After the judgment in P v P, the Law Society's money laundering task force offers advice for family law specialist solicitors

The judgment in P v P [2003] EWHC Fam 2260, arose out of ancillary relief proceedings in which a party's legal adviser had reported the other side to the National Criminal Intelligence Service (NCIS) for apparent tax evasion.

The report had been made, and appropriate consent sought, to obtain a defence to the section 328 arrangement offence under the Proceeds of Crime Act 2002 (POCA).

The matter was brought to the court's attention because the legal advisers were unsure how to proceed, particularly in the light of the fact that the advice from NCIS appeared to conflict with the professional obligations of the legal advisers.

The Law Society's money laundering task force, in consultation with family lawyers, has, on behalf of the Society, prepared guidance for family law specialist solicitors on the effect of the judgment.

However, solicitors should be aware that this is a new and developing area of law.

Therefore, this should be regarded as interim guidance; further guidance will be published as necessary.

Arrangement offence under POCA

It is an offence under POCA section 328 to enter into an arrangement that a person knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.

An arrangement offence under POCA section 328 can be committed even if no money passes through the solicitor's client account.

It does not matter how small the financial benefit gained from the criminal conduct may be, nor when or where the criminal conduct took place, as long as it would be a criminal offence if committed in this country.

All criminal offences amount to 'criminal conduct' from which criminal property can arise, including tax evasion and social security fraud.

When solicitors act in ancillary relief proceedings (or proposed proceedings), from the moment they know or suspect that assets including the proceeds of criminal conduct ('criminal property') are involved, they risk committing the arrangement offence.

Withdrawing

If solicitors do not wish to continue to act, they may at that stage withdraw.

It is necessary and appropriate for solicitors, in giving legal advice to the client or in acting in connection with the legal proceedings, to advise their clients that, in the light of their knowledge or suspicion, if they continue to act for the client, both they and their client will commit a money-laundering offence unless an authorised disclosure is made to NCIS and the appropriate consent is received from NCIS to continue.

In so doing, however, solicitors must be careful to avoid committing the offences of tipping off or prejudicing an investigation.

In the event that the client does not consent to the solicitor making an authorised disclosure, the solicitor should withdraw.

Once solicitors have withdrawn, whether or not they should report their knowledge or suspicion to NCIS will depend on the circumstances in which they came by that knowledge or suspicion.

If a solicitor's knowledge or suspicion arises from a confidential communication received by the solicitor for the sole or dominant purpose of the proceedings, it is likely that such a communication takes place in privileged circumstances.

This of course will not be the case if the purpose of the communication is a criminal one - whether on the part of the client or another.

Solicitors in the regulated sector commit an offence under POCA section 330 if they fail to make 'the required disclosure' when in the course of business they acquire knowledge, suspicion or reasonable grounds for knowledge or suspicion that another person is engaged in money laundering, unless the information came to them in privileged circumstances.

Therefore, solicitors in the regulated sector must carefully consider upon withdrawal whether their knowledge or suspicion arises in privileged circumstances.

If it does, they commit no offence under section 330 by failing to report; if it does not, then they commit an offence under section 330.

It is crucial that solicitors should realise that legal professional privilege (as opposed to without prejudice privilege) does not attach to communications between opposing parties in litigation.

Therefore, if the solicitor's knowledge or suspicion arises from a communication from their opponent in the proceedings, it will not have come to them in privileged circumstances.

One of the effects of the Money Laundering Regulations 2003 is that from 1 March 2004, those involved in providing 'legal services...

which involve participation in a financial or real property transaction' will be in the regulated sector.

It is likely that this will include solicitors who provide ancillary relief advice.

If the solicitor is in the non-regulated sector then upon withdrawal they commit no offence of failure to report under section 330 whether or not their knowledge or suspicion arose in privileged circumstances.

The solicitor may of course make a 'protected disclosure' under POCA section 337.

This is clearly of limited application and is likely to cease to be relevant to those providing ancillary relief services after 1 March 2004.

It seems unlikely that by failing to make a disclosure in such circumstances the solicitor commits an offence of concealment under POCA section 327.

If this were so, then the protection from prosecution given to a solicitor in the regulated sector who fails to disclose knowledge or suspicion gained in privileged circumstances would be made redundant, for that solicitor could still be liable to prosecution for concealment under section 327.

Continuing to act

Solicitors wishing to continue to act, to avoid prosecution for an arrangement offence should make a report to NCIS and obtain 'appropriate consent' before any substantive steps in the case are taken.

That is to say, before further negotiations take place or the proceedings are progressed in any other way (although taking instructions, or seeking clarification from the other side as to issues, especially those that may affect whether a report needs to be made, may be acceptable).

Once the disclosure has been made to NCIS, it can give or withhold consent within seven working days.

If no response is received in this period, consent to proceed is deemed to have been given.

If NCIS refuses consent, solicitors risk committing a money-laundering offence if they take any step within the proceedings in the 31-day period following the date of refusal.

The arrangement offence, and reporting defence, apply regardless of whether the solicitor's client is the suspected party, or the other side.

From 1 March 2004, most solicitors will be in the regulated sector that will impose criminal penalties for non-disclosure.

Solicitors should be also bear in mind the specific offences that apply to nominated officers (MLROs) both in the regulated sector (section 331) and outside the regulated sector (section 332).

In the event that an MLRO receives a report as nominated officer that is based on information that has been received by a 'professional legal adviser' in his firm in privileged circumstances, it is the Law Society's view that the MLRO has a 'reasonable excuse' for not reporting that privileged information to NCIS.

Tipping off and preju-dicing an investigation

Can solicitors tell their clients that they intend to make, or have made, a report to NCIS? The answer will depend on the circumstances.

It is an offence of 'tipping off' (section 333) to make a disclosure that is likely to prejudice any investigation that might be conducted, following a report that the solicitor knows (or suspects) has been made.

It is also an offence of 'prejudicing an investigation' (section 342) if the solicitor knows that an 'appropriate officer' is acting or proposing to act in connection with a confiscation, money laundering or civil recovery investigation that is being or about to be conducted, and he makes a disclosure that is likely to prejudice that investigation.

There is a defence to both of these offences for the professional legal adviser who makes a disclosure (most probably, to his client) in privileged circumstances, that is, 'in connection with the giving by the adviser of legal advice to the client, or to any person in connection with legal proceedings or contemplated legal proceedings' (sections 333(3) and 342(4)).

The President of the Family Division held that a central element of advising and representing a client 'must be, in my view, the duty to keep one's client informed and not to withhold information from them'.

However, if the solicitor's purpose in informing his client falls outside this strict exception he may commit either or both offences; this is the position whether or not the solicitor's intention is criminal.

In circumstances when the exception does apply, there is no absolute duty on solicitors to tell their clients that they have made, or intend to make, a report to NCIS.

An important factor that solicitors should bear in mind when deciding whether to discuss reporting with a client is whether either they or their staff may be put in danger as a result, perhaps because the underlying crime is serious - for example, drugs trafficking.

Once the POCA provisions are explained to them, clients may wish to make their own report, or to make a joint report with their legal representatives.

Doing so may, by obtaining consent, also give the client protection from commission of the section 328 arrangement offence, even if the report is made by, or on behalf of, the suspected parties themselves.

If a solicitor discusses reporting with his client, but the client does not agree to an NCIS report being made, the solicitor should withdraw from the case.

The solicitor should consider carefully in accordance with the guidelines set out above, whether he should himself make a report to NCIS after withdrawing.

When to tell the client/ opponent

The president recognised in P v P that in family proceedings (and particularly in ancillary relief) there is an enhanced duty on lawyers of full and frank disclosure, to enable a court to have the true facts and to enable the parties to negotiate a genuine settlement.

She concluded these enhanced duties in family proceedings appeared to attract protection under sections 333(3) and 343(4), which permitted a legal adviser to communicate such information to his client or opponent 'as is necessary and appropriate in connection with the giving of legal advice or acting in connection with actual or contemplated legal proceedings'.

If it is 'necessary and appropriate' to inform the client/opponent, neither section 333 nor section 342 imposes a time limit in which solicitors may inform their clients of a disclosure to NCIS.

The court in P v P suggested guidelines for good practice (rather than statutory obligation):

- In most cases, a seven-day delay before telling the client would not cause particular difficulty to the solicitor's obligation to the client and opponent;

- In the event that consent was refused by NCIS and a 31-day moratorium imposed, the solicitor and NCIS should seek to agree the degree of information to be disclosed, and;

- In the absence of agreement or in urgent cases where delay in disclosure to the client would be unacceptable, the court's guidance may be sought.

NCIS guidance

In the light of the P v P judgment, NCIS has published guidance about disclosures by the legal profession, which can be found at www.ncis.co.uk.

This has recently been changed to incorporate a number of important amendments to its previous version:

- There is no requirement for counsel to make separate reports if their solicitors have made a report relating all relevant facts known to counsel.

There will usually not be a danger of tipping off in solicitors and counsel discussing reports as there will be little likelihood of prejudice being caused to an investigation for the purposes of the tipping off offences.

- On the other hand, legal advisers must not presume that the other side in any matter has reported, and;

- Where the client or legal adviser has made a joint report the client may be protected from commission of any of the offences under sections 327-329.

Application to other areas of law

This judgment arose in an ancillary relief case, and is particularly relevant to family proceedings.

However, solicitors must be extremely cautious in seeking to extend its findings to general areas of practice.

The Law Society considers that while it does give the following general guidance on the interpretation of the statutory provisions dealing with tipping off (section 333) and prejudicing an investigation (section 342), solicitors must exercise the greatest caution when advising in such circumstances:

- Solicitors commit neither offence in properly advising their clients that they have made, or will make, an 'authorised report' to NCIS when it is necessary and appropriate to do so in connection with the giving of legal advice or acting in connection with actual or contemplated legal proceedings;

- No such protection is available to solicitors if their intention in making such a disclosure to the client is the furtherance of a criminal purpose.

Money laundering guidance

The Law Society has recently published comprehensive guidance on the implementation of the new money laundering legislation and regulations.

The publication explains the statutory obligations with which solicitors must comply and contains some practical advice.

The Proceeds of Crime Act came into force on 24 February 2003.

The Money Laundering Regulations 2003, as far as most solicitors are concerned, come into effect on 1 March 2004.

The Proceeds of Crime Act 2002 creates new criminal offences and solicitors may be under a duty to inform the National Criminal Intelligence Service (NCIS) of their knowledge or suspicion of money laundering in respect of any matters with which they are dealing.

Under the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2003, solicitors (like other members of the public) are under a duty to inform NCIS of any money that is the proceed of any crime or any act that would have been a crime had it been committed in this country.

The regulations impose five obligations on solicitors:

- To appoint a money laundering reporting officer/nominated officer;

- To train relevant staff;

- To keep records of identification and transactions for the relevant period;

- To have systems in place to deal with money laundering and reporting to NCIS, and;

- To identify clients.

The Law Society guidance is available at www.lawsociety.

org.uk in the money laundering section.

Printed versions will be available and sent to all firms over the next few weeks.

The regulations are available on the HMSO Web site at: www.HMSO.gov.uk.