Donovan: Guidance is largely recommended best practice
Solicitors need to tread carefully in applying new Solicitors Regulation Authority (SRA) guidance on the Proceeds of Crime Act [1] as they could find themselves in conflict with existing obligations, a compliance expert has warned.
Andrew Donovan, managing director of Compliance Office [2], said the new guidance – issued at the end of June – was useful but that solicitors should take care to differentiate what was best practice and what were mandatory obligations.
He said it felt like an attempt to push obligations already imposed on those firms within the anti-money laundering (AML) rules to all areas of legal practice, “despite the absence of mandatory legal or regulatory requirements”.
“There should really be legislative change if that is the route everyone is expected to go down,” he added.
The guidance uses the words ‘should’ or ‘may’ significantly more often that ‘must’ to denote the nature of the requirement described.
Mr Donovan said: “You have to really concentrate to realise that it is largely recommended best practice going above and beyond clear mandatory duties rather than more typical SRA guidance.”
The one-time SRA legal policy manager cautioned that, “in the very understandable desire to achieve certain certainly desirable behaviours to prevent crime, the inevitable conflict with this guidance and some of the SRA’s own rules and guidance is not really addressed”.
For example, the guidance encourages law firms to make suspicious activity reports to the National Crime Agency (including for historic events), even in circumstances where their work has been specifically carved out from the legal obligations to do so.
“There is no mention in the guidance of the mandatory SRA rule 6.1 to only disclose confidential client affairs where required or permitted to do so by law. It’s not clear to me that you can automatically disregard client confidentiality on a mere suspicion.”
The guidance also encourages firms not to inform their clients of suspicious activity reports made, but does not mention of the mandatory SRA rule 6.4, which requires disclosure of all material information about their case to clients, save for four limited scenarios, mainly relating to legal obligations to not disclose.
“This won’t always be a problem – but neither would it never be a problem,” said Mr Donovan. “It’s odd that this does not get a mention either.”
At the same time, Mr Donovan stressed that the guidance was helpful for firms not handling work covered by AML rules.
“Don’t get lulled into a false sense of security because the matter in question relates to the non-AML regulated sector,” he said. “Things can still get very tricky very fast whatever type of work you’re doing if you learn that the client’s funds are tainted.”
That meant firms should have a money laundering reporting officer and “sensible reporting procedures” in place, along with staff training on broad risks and issues, such as use of the client account as a banking facility, “sham litigation” and reporting matters to the officer.