Carly Fallon looks at the best way to proceed in this tricky DAML situation.
Picture the scene. You’re troubled by a strange transaction and have made a suspicious activity report to the National Crime Agency (NCA). You’d like to keep acting, so have made a DAML in line with official guidance. You’ve provided as much information as possible and answered the NCA’s further questions during the seven-day decision window. You then wait patiently.
Sounds simple enough.
But your client is getting irritated by the delay, and frustratingly you have to limit what you tell them to avoid the tipping off offence.
You hope that the NCA will issue a DAML, so that you can continue to act for your client, safe in the knowledge that you have made the appropriate disclosures and have a statutory defence.
But what happens if the DAML is refused?
Although it’s not common, the NCA has been known to come to no DAML decision. Which means the solicitor receives a letter saying the NCA will neither grant nor deny the application.
This is supposed to be reserved for situations where the reporting party has provided insufficient information.
The problem is, of course, that lawyers are often acting on limited information. Yet are still all too aware that they are potentially in the firing line if they unwittingly facilitate a money laundering offence.
For example, what if your suspicions relate to the other side of a transaction? You will not have full visibility of the parties and may not be in a position to conduct much in the way of due diligence on them.
Something is off
During the course of a matter, you spot something that raises all sorts of red flags.
Being a diligent lawyer, you make the appropriate disclosure to the NCA.
At the same time, you make a DAML because you know that if you are worrying about nothing, your client would still like to get this deal done.
But when the NCA comes back to you, their questions about the precise nature of the transaction are impossible for you to answer. You give them everything you know.
You then get the news that the NCA is going to sit on the fence. It’s up to you to decide whether to continue to act.
If you do, you you have no defence in place.
What should you do?
There are three possible options. You could:
- Proceed with the case, without making further enquiries. You would need to document and justify the reasons why your suspicion had gone away and you are willing to continue. This is the riskiest of the options, since you have no new information available. The NCA’s lack of decision should give you no comfort whatsoever – they have just decided not to make a decision. To proceed without any further information would, in our opinion, be reckless.
- Withdraw legal services. The nuclear option. Solicitors are not obliged to explain to clients why they choose to pull-out, although the regulator would expect you to not leave them high-and-dry. The fallout from this option is likely to cause some issues – they may well complain or allege that you have not acted in their best interests. You may lose a perfectly good client for no good reason. Comfort yourself with the fact that if the client goes to another firm with the same deal, the next firm is likely to come to the same conclusion about the money laundering risk. You could possibly withdraw on the basis that there is a conflict of interest. The conflict being that to continue in the client’s best interests would be impossible because you would always be looking to protect yourself, which could be at odds with the client’s commercial objectives.
- Do more due diligence. The most obvious way to do this is to do more digging. If your concerns are about the counterparty, you could approach their solicitor and seek comfort that they have properly done their due diligence. (You may even be doing them a favour, if they have let this one slip past them). You should be very careful not to tell them that a report has been made to the NCA, so that you are not at risk of tipping off. Conducting further due diligence will not be tipping-off. If your further digging results in additional information and you are comfortable with the transaction, you may choose to continue to act. You may even go back to the NCA with more information.
But whatever you do, make sure that you accurately record a detailed audit trail of your decision-making. If it isn’t recorded, it didn’t happen.
This is obviously not legal advice. Every situation will be fact specific, but hopefully this scenario will get you thinking.