Frank Maher reports on the implications for solicitors following recent developments in anti-money laundering compliance
Last month's raids by the Asset Recovery Agency in Manchester show that the need for anti-money laundering compliance remains. Much has changed since most firms implemented the procedures and training required by the Money Laundering Regulations 2003.
Perhaps the biggest upheaval in the compliance landscape since then was the publication of the Law Society of England and Wales' further guidance on the Court of Appeal's decision in Bowman v Fels in September 2005. This deals with privilege, alternative dispute resolution (ADR) and transactional matters.
The guidance and the judgment in Bowman v Fels are essential reading for all money laundering reporting officers (MLROs).
The welcome news is that pursuing litigation is not generally an arrangement under section 328 of the Proceeds of Crime Act 2002 (POCA 2002) unless it is a sham, but that is not quite the end of the matter for litigators.
The Law Society advises that settlement by ADR is likely to be excluded from an arrangement, in the same way as litigation is following Bowman.
However, the reasoning of the Court of Appeal was that litigation involved a state-controlled process and the supervision of a judge, neither of which applies to ADR. The Law Society of Scotland's advice differs in some respects on this issue. Pending further clarification, solicitors may consider seeking a court order concluding any settlement.
Legal professional privilege is now the key issue, broadly, taking precedence over the duty to report, unless the client or a third party is perpetrating a crime.
The risks of the principal money laundering offences in sections 327 - 329 POCA remain, at least short of obtaining judgment, so solicitors will still want consent from the National Criminal Intelligence Service (NCIS) to proceed if they have suspicion or knowledge.
But they cannot seek this unless the client consents - which may be problematic. If the solicitor acts for two clients, perhaps an insurer and insured, there will be a conflict in continuing to act for both and the tipping off risk has to be managed carefully.
Analysis of NCIS figures indicates that last year, consent was requested by lawyers in respect of between 12,750 and 19,125 cases.
It is likely that in many of these cases the solicitors obtained consent from NCIS without telling the client; post- Bowman, solicitors must either do this or cease acting.
A further problem is that while solicitors pursuing litigation on behalf of clients will not generally be party to arrangements within section 328 of POCA, any money recovered on behalf of a client may still constitute the ‘proceeds of crime', meaning the successful party cannot spend it without consent from NCIS.
While changes to the Serious Organised Crime and Police Act 2005 seem of benefit, particularly allowing staff to consult with the MLRO on issues such as privilege, there may be some limitations which make this less helpful than originally appreciated.
The Law Society believes that a solicitor should not make a report unless there is prima facie evidence that he is being used in the furtherance of a crime.
This means solicitors will not be able to seek NCIS consent to proceed without obtaining client consent first. Privilege raises interesting issues, including the differences between common law privilege and the protection in section 330 (6) of POCA 2002. A first-class knowledge of the law of privilege is now a prerequisite for any MLRO. IT
' Frank Maher is a partner at Legal Risk