AML Legal Professional Privilege: Supporting Decision Making

The recent extensive update of the UK anti-money laundering (AML) guidance for the legal sector sets out the supervisory expectations to those under AML supervision and aims to provide further practical information to aid legal firms' compliance.

In the second of our series of blogs on the revisions, Jane Jarman, solicitor, Professor of Law at Nottingham Trent University and contributor to the new guidance, sets out why and how she re-worked the Legal Professional Privilege (LPP) section to be a practical, decision-making framework for lawyers.

Background

Fundamentally, the AML framework in the UK is based on the experience of the banking industry. This is perhaps no more apparent than in respect of the Suspicious Activity Reporting obligations imposed by the Proceeds of Crime Act 2002.  By the very nature of the work undertaken in the legal sector, the position regarding such AML disclosure obligations, is often more subtle, and more complex.

The reporting obligations often seem to clash with the way in which the professional obligations of the lawyer operate, not only in relation to confidentiality but, also, legal professional privilege (LPP). Financial service providers generally do not have to grapple with LPP and, in many instances, is often undertaken on an industrial, "mass" scale, often using automated or electronic solutions. Whilst the legal profession has been criticised for perceived under reporting, the AML reporting infrastructure is (as it appears to me in my academic role) configured to the bank as gatekeeper, not the lawyer, and does not necessarily account for the significant impact of the application of LPP.

The first principles of LPP may be easy to state, but the exceptions, such as the fraud/crime exception, can be fiendishly difficult to apply in practice. In addition, in order to get to the fraud/crime exemption (which is central to LPP in the context of AML reporting), it is necessary to jump the suspicion hurdle, which is also notoriously difficult to construe.

On a practical basis, this leaves the lawyer to make a decision on a difficult legal question, often under significant time pressure, which could have not just professional, but personal, ramifications.

The new LPP section: Aims and objectives

The new legal sector AML guidance on LPP builds on the original material, but tries to focus on the "real-life" decision-making process and any potential defence on the part of the lawyer, should their decision be questioned at some future date.

I have tried to move beyond a summary of the law and, rather, to focus on a kind of practical, decision-making kit to assist the lawyer to work through the application of LPP, step by step.

In this way, the guidance attempts to address, head on, the potential vulnerability of the lawyer and one of the main factors in the chilling effect of AML reporting for the legal profession; the professional concern regarding both over reporting and underreporting.

This change in approach from legal summary to decision making framework can be seen at work in the following adjustments.

Grouping together resources in one document

Whilst the guidance can provide an initial refresher and primer on LPP, it is not possible to deal with every nuance. It should, however, provide an initial overview and then signpost additional resources. In addition to the notes, complete citations and links have been provided to recognised leading texts, such as Thanki and Passmore, as well as to commentary by the Financial Action Task Force on the particular implications of AML and LPP/professional secrecy requirements for reporting for legal professionals worldwide.

Focus on first principles and judicial commentary

Most of the cases on LPP are well known, such as the Three Rivers judgments and Balabel. The problem with case law is that, by its nature, we are left with the pathology of the action rather than a treatment for the ailment. The essential guidance, embedded in the case law, is critical, so there is a need to place it within easy reach of the practitioner who may need access to an overview at speed.

Extensive judicial commentary has been included in the guidance to enable the decision-making process to be grounded in the detail of the relevant authorities. The fraud/crime exception to LPP is of critical significance and the guidance has been supplemented by some modern judicial commentary in this area, such as Barrofen, in order to supplement principles established in Cox and O’Rourke.

Revisit the retainer

What are you being asked to do? The point of origin for any analysis of LPP is review of the precise nature of the retainer and the scope of work agreed to be undertaken with the client. If the definition of LPP depends on "legal spectacles" as defined by Lord Rodger in Three Rivers 6, then it is important to know, precisely, the nature of the question those spectacles are to review.

Review of the retainer is critical to configure the nature of LPP based event or exchange. It is important to review the context, not just an individual document or conversation. It is a critical factor, but can be missed in the heat of the moment.

Use a decision-making template to frame discussions

The guidance includes a template, which consists of a series of questions, together with a space for answers and, also, some supporting evidence. I doubt that anyone will use the template in situ, but I hope this approach will provide a road map not just for individual lawyers but, specifically, the MLRO who may have to make the final call in some cases. A lawyer may well be under significant time pressure when they review the guidance note and may well just use the template at the end to order their thoughts.

Factor in the marginal case category

For the most part, LPP is a matter of fundamental first principles and general application. Exceptional cases can disfigure those principles and add in unnecessary complexity. However, the inclusion of a marginal category in the template performs a dual function, in acknowledging that difficult questions can remain and that, on occasion, specialist advice may be required.

To act "In good faith"

There remain some functional problems in both POCA and MLR 2017. For instance, the recent Law Commission Report highlighted the need to define "reasonable excuse" for a failure to report. It is arguable that a mistake to construe LPP correctly could constitute such an excuse. There are, of course, other examples relating to disclosure, presumably also in the context of LPP, such as s338(4A), that if a disclosure is made in good faith, civil liability will not arise.

This need to demonstrate good faith in both in the act of disclosure, or in the decision not to disclose, engages the lawyer’s own involvement in the process, and their approach to the decision, throughout. The guidance note seeks to provide practical support for the decision-making process by providing access to resources, a signpost for further assistance, and a method to both frame and capture helpful evidence, of the decision in action.