Solicitors need to be careful not to breach legal professional privilege (LPP) when making disclosures under money laundering rules.
Legal Professional Privilege and financial crime reporting
The Proceeds of Crime Act and Terrorism Act place obligations on solicitors to report suspicions of financial crime or terrorism financing to the National Crime Agency (NCA). This core AML responsibility is drummed into lawyers.
However, parliament expressly intended lawyers to balance their reporting duties with their responsibility to preserve legal privilege. Yet most money laundering guidance and training skips over this fact, inferring that the reporting duty is almost absolute.
If a lawyer fails to make a report, they will not have committed an offence if the information came to them in ‘privileged circumstances’, as defined (see Section 330 of the Proceeds of Crime Act 2002 and section 19 of the Terrorism Act 2000).
Likewise, there is an in-built defence to the charge of ‘prejudicing an investigation’ where the relevant information is privileged.
It is not therefore correct to say that lawyers must automatically report knowledge or suspicions to the NCA. The position is actually far more nuanced.
Making a disclosure requires the lawyer to come to a view on whether the relevant information is privileged for the purposes of the Acts.
However, before relying on the privilege defence we suggest that a solicitor should always:
- engage with, and take advice from, the Money Laundering Reporting Officer (MLRO)
- take independent legal advice where the position is unclear or the stakes are high
- keep contemporaneous records about the decision to report or not (kept separately from the main file to avoid the risk of inadvertent tipping off)
Firms should consider whether their AML policy gives sufficient guidance on the privilege point.
MLROs should be prepared to make a judgement on whether a proposed suspicious activity report contains privileged information, even if not flagged to them.
The panel discussion also covered the basics of LPP in practice, and served as a forum for the audience to ask their questions about privilege.
Some other interesting points noted is the session:
- LPP will not apply where:
- a client has sought a solicitor’s help to further a crime or fraud (the ‘iniquity’ exception), or
- Parliament expressly abrogates LPP (for example, the Investigatory Powers Act 2016 provides that a warrant may be granted authorising or requiring the interception of items subject to legal privilege; the Regulation of Investigatory Powers Act 2000 which allows for covert surveillance where information obtained by surveillance is likely to be privileged)
- The SRA is the only regulator to enjoy the entitlement to obtain legally privileged material (under a statutory production notice, or SPN).
- The Legal Ombudsman does not have an automatic right to override LPP (this might be relevant where LeO is investigating a third party complaint against a firm).
- Where a client enjoys joint privilege with another party, they cannot waive LPP unilaterally. It may only be waived jointly.
- LPP survives the death of the client. Once established, LPP will remain in existence unless and until it has been waived by the client. It is a core principle that privilege ‘belongs’ to the client, and not to their legal adviser or agent. The death of the client does not extinguish the right to LPP – it will be passed on to the client’s successor in title.
- Although LPP belongs to the client and can be unilaterally lost by them, the client’s lawyer is taken as having ostensible authority to waive privilege. Solicitors should take care to assert and protect any privilege where necessary.