the jury having been (wrongly) directed that there was sufficient evidence of knowledge on the part of the appellant to convict him of charge (1), and having held as a fact that there was such knowledge, would inevitably have approached charge (2) on the false premise that the appellant had from the outset of the libel on charge (1) been privy to the laundering of the proceeds of crime and thus have been materially prejudiced in their assessment of his actings and motives in relation to charge (2). An analogy was sought to be drawn with the effect of the disclosure in the course of a trial of a prior conviction (Platt v HM Advocate 2000 AC 469, at page 472; Donnell v HM Advocate 2009 SCCR 918).

[45] We are satisfied that there is substance in this contention. While the analogy with the disclosure of a prior conviction may not be wholly apt, the jury's approach to charge (2) must inevitably have been coloured by their approach to charge (1). Although the Advocate depute before us suggested that the jury might have deliberated first on charge (2), even if they did (which seems unlikely) they would inevitably have had in mind what they had been told about the sufficiency of the evidence on charge (1) and the impression which they had formed in relation to that charge. It may also be noted that in his speech to the jury the prosecutor at the trial made no attempt to distinguish between charges (1) and (2), treating them as aspects of the same continuum. One of the matters which the jury required to consider under charge (2) was whether there was a good reason for the appellant's failure to make the disclosure before he executed the CHAPS transfer to C4less. If the jury came to their deliberations on charge (2) on the basis that the appellant was privy to the money laundering exercise covered by charge (1), it was almost inevitable that they would reject any suggestion that he had a good, bona fide reason for executing the transfer to C4less at the time that he did. In these circumstances we are persuaded that the appellant suffered a miscarriage of justice also in respect of charge (2), the conviction on which must also be quashed.

Disposal

[46] Accordingly the verdict of the trial court will be set aside and the conviction on each of the charges quashed.

Coda

[47] Before parting with this case we would say this. The legislation in relation to proceeds of crime is complex and the mounting of prosecutions under it is no doubt difficult. Central, however, to any successful prosecution of the present type is proof beyond reasonable doubt that the property in question is criminal property, that is, that the accused knew or suspected that it constituted or represented a benefit from criminal conduct. Before such a prosecution is mounted it should be clear that there is a proper evidential basis upon which such personal knowledge or suspicion can be brought home against the prospective accused. While we are not privy to the whole material available to the prosecutors in this case, our impression of the evidence led, the submissions of the trial Advocate depute and his address to the jury is that no proper analysis was conducted by the prosecution of the elements of the offences which had to be proved, with the consequence that the leading of the Crown evidence, those submissions and that address all failed to focus on the critical issue of the appellant's personal knowledge or suspicion with regard to the monies paid to United on behalf of Asif Ahmed.