Managing competing obligations – disclosure of suspicious activity reports in civil litigation

A 7 July 2021 HM Government circular entitled “money laundering: the confidentiality and sensitivity of suspicious activity reports (SARs) in the context of disclosure in private civil litigation” addresses this issue.

The overriding purpose of the circular is to provide guidance to help protect reporters of SARS, the subject of SARS and the integrity of the SAR regime and has the objective of contributing towards maintaining the wider effectiveness of the SARs regime.

This circular confronts the following thorny issue: how, following submission of a SAR, to address the tension which can arise between complying with obligations under the relevant legislation to not risk prejudicing a law- enforcement investigation, and disclosure obligations (such as mandatory disclosure via Civil Procedure Rules or a Court Order) as a result of subsequent civil litigation (e.g. following the termination of a customer relationship).

The circular offers guidance on steps to take to minimise the probability of this tension occurring whilst ensuring compliance with all statutory obligations (breaches of which can attract criminal liability), and outlines the steps to be taken if disclosure becomes compelled.

How to minimise this occurring?

The circular notes that given that SARs contain potentially sensitive material, their disclosure in both civil and criminal proceedings should not be made, but that this is subject to balancing public interest factors. Indeed, it is noted that the disclosure of a SAR and/or related law enforcement investigation could pose a real risk of prejudice to an important public interest.

Of course, SARs play an important role in the prevention and disruption of financial crime and the circular describes at length the reason for confidentiality in SARs and how SARs in the public domain have the potential to prejudice and disrupt investigations. Finally, it goes without saying that disclosure may also amount to a criminal offence of tipping off or prejudicing an investigation.

With regards to minimising the risk of tensions arising, the practical advice in the circular includes the following:

• That as far as possible, reporters (of a SAR) should avoid referring to SARs in the documentation of their internal decision-making process. Instead, in cases of a decision to exit or terminate a customer relationship, the documents prepared should focus on the basis of the decision (which will be specific to each case);
• Reference to the basis for the decision may help reporters to explain and justify their position to a customer (before reaching the point of litigation) without reliance on the SAR and may also remove any subsequent need for reliance on the SAR in litigation that arises and reduce the relevance of SARs to such litigation;
• A dispute may arise about the termination of a relationship, in circumstances where the reporter has filed a SAR. The decision to terminate a relationship may be driven by commercial factors or regulatory considerations. However, the submission of a SAR should not be an act that obliges a reporter to terminate a customer or client relationship. Reporters should seek to defend the challenge based on the processes that gave rise to the decision to terminate, rather than the act of submitting a SAR. This may reduce the need for reliance on the SAR in litigation.

What to do if disclosure becomes compelled?

Of course, there may be circumstances when either through disclosure obligations or a Court Order disclosure of a SAR becomes compelled. In this case the circular advises contacting the National Crime Agency at the first opportunity and listing:

• A summary of any claim/defence;
• The reason why it is anticipated that SARs will be required to be disclosed;
• Relevant Court deadlines; and
• Any other relevant material.

Finally – Data Protection Act considerations

The circular also addresses the issue of what to do if a reporter receives a Data Subject Access Request under the Data Protection Act 2018 (“DPA 2018”) and the need for the reporter to consider their disclosure obligations. The circular advises reporters to consider the available exemption under the DPA and that detailed guidance is provided by the Information Commissioner’s Office.

If you require advice or assistance with regards to the SAR regime, or any issues above, then Gherson’s white-collar crime, investigations and regulatory team would be happy to assist. Please do not hesitate to contact us for further advice, send us an e-mail, or alternatively, follow us on Twitter or LinkedIn to stay up-to-date.

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

©Gherson 2021