Money laundering and anti-money laundering regulations - Tipping off and confidentiality issues

Learning Outcomes

After studying this article, you will be able to explain the legal framework for anti-money laundering (AML) in England and Wales, including the offences of tipping off under the Proceeds of Crime Act 2002 (POCA). You will understand how AML obligations interact with the duty of client confidentiality and legal professional privilege, and be able to identify the correct procedures for reporting suspicious activity while avoiding criminal liability for tipping off. You will also be able to apply these principles to SQE1-style scenarios.

SQE1 Syllabus

For SQE1, you are required to understand the anti-money laundering regime as it applies to legal professionals, with a focus on the following areas. In your revision, pay particular attention to:

• the legal definition and stages of money laundering
• the offences of tipping off and prejudicing an investigation under POCA
• the duty of confidentiality and legal professional privilege in the AML context
• the reporting obligations for solicitors and the role of the nominated officer (MLRO)
• the correct procedure for making Suspicious Activity Reports (SARs)
• the defences and exceptions to tipping off
• practical steps to avoid breaching AML regulations while maintaining professional duties

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What is the offence of tipping off under the Proceeds of Crime Act 2002, and when might a solicitor commit it?
2. How does legal professional privilege interact with the duty to report suspected money laundering?
3. What practical steps should a solicitor take if a client asks about a delayed transaction after a SAR has been made?
4. Who is responsible for submitting a Suspicious Activity Report (SAR) to the National Crime Agency in a law firm?

Introduction

Money laundering is the process of disguising criminal proceeds to make them appear legitimate. The UK has strict anti-money laundering (AML) laws, including the Proceeds of Crime Act 2002 (POCA) and the Money Laundering Regulations 2017, which impose specific duties on solicitors. These duties include reporting suspicious activity and avoiding actions that could prejudice an investigation, such as tipping off a client. At the same time, solicitors must balance these obligations with their duty of confidentiality and legal professional privilege. Understanding how to comply with AML rules, especially regarding tipping off and confidentiality, is essential for SQE1.

Tipping Off: The Legal Framework

Solicitors working in the regulated sector must not disclose information that could prejudice a money laundering investigation. This is known as the offence of tipping off.

Key Term: tipping off
Tipping off is the offence of disclosing to a person that a Suspicious Activity Report (SAR) has been made or that a money laundering investigation is underway, where that disclosure is likely to prejudice the investigation.

Tipping off offences are set out in POCA, primarily sections 333A–333D for the regulated sector (including solicitors) and section 342 for all persons. The offence is committed if a person discloses that a SAR has been made, or that an investigation is being contemplated or carried out, and that disclosure is likely to prejudice the investigation.

Key Term: Suspicious Activity Report (SAR)
A SAR is a report made to the National Crime Agency (NCA) by a solicitor or nominated officer when they know or suspect money laundering.

When Might Tipping Off Occur?

Tipping off can occur if, after making a SAR, a solicitor tells the client (or another person) that a report has been made or that the authorities are investigating. This includes direct statements or indirect hints that could alert the client.

Who Can Commit the Offence?

The offence applies to anyone working in the regulated sector, including all solicitors, employees, and nominated officers (MLROs). It also applies to any person under section 342 POCA, not just those in the regulated sector.

Elements of the Offence

To commit the offence, the following must be present:

• A disclosure is made to any person.
• The disclosure relates to a SAR or an investigation.
• The disclosure is likely to prejudice the investigation.
• The person making the disclosure knows or suspects this is the case.

Defences and Exceptions

There are limited defences to tipping off, including:

• The person did not know or suspect that the disclosure would prejudice an investigation.
• The disclosure was made to dissuade a client from committing a criminal offence (with caution).
• The disclosure was made within an organisation for AML compliance purposes.
• The disclosure was permitted by law (e.g., to a legal adviser for the purpose of obtaining legal advice).

Exam Warning

Tipping off is a strict liability offence in many respects. Even an unintentional hint or explanation for a delay can be enough if it alerts the client to the existence of a SAR or investigation. Solicitors must be extremely cautious in all communications after making a SAR.

Confidentiality and Legal Professional Privilege

Solicitors owe a duty of confidentiality to their clients, but this duty is limited by AML obligations.

Key Term: confidentiality
The duty of a solicitor to keep client affairs private, unless disclosure is required or permitted by law or the client consents.

Key Term: legal professional privilege
The right of a client to keep communications with their solicitor confidential, protecting them from disclosure in legal proceedings. Privilege does not apply if the communication is made with the intention of furthering a criminal purpose.

Legal professional privilege (LPP) can provide a defence to the failure to disclose offence under POCA, but it does not excuse tipping off if the disclosure is not privileged. Communications made to obtain legal advice on complying with the law are privileged, but those made to further money laundering are not.

Worked Example 1.1

A solicitor makes a SAR about a client's property transaction. The client later asks why the transaction is delayed. The solicitor replies, "We have reported your matter to the authorities for suspected money laundering." Has the solicitor committed an offence?

Answer: Yes. The solicitor has committed the offence of tipping off under POCA by disclosing that a SAR has been made, which is likely to prejudice the investigation.

Worked Example 1.2

A client confesses to a solicitor that they committed tax fraud in the past. The solicitor advises the client to comply with the law in the future. Is this advice protected by legal professional privilege?

Answer: Yes, advice on future compliance is privileged. However, if the client seeks advice to conceal past fraud, privilege does not apply, and the solicitor may be required to report.

Reporting Suspicious Activity and the Role of the Nominated Officer

Solicitors must report knowledge or suspicion of money laundering to their firm's nominated officer (MLRO), who then decides whether to submit a SAR to the NCA.

Key Term: nominated officer (MLRO)
The person in a law firm responsible for receiving internal reports of suspected money laundering and making SARs to the NCA.

The nominated officer must make the report as soon as practicable. After a SAR is made, the transaction must not proceed until consent is received from the NCA or the statutory time period has expired.

Worked Example 1.3

A trainee solicitor suspects a client is laundering money and informs the firm's MLRO. The MLRO submits a SAR. The client later calls the trainee and asks if there is a problem. What should the trainee say?

Answer: The trainee should not mention the SAR or investigation. They may refer to generic "internal checks" or "regulatory requirements" but must avoid any statement that could alert the client to the SAR.

Practical Steps to Avoid Tipping Off

• Do not inform the client that a SAR has been made or that an investigation is underway.
• Use neutral language if questioned about delays (e.g., "We are carrying out routine checks required by law.").
• Do not provide explanations that could indirectly alert the client.
• Train all staff on AML procedures and tipping off risks.
• Keep records of all communications and decisions.

Revision Tip

Always remember: after making a SAR, avoid discussing the report or investigation with the client. If in doubt, seek advice from your firm's MLRO or compliance officer.

Summary Table: Tipping Off and Confidentiality

Key Point Checklist

This article has covered the following key knowledge points:

• Tipping off is a criminal offence under POCA if a disclosure is likely to prejudice a money laundering investigation.
• Solicitors must not inform clients that a SAR has been made or that an investigation is underway.
• Legal professional privilege does not apply to communications made to further a crime.
• The nominated officer (MLRO) is responsible for submitting SARs to the NCA.
• After making a SAR, solicitors should use only neutral, non-alerting language with clients.
• Exceptions to tipping off are limited and narrowly interpreted.
• Breaching tipping off rules can result in criminal liability and disciplinary action.

Key Terms and Concepts

• tipping off
• Suspicious Activity Report (SAR)
• confidentiality
• legal professional privilege
• nominated officer (MLRO)