This article was published in the September edition of the Law Society's Legal Compliance Bulletin.
The obligations on solicitors to act as an unpaid arm of crime prevention are a familiar and everyday part of professional practice.
If you become suspicious that the proceeds of crime form part of a transaction where you are acting then you will go through the routine, identify if privilege applies and, if not, make a Suspicious Activity Report (SAR) to the Serious Organised Crime Agency (SOCA).
SOCA will do their bit and in due course, usually very promptly, you will be told if you can go ahead with the transaction.
You will then assess whether you need to increase the monitoring of that transaction or that client, adjust it accordingly and there your obligations end.
You are protected from prosecution even if your suspicion that the transaction you acted on was intended to launder the proceeds of crime was correct.
That, however, is not the end of the story. Consent from SOCA to proceed with a transaction only protects you from committing a money laundering offence. It does not affect your civil liability, if you have acted in a way that would make you legally accountable to the victim of the crime.
Consider the following: your client (Mr A) wants you to incorporate a company (Oil Co) to run a new business oil trading, for example. Mr A has a lot of experience in the field and there is nothing to cause you alarm.
You identify and verify his identity and get the job done. Over the next few years you from time to time do work for the company. You have, entirely correctly, identified and verified the identity of the beneficial owners, who include Mr A but also include several others, including two that hold their interest through nominees.
You advise on a number of transactions and contracts and it transpires that they are all with the former employer of Mr A (Big Co).
This is, you reflect, not necessarily objectionable, the best referrals often come from former colleagues and a wise entrepreneur never burns bridges. You ask Mr A about it and he says that Big Co decided to off-load part of its business and he saw the opportunity to take it on.
Then you notice that Oil Co's contracts with Big Co are signed with a name that is vaguely familiar. It takes time but eventually your overworked brain recalls one of the original beneficial owners of Oil Co had a similar name; in fact, one of the owners who used a nominee.
This is, you think, a little odd but you are busy, it was a passing thought and it is soon forgotten.
Oil Co does very well, the business is a great success and you are instructed to sort out some issues around directors' loans and some adjustment of the equity interests.
In the course of this your firm holds funds and ultimately disburses them to the various shareholders. However, you by this stage are a little concerned about Oil Co and the link between the beneficial owners and its only client and you make a disclosure to SOCA.
You are not sure what is happening, perhaps it is a tax fraud, perhaps it is corruption, perhaps it is nothing but you play it safe and ask SOCA for consent. The consent is given and the pay-outs go ahead.
A few months later, the balloon goes up. Big Co's lawyers want to know who owns Oil Co and bluntly tell you that their client is investigating corruption and fraud involving Mr A and their own officers. They say that Oil Co is no more than a vehicle to secretly siphon off business from Big Co.
You have a problem. Especially since Big Co's lawyers very definitely have 20/20 hindsight.
You knew who actually owned Oil Co, you knew their connection to Big Co and you knew that Oil Co's business came from Big Co. In fact you have actually accepted money from Oil Co onto your client account and paid it out to the conspirators. At least, this is the way Big Co's lawyers see it.
OK, you didn't put two and two together but you were worried enough to get permission from SOCA to pay out, so there is a documented record that you were suspicious.
No doubt following making a SAR you also adopted a higher level of diligence on Oil Co's file and that may well have resulted in you noting further relevant facts for the file. The documentary trail will be disclosable if it comes to litigation.
Mind, you aren't any better off if you didn't feel it was appropriate to make a SAR when you made the payments out. There was enough on your files that you should have been suspicious and at least made further enquires.
The absence of any record or SAR is evidence of your collusion with Oil Co's owners in keeping things under wraps.
You are now right in the firing line, especially since Mr A and his friends, in the fine tradition of George Best, have spent 2/3 of the money on booze and women and wasted the rest. Big Co cannot get their money back from them because they have spent it.
You, on the other hand, have PI cover.
It isn't even that Big Co's lawyers have to show that you actually knew what was going on. Liability for dishonest assistance can be based on no more than a suspicion that the people you were dealing with were acting in breach of trust (Barlow Clowes International Ltd (In Liquidation) v Eurotrust International Ltd [2006] 1 W.L.R. 1476).
In practice hindsight is the killer. The Particulars of Claim will line up everything you knew over a period of years and tie it all together with the SAR and your enhanced diligence (or the lack of them). It will not be pretty even if you can successfully defend it.
What's the bottom line? Even if you get consent from SOCA for a transaction you should still have a cold hard think about whether to continue acting. SOCA's consent does not protect you from anything apart from liability under the Proceeds Of Crime Act (POCA) 2002.
Before proceeding, you should also consider your professional obligations (not least Rule 1.0.1 of the Solicitors' Code of Conduct) and the risk of getting sued by Big Co.
The positive side of this is that at least the AML legislation makes you think about the issues; if thinking keeps you out of court then that is no bad thing.
Nicola Boulton is one of the founding partners of Byrne & Partners and specialises in fraud and financial services and commodities litigation. She is a member of the Law Society's Money Laundering Taskforce.