Tipping off and prejudicing an investigation

A client wants advice on a transaction involving a restaurant business. The transaction has corporate and property aspects.

Mr Bloggs makes enquiries of his client, Mr A, about the proposed transaction and the business. He is not completely comfortable with the answers he was given.

He makes further enquiries of the client – partly to assess whether he’s suspicious about possible proceeds of crime, but also to see exactly what advice the client needs.

No issue of tipping off arises. A solicitor can and should make enquiries of their client.

Mr A is cooperative and gives full answers without delay or objection. It emerges that the business may not have fully met its obligations to HM Revenue and Customs (HMRC). 

Legal advice on potential money laundering offences

Mr Bloggs gives the client advice on the tax issues, and steps are taken to remedy the default with HMRC.

Mr Bloggs also points out that the client risks committing a money laundering offence unless he gets permission to proceed with the sale since it’ll involve the proceeds of crime, however small a part of the overall value they may be.

Because Mr Bloggs works in the regulated sector, he has his own anti-money laundering obligations. He needs a DAML from the NCA before he can act on the transaction.

Mr Bloggs can discuss his report with Mr A since section 333D(2) POCA allows disclosure to a client for the purpose of dissuading that client from criminal conduct.

He makes a careful note of the issues that he has considered and the reasons for his decisions.

Mr Bloggs is approached by Ms B, who runs a beauty franchise. She seeks his advice on a very similar transaction to that of Mr A.

There are a few issues that need a careful look but, having made enquiries of the client, Mr Bloggs is satisfied that there are no proceeds of crime issues.

However, the transaction is held up by odd delays on the other side. Mr Bloggs detects that the solicitor on the other side is stressed and, thinking about the transaction, concludes that the likely reason for the delay is that his counterpart has made a report and is waiting for consent to proceed.

Mr Bloggs is still comfortable with the transaction and does not believe that he should make a report. Being a prudent person, he records his consideration of the issues and his decision.

Ms B become agitated and demands to know why there’s a delay. Mr Bloggs thinks he knows the reason, but can he tell Ms B?

Dissuading or explaining delay

Mr Bloggs is in the regulated sector. He suspects there has been a report and he cannot be sure that telling the client will not prejudice an investigation relating to it.

Section 333A(1) POCA applies: he must not tip off the client.

The exceptions to this are not helpful here. The section 333D(2) reason will not apply because there is no issue of “dissuading” the client.

Ultimately, there are only so many ways of saying nothing, even for an experienced solicitor.

If the delay extends beyond Ms B’s patience, Mr Bloggs is left to find a nice way to say: “I cannot help you, I cannot tell you why I cannot help you, so you must seek advice elsewhere on this issue”.

Mr Bloggs may suggest another suitable firm, like Litigation and Co, but he should not explain why.

Ms B walks down the road to Litigation and Co and the question of what to say passes to Ms Litigation, who quickly works out what the likelihood is that the delay is because of a report to the NCA.

Giving legal advice

Ms Litigation is not in the regulated sector: she is being consulted on why this transaction has been halted and how to make it start again.

Ms B would like to sue someone for messing up her transaction and, by this stage, she does not care who.

Ms Litigation is not concerned with section 333, as she does not work in the regulated sector. Her focus is on section 342.

Although section 342 makes it an offence to “prejudice an investigation”, there is a defence where a disclosure is made in the course of giving legal advice or in relation to legal proceedings or contemplated legal proceedings.

Ms Litigation can advise Ms B what has probably stopped her transaction. Following the decision in Shah v HSBC [2012] EWHC 1283 (QB), she will have to tell Ms B that there is nearly nothing Ms B can do about it other than wait patiently.

No possibility of prejudicing an investigation

One possible alternative in this scenario is if Mr Bloggs believes explaining the situation to Ms B could not possibly prejudice an investigation.

If this were the case, there’s no section 333 offence because this requires a knowledge or suspicion that disclosure would be likely to prejudice any investigation relating to that SAR.

Mr Bloggs either needs to be extremely confident of his client or very brave. Either way, if he feels this is the correct analysis, he would be well advised to record the reasons for his decision to explain the position to the client.

A new client, Mr C, the owner of a small grocery store, seeks Mr Bloggs’ advice.

Mr Bloggs takes instructions and is seriously concerned. The high level of funds flowing through the business are inconsistent with the low price at which Mr C proposes to sell it to an offshore trust domiciled on an island Mr Bloggs has never heard of.

Mr Bloggs is concerned and asks questions about the proposed transaction and the grocery business.

This is a sensible approach and not a tipping off offence (unless Mr Bloggs prefaces his queries with “I’m thinking of making a suspicious activity report to the NCA”).

Making a report to the NCA

The responses Mr Bloggs gets do not ease his concerns, so he is satisfied that he must make a report to the NCA.

He does so, seeking permission to proceed with the sale of the business and giving sufficient details so that the NCA can see precisely what is proposed.

While Mr Bloggs waits for a response from the NCA, Mr C becomes agitated and demands to know why there’s a delay.

Mr Bloggs cannot tell him: he’s in the regulated sector (a corporate transaction), there’s been a report, and telling the client might prejudice an investigation relating to it.

What does Mr Bloggs do? He cannot advise Mr C on the problem because the only permissible disclosure to a client in these circumstances is under section 333D(2).

Explaining a delay is not dissuading a client and there’s no wider purpose permitted. Mr Bloggs must not tip off Mr C.

Mr Bloggs is straight back where he was with Ms B, so Ms Litigation has another client. She still does not have very cheering advice for Mr C, but that’s a different problem.