Firms face court action risk over money laundering reports
Law firms could find themselves being sued for reporting suspected money laundering following a Court of Appeal decision last week.
Law firms, banks and other businesses handling client money are obliged to file Suspicious Activity Reports (SARs) to the Serious and Organised Crime Agency (SOCA) where they suspect a client of money laundering.
Last week the Court of Appeal ruled that client Jayesh Shah had the right to test in court HSBC Private Bank’s claim that, complying with obligations under the Prevention of Crime Act (POCA) 2002, it had grounds to submit a SAR alerting SOCA to its suspicions of money laundering.
Shah has claimed that delays arising from the bank’s report to SOCA led directly to $300m (£192m) being seized from his Zimbabwe bank account by the Zimbabwe authorities.
HSBC, which has the same obligations under POCA as law firms, will now be required to prove in court that its suspicions were held in good faith, while Shah’s lawyers will be allowed to examine witnesses and to sue for damages.
Delivering the judgment, Lord Justice Longmore said: ‘The normal procedures of court are not to be sidestepped merely because parliament has enacted stringent measures to inhibit the notorious evil of money laundering.’
Sarosh Zaiwalla, senior partner of London firm Zaiwalla & Co, who acted for Shah, said that before this ‘landmark judgment’, banks and law firms ‘could act on a hunch about a client’s transactions without disclosing the necessary information’. A client could now insist on a ‘full trial with proper disclosure’ to test whether the report of suspected money laundering
had a ‘factual basis’ and was made in ‘good faith’.
Sue Mawdsley, a partner at Liverpool law firm Legal Risk, said solicitors should be ‘uneasy’ about the Court of Appeal’s ruling.
‘How do you definitively prove reasonable grounds for your suspicions when they may be based not on solid proof, but on years of experience? And then there is the issue of privilege, of what can and cannot be divulged in proving grounds or defending a claim.’
Omar Qureshi, a partner in the dispute resolution group at City firm CMS Cameron McKenna, said: ‘It is no longer sufficient to assert you have a suspicion, you must demonstrate it. Law firms are advised to look at their anti-money laundering processes and training to avoid the potential for loss.’
Comments
A Complete Mess
What a complete mess. I am so relieved that I am not in private practice anymore.
The criminal mens rea required for conviction on a money laundering charge is that you should have been suspicious.
The civil men rea is now that you were genuinely suspicious.
What happens if you were not suspicious but should have been? If you lodge a report you could be sued by your client because you were not genuinely suspicious and if you don’t lodge a report then you could be convicted because you should have been suspicious.
This just shows that this area of the law is a total travesty of common sense
It would be laughable if these distinctions could not lead to you being bankrupted on the one hand or jailed on the other.
Franz Kafka could have written a wonderful book about this.
The risk of dealing with client money is now very great and yet solicitors are paid almost nothing for doing this. They might get to keep a little interest or charge a few hundred pounds for conveyancing services and for this they risk bankruptcy or jail, if they get it wrong, in a situation which has almost become Catch 22.
Time to pack up and do something else.
A Complete Mess - so vote Liberal
Don't vote for the main two parties then, change the UK
Election Fever
Phew, the election is even being fought in the Law Society Gazette. There are no corners to hide anymore.
The money laundering laws were foisted on us by the EU whose greatest supporters in the UK are the Liberal Democrats.
Nuff said!
not that bad
When you look at it it's not as bad as it may at first appear.
In reply to the above:
'The criminal mens rea required for conviction on a money laundering charge is that you should have been suspicious.' It's knows or suspects based on the facts available at the time, or has reasonable grounds.
As for the civil men rea – on this judgment it is that the bank must have a suspicion, which can be irrational or negligently induced and, from the judgment, “the statute does not require the suspicion to be 'clear' or 'firmly grounded and targeted on specific facts' or based on 'reasonable grounds'". So it’s hardly all that damning.