David Corker is a solicitor at Corker Binning, David Winch is a chartered accountant and director of Accounting Evidence Ltd and MLRO Support Ltd. Both are speakers at the Anti-Money Laundering Seminars being offered by Walkgrove Ltd.
Few solicitors will by now be unaware of the new law created by Part 7 of the Proceeds of Crime Act 2002 which is concerned with money laundering. This legislation, implemented in February 2003, together with the Money Laundering Regulations 2003 effective from March 2004, have attracted a high degree of concern and uncertainty within the profession. Key issues are their impact upon the solicitor-client relationship and the extent to which privilege may abrogate or modify any reporting obligation imposed by the Act.
‘Money laundering’ offences need not involve either money (since they can apply to any asset including intangible assets and even cost savings) or laundering (since a criminal’s possession of the proceeds of his own crime now constitute a money laundering offence). Further, the substantive offences relate to the proceeds of all crimes, not simply serious crimes or certain types of offences, and the substantive money laundering offences can bite on any person, they are not limited to persons engaged in particular regulated business activities.
This article seeks to offer some further guidance and clarification as to the Act’s legal obligations. In addition, as it is particularly germane to solicitors, it considers the relationship between such obligations and the scope of privilege.
The legislation can be conveniently divided into three discrete issues as follows;-
The substantive laundering offences (Sections 327-329)
Where there is no intention to assist a client in the laundering of criminal property, the most wide-ranging offence which could be committed by a hapless legal advisor is where he/she "becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property."
To commit this offence, an advisor need only suspect that property at issue is somehow derived from crime, but then the advisor does something which he knows or suspects assists money laundering by another. Crucially for solicitors, the giving of advice alone may be sufficient to amount to facilitation. By way of example, it is not necessary for the advice to be related to any ongoing transaction, or for money to pass through the solicitor’s client account. Furthermore, there is no de minimis threshold; if a solicitor is suspicious that a client has sought advice to help retain the proceeds of a small state benefit fraud, the solicitor’s position is the same as if the client was implicated in a major theft.
Taking the wide sweep of this offence into account it is necessary to focus attention on the concept of facilitation. This connotes some positive act amounting to assistance in the carrying out of one of the substantive laundering offences. For example, the giving of advice should be distinguished from the mere taking of instructions and/or elucidation as to a legal requirement that is very unlikely to equate to facilitation. In other words, the holding of a mere suspicion alone about a client without more, does not come within the scope of this offence.
If, however, the solicitor is suspicious that bona fide advice or services performed has been abused by the client in order to assist in a money laundering offence then he could himself commit the facilitation offence. The antidote is always to promptly report a situation to NCIS.
Similarly, Sections 327 and 329 criminalise (amongst other things) the acquisition, possession, use, conversion or transfer of criminal property. The solicitor is at risk of prosecution under these sections where he in any way handles criminal property belonging to a third party, such as his client. Again, the antidote is always to promptly report a situation to NCIS. By doing so, the solicitor is relieved of any liability in respect of the substantive laundering offences.
Confusion appears to linger as regards the application of legal privilege in this context. This can perhaps be easily dispelled. Privilege does not attach to circumstances where a solicitor suspects that he has facilitated or committed a laundering offence falling within Sections 327 – 329. So where this occurs, a report must be made concerning the circumstances giving rise to this suspicion. Issues concerning privilege are irrelevant to a solicitor at risk of committing any of the substantive laundering offences.
Similarly it is clear that these offences can be committed by a solicitor giving advice or performing services of any description. They are not restricted to categories of ‘relevant business’.
Failure to report (Section 330)
The obligation to report suspicion of laundering to NCIS has applied to financial institutions since 1994. Its ambit has since 1 March 2004 been extended to cover specified activities of the majority of solicitors so that in common with banks, solicitors, accountants and others are now under a reporting obligation whenever in the course of a business in the regulated sector information or other matter comes to them which causes them to know or suspect or have reasonable grounds to know or suspect an incident of laundering. Non-reporting has accordingly been criminalised.
A solicitor is acting "in the course of a business in the regulated sector" only when he is undertaking relevant business (see Schedule 9 paragraph 1 as amended by SI 3074 of 2003). This definition is important. A solicitor will be engaged in a business in the regulated sector interviewing a client concerning a conveyancing matter. He may instantly cease to be in such a business when interrupted by a telephone call from another client held at a Police Station, since legal advice to a client in such circumstances is not ‘relevant business’. He will then return to a business in the regulated sector when he puts the telephone down to continue his interview on the conveyancing matter.
However, in contrast to the substantive laundering offences, it is unnecessary for the solicitor to have any involvement in a matter, other than receiving information indicating its existence, before the duty to report may come into play and the possibility of prosecution for failure to do so.
The principal exception to the reporting obligation is information falling within S. 330(6)(b). If information in the possession of a "professional legal adviser" came to him in "privileged circumstances", then it need not be disclosed or reported. Indeed to disclose such information to the authorities would appear to be a breach of professional ethics.
However, the major problem concerning privilege is the limited scope afforded by the Act. Fundamentally only one type is recognised, namely legal advice but not litigation privilege. That the ambit of the former is significantly narrower than the latter was a point recently made plain by the Court of Appeal in Three Rivers D.C. v Bank of England (3/4/03). Legal advice privilege in contra-distinction to litigation privilege only applies to confidential communications between solicitor and client but specifically not to communications with the opposing party or his representatives.
Argument has raged over the extent and application of the privilege afforded by S. 330(6)(b).
Some commentators have said that the privilege in S. 330(6)(b) is in reality of no effect at all for a solicitor since it is restricted to the circumstances set out in subsection 10. It is said that where the solicitor is acting in such circumstances then he is not undertaking relevant business. Accordingly he would not fall within the scope of Section 330 in any event, rendering the privilege unnecessary.
Alternatively it has been argued that the privilege is entirely negated by subsection 11. However the similar wording of Section 333 (4), which relates to tipping off, has been held to refer to the intention of the lawyer rather than that of his client.
Yet another view is that the legal professional privilege in S. 330(6)(b) is not a statutory re-statement of common law privilege at all but is an entirely new legal animal – namely an exemption from the reporting requirement of Section 330. It is argued that the circumstances in which this new exemption applies are entirely new, as is the method by which it operates. Accordingly the meaning of the exemption should be derived from the words in Section 330 without reference to case law or common law concerning traditional legal privilege. Crucially, under this argument, the content of pre-existing documents could be exempt from disclosure by virtue of subsection 10(c).
Another argument surrounds the description of "professional legal adviser". Only a professional legal adviser is entitled to privilege, but this term was not defined in the Act. However Regulation 7(6) now indicates that "professional legal adviser" includes any person in whose hands information or other matter may come in "privileged circumstances".
So the exemption appears now to encompass the solicitor and unqualified staff in the solicitor’s office. But does it extend to a third party, such as an expert, to whom confidential instructions and supporting information may also be imparted? The position remains unclear.
This creates a very serious problem for the profession where recourse to third parties is otherwise desirable. In a tax investigation matter for example, where advice as to the client’s tax liabilities is sought from an accountant and, as part of this task, the accountant is fully appraised of the client’s instructions and examines documents and information received from the client, the accountant would then have to consider his own position and decide whether a report to NCIS was required of him.
Particular problems may beset the firm’s Money Laundering Reporting Officer.
Should an employee make a report to his MLRO, even where this was not strictly required on the grounds of privilege, the MLRO would have a duty under S. 331 to pass on the information to NCIS if he had reasonable grounds to know or suspect money laundering. There is no privilege exemption for the MLRO in S 331.
Fortunately there is one possible solution, namely the ‘reasonable excuse defence’ for not reporting. The defence is created by S. 330(6)(a). A similar relief for the MLRO is found in S. 331(6). However, this is uncharted territory.
Overlap of Section 330 and Sections 327 - 329
It seems likely that there will be some matters to which both S. 330 and S. 327 - 329 will apply where a solicitor is engaged in assisting a client which may amount to facilitating money laundering or handling criminal property and at the same time is receiving information in the course of relevant business which gives rise to a suspicion of money laundering. In such cases S. 330 will probably trigger disclosure earlier than S. 327 - 329, because the receipt of information will precede the facilitation or handling.
There will be other matters to which S. 328 will apply but S. 330 will not (such as facilitation where the solicitor's activity falls outside relevant business); and yet other matters to which S. 330 will apply but S. 328 will not (such as where the solicitor is engaged in relevant business and receives information suggestive of money laundering by his client or another in which the solicitor has no involvement).
Tipping off and prejudicing investigations (Sections 333 and 342)
The issue for solicitors thrown up by this offence is the extent to which they can inform their clients that a disclosure of suspicion, either about them or about some property in which they have an interest, has been made either internally to the firm’s MLRO or to NCIS. It is important to emphasise this point. In many instances where the provenance of property may be suspicious, there may be no suspicion about the client. The solicitor may just be expressing concern that if the innocent client comes into possession of the property at issue the solicitor, and possibly the client, may have assisted in a transfer of criminal property or in the facilitation offence.
For their part, in guidance issued thus far, NCIS concede that (except in furtherance of a criminal purpose) there is no restriction on a ‘professional legal adviser’ informing any person of their report if that disclosure is made in connection with legal proceedings (or contemplated legal proceedings). Further, disclosure to a client (or his representative) is permitted when in connection with the giving of legal advice to the client.
Subject to this, if a disclosure is made which is likely to prejudice a money laundering investigation then the solicitor may commit an offence under S. 333 or 342.
Even where disclosure is permitted by law, NCIS would prefer solicitors to voluntarily delay any disclosure of their report until the periods of seven working days and, where relevant, 31 calendar days referred to in S. 335 have elapsed. Where the solicitor feels unable to delay his disclosure NCIS request that he seek agreement with them as to the way forward and, failing agreement, applying to the Court for directions.
However, the obligations and ethical duties owed by a solicitor to a client are not to be solely determined by NCIS. The withholding of relevant information even for a short period might make the solicitor’s job impossible.
It has been suggested that it will usually be impossible for the solicitor to continue to act for a client about whom he has made a disclosure to NCIS in circumstances where he is not permitted by law to inform the client of his report.
It might also be argued that ceasing to act would itself present difficulties for the solicitor insofar as he may be unable to frankly explain the reasons for his action and the cessation itself might, on some interpretations of the law, amount to tipping off.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.