We don’t tend to talk about Legal Professional Privilege (LPP) and Suspicious Activity Reports (SARs). The SRA guidance note on Proceeds of Crime has a very short section on LPP and SARs, with the overriding comment that it is “extremely complex” but little practical advice, other than “if you are in any doubt… you should seek independent legal advice”.
In reality, however, this isn’t really practical advice: it is simply not realistic to suggest that independent legal advice is the go-to approach, not least in terms of time and budgets.
The main resource on LPP and SARs is chapter 13 of the LSAG. This is detailed, with many references to case law. It also provides a granular framework which can be used in assessing whether or not privilege applies and therefore whether or not a SAR can be made. What it lacks, however, are specific examples or application to real-life scenarios. To the busy MLRO, such theoretical, academic discussion is again not helpful.
So what do you do if you want to try to balance your duty to make SARs with your competing duty not to breach LPP – something which has been described as a “fundamental human right”?
A very brief overview of the law
Let’s go back to the beginning, with confidentiality. We all know that maintaining the confidentiality of a client’s affairs is sacrosanct, unless the client consents to disclosure or such disclosure is required or permitted by law.
Well, we are required to disclose suspicious activity to the National Crime Agency so making a SAR does not, in general, breach client confidentiality.
LPP is different, however. There is no requirement or permission available to breach it, unless the client waives it. However, there are situations where LPP simply doesn’t arise – and that’s when you don’t need to worry about it. If you’re thinking about making a SAR, that’s the X marking the spot you need to look out for.
There are two types of LPP: legal advice privilege, which attaches to communications between a lawyer and a client where the dominant purpose is the client seeking legal advice, and litigation privilege, where the sole or dominant purpose is for litigation, either one in train or one that is reasonably envisaged.
But LPP doesn’t attach in the following situations:
- Where whatever the client has told you doesn’t fall within one of the two purposes – e.g. it is not for the dominant purpose of seeking legal advice or in respect of litigation. Now, this can apply to lots of situations but, in particular, will apply where what the client has told you just doesn’t relate to the advice they are seeking. For example:
- It might be an incidental comment about some criminality unconnected to the matter (“I’ve just come from a massive drug deal… oh, by the way, how’s my employment claim going?”).
- It might be something they communicate which gives rise to a suspicion, but actually is not something they are seeking advice on. This would be the case particularly in transactional work – for example, if the client is simply providing source of funds information as requested during what would appear to be a standard conveyancing transaction. If they are not seeking advice on the source of funds specifically, there would be no privilege.
- Where the “crime/fraud exception” applies. Now, the wording is slightly misleading. It’s not so much an exception to LPP, rather it stops LPP arising in the first place. LPP is therefore not engaged where any communication occurs in order to obtain advice with the intention of carrying out an offence.
So if you think your client is dodgy, can you use the crime/fraud exception and get home free?
Not quite. Case law reminds us that the intention to carry out an offence must actually be there… so really you need to be more satisfied to the client’s criminal intention than just having a suspicion.
This is (yet another) instance where the issue of privilege seems to conflict with all of the other principles we are used to in discussion around SARs and PoCA, particularly the fact that you only need a “reasonable suspicion” of money laundering to be prompted to make a disclosure under PoCA.
A practical guide
Now, the LSAG framework takes you through a very detailed process for determining what the relevant communication is or are, in what context they arise, what are the terms of the retainer, whether they match what has happened… to land up on the final question as to whether or not crime/fraud applies. If so, make your SAR.
For a practical approach, however, try this more simple, two stage process.
Stage 1: Is this a situation where LPP could apply e.g. is what the client told me (potentially) connected to their aim to receive legal advice or in respect of litigation? If the communication was purely incidental, then it doesn’t, and you can SAR to your heart’s content. Don’t spend too much time on this: take a broad view. If you’re just not sure, move onto Stage 2.
For Stage 2, I am going to do the thing that no compliance professional ever advises, and tell you to begin at the end. Begin with the question as to whether or not crime-fraud applies.
Take a deep breath: this is not something that needs to tie you up in knots. In many cases, the intention would seem clear. Often, the client has been clear enough that they have committed something criminal and that they intend to carry on so doing. They are not asking for your help to sort it out, they either want to develop it or maintain the status quo.
Let’s look at an example:
You are representing Mr H in a divorce case. Mrs H’s solicitors have made a request for financial disclosure. Mr H, expressing frustration about the situation, tells you “she knows full well we’ve both been fiddling the company books for years. It’ll all come out if she persists. Who’s going to look after the kids when we’re both banged up for fraud and tax evasion?”
The first question: has Mr H told you this in a situation where LPP might apply? Arguably yes – these details of the marital finances are intrinsically connected to legal advice being sought, and indeed litigation. It doesn’t seem incidental to the overall reason he’s engaged you: he wants you to help him with this financial settlement issue.
But can you be satisfied that Mr H is communicating this to you with the intention to commit a criminal offence? Again, yes. He isn’t telling you this with a view to wanting your advice about how to regularise matters; he’s telling you this because he wants to commit criminality – to launder his ill-gotten gains, to evade (or continue evading) tax and so on. Therefore, crime/fraud applies and LPP (even if it could have attached under Stage 1) doesn’t kick in. Make your SAR.
Now, this is where you have to try to squash your inner voice. How can you ever be sure? I get it. Sometimes I’m not sure of my own name. Perhaps the client was only joking, or perhaps there is actually some completely legitimate reason that you just can’t think of.
But this is a case of holding your breath and jumping. And, frankly, doing the thing we’re all meant to do, which is speaking up when we think something bad (here, financial crime) is going on.
Marginal cases
There will, no doubt, be cases where you are balanced rather uncomfortably on a fence – is there LPP, is there crime/fraud?
But it’s time for a sanity check: these cases will be few and far between. You will not need to go and get a KC’s advice every time someone comes to you with a suspicion. If you are stuck, work through the more detailed framework in the LSAG and think who else you can speak to. Do you have people who know more about privilege in your firm (litigators, I’m looking at you)? Do you have an external consultant who can help? Have you asked SRA Ethics or the Law Society Practice Advice Service for their steers?
As ever with these tricky risk questions, documenting your considerations is key. While I’m not suggesting that we throw LPP out of the window, do we really think that the SRA or indeed the Courts would seek to pursue an MLRO who made a SAR in good faith, thinking that the grounds giving rise to it were well-founded and had considered whether or not LPP applied – even if they had ultimately made the wrong call?
Considering the message has been for years that the legal profession does not submit enough SARs, any move to (further) put off MLROs in so doing would be to entirely shoot the SRA’s AML programme in the foot.
Steps to take now
Time to review your internal form or guide for your MLRO assessment of suspicious activity reports. If you don’t have a section on considering whether LPP applies, add one now – both the stage 1 question of whether it potentially could apply, and the stage 2 question of whether crime/fraud is in play. Make it clear that you are signing off that this has been considered together with everything else, and that you have borne LPP in mind when determining whether to make your SAR.
And if you don’t have such an internal form, get one now.
