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.
As soon as the proceeds of crime become an issue, solicitors have to think carefully about what they can tell their clients.
The problem is that we have all been trained from day one to identify the issues facing our clients (even the ones they are blissfully unaware of) and then advise what they need to do. To achieve this we need to ask questions, get candid answers and advise fully.
'Tipping off' and its close cousin outside the regulated sector, 'prejudicing an investigation', are an unwelcome potential obstacle. The scenarios here set out the issues facing Bloggs and Co as they navigate these hazards in the real world.
Client 1: Making enquiries to satisfy concerns
A client wants advice on a corporate transaction. It involves a restaurant business and has both corporate and property aspects.
Mr Bloggs makes enquiries of his client, Mr A, about the proposed transaction and the business, and is not entirely comfortable.
He makes further enquiries of the client, partly to assess whether he is suspicious about possible proceeds of crime, but also to see exactly what advice the client needs. This is entirely unobjectionable. A solicitor can, and should, make enquiries of their client and no issue of tipping off arises.
Mr A is cooperative and provides full answers without delay or objection. It emerges that the business may not have fully met its obligations to HM Revenue & Customs (HMRC).
Legal advice on potential money laundering offences
Mr Bloggs gives the client advice on the tax issues, and steps are taken to remedy the default with HMRC. He also points out that the client risks committing a money laundering offence unless he gets permission to proceed with the sale since it will involve the proceeds of crime, however small a part of the overall value they may be.
Of course, simultaneous with this, being in the regulated sector, Mr Bloggs has his own AML obligations and needs permission from the Serious Organised Crime Agency (SOCA) (now known as the National Crime Agency (NCA)) before he can act on the transaction.
Mr Bloggs is able to discuss his report to the NCA with Mr A since s333D (2) of the Proceeds of Crime Act 2002 (POCA) permits disclosure to a client for the purpose of dissuading that client from criminal conduct and that is exactly what he is doing.
Mr Bloggs should make a careful note of his consideration of AML issues and the reasons for his decisions.
Client 2: A report by the other side
Mr Bloggs is approached by Ms B, who runs a beauty franchise and who seeks his advice on a very similar transaction to that of Mr A.
Again, there are a few issues that need a careful look but, having made enquiries of the client, Mr Bloggs is satisfied that there are no proceeds of crime issues.
However, the transaction is dogged by odd delays on the other side. Mr Bloggs detects that the solicitor on the other side is a little stressed and, thinking about the transaction, concludes the likely reason for the delay is that his counterpart has made a disclosure and is awaiting consent to proceed. Mr Bloggs is still comfortable with the transaction and doesn't believe that he should make a report. Being a prudent person he records his consideration of the issues and his decision. Ms B becomes agitated and demands to know why there is a delay. Mr Bloggs thinks he knows the reason but can he tell Ms B?
Dissuading or explaining delay
Mr Bloggs is in the regulated sector, there has (he suspects) been a report and he cannot be absolutely sure that telling the client won't prejudice an investigation relating to it. Section 333A (1) of POCA applies - he must not tip off the client. The exceptions to this are not helpful here. The s333D (2) 'dissuading' reason won't apply. There is no issue of dissuading the client, just telling him what is causing delay. Ultimately there are only so many ways of saying nothing, even for an experienced solicitor. If the delay extends beyond Ms B's patience, Mr Bloggs is left to find a nice way to say 'I cannot help you, I cannot tell you why I cannot help you, you must seek advice elsewhere on this issue'. He may suggest another suitable firm, perhaps Litigation and Co, but he should not explain why. Ms B then walks down the road to Litigation and Co and the question of what to say passes to Ms Litigation, who swiftly works out that the likelihood is that the delay is NCA prescribed.
Giving legal advice
Ms Litigation is not in the regulated sector, she is being consulted on why this transaction has been halted and how to make it start again. Ms B would like to sue someone for messing up her transaction and by this stage she isn't too worried who.
Ms Litigation is not concerned with s333 of POCA, as she isn't in the regulated sector, but rather with s342. Although s342 makes it an offence to prejudice an investigation there is a defence where a disclosure is made in the course of giving legal advice or in relation to legal proceedings or contemplated legal proceedings. Ms Litigation can advise Ms B what has probably stopped her transaction. She will also, even following the latest decision in Shah v HSBC, have to tell her that there is pretty much nothing Ms B can do about it, other than wait patiently.
No possibility of prejudicing an investigation
One possible alternative in this scenario is if Mr Bloggs believes explaining the situation to Ms B could not possibly prejudice an investigation. If this were the case, there is no s333 offence, since it requires a knowledge or suspicion that disclosure would be likely to prejudice any investigation relating to that SAR. Reaching that conclusion requires Mr Bloggs to be either supremely confident of his client or just plain brave. Either way, if he feels this is the appropriate analysis, then he would be well advised to record the reasons for his decision to explain the position to the client.
Client 3: The money laundering client
A new client Mr C, the owner of a small grocery store, then seeks the advice of Mr Bloggs.
Mr Bloggs takes instructions and is seriously concerned. The funds flowing through the business are ridiculously high and inconsistent with the remarkably reasonable price at which Mr C proposes to sell the business to an offshore trust domiciled on an island Mr Bloggs has never heard of. Mr Bloggs is concerned and asks questions about the proposed transaction and the grocery business. Again, this is entirely sensible and not itself a tipping off issue (provided he doesn't preface his queries with 'I'm thinking of making a suspicious transaction report to the NCA').
Making a report to the NCA
The responses Mr Bloggs elicits do not ease his concerns and he is satisfied that he must make a report to the NCA. He does so, also seeking permission to proceed with the sale of the business and giving sufficient details so that the NCA can see precisely what is proposed.
While Mr Bloggs awaits a response from NCA, Mr C becomes agitated and demands to know why there is a delay. Mr Bloggs cannot tell him, he is in the regulated sector (a corporate transaction), there has been a report and telling the client might well prejudice an investigation relating to it; s333A (1) of POCA applies. So, what does Mr Bloggs do? He cannot advise Mr C on the problem because the only permissible disclosure to a client in these circumstances is under s333D (2) (the dissuading exception again). Explaining a delay is not dissuading a client and there is no wider purpose permitted; Mr Bloggs must not tip off Mr C. Mr Bloggs is straight back where he was with Ms B and Ms Litigation has another client. She still doesn't have very cheering advice for him but that's a different problem.
Managing the situation
All of the above are familiar scenarios to solicitors in practice. The key to managing the situation is to keep a firm grip on what sector you are in and what obligations you have to keep. Whatever decisions you make and the reasons for them, it is essential that you record both the decision and the reasons. That way, even if you get a judgement call wrong you can at least substantiate your motives.