Between a rock and a hard place: Suspicious Activity Reports and disclosure in civil proceedings

• United Kingdom

• Fraud and financial crime
• Litigation and dispute management

20-07-2021

When may details of Suspicious Activity Reports (“SARs”) be disclosed in private civil litigation? On 7 July, the UK Government published a circular aimed at helping to answer this perennial question.

As one would expect, the circular does not provide definitive answers. It does, however, acknowledge some of the difficulties faced by companies and individuals seeking to balance competing duties under UK anti-money laundering (“AML”) legislation to keep matters confidential and requirements to disclose the same matters in civil litigation or pursuant to court orders. It proposes a channel for dialogue with the National Crime Agency (“NCA”) to seek to address these difficulties.

The issue

The Proceeds of Crime Act 2002 (“POCA”) lays down criminal penalties for inappropriate disclosure of the fact that a SAR has been filed and/or details of the contents of SARs.

In summary, an individual within an entity carrying on business in the regulated sector for the purposes of UK AML legislation may commit criminal (“tipping off”) offences if he or she discloses the fact that a SAR has been filed with the NCA if his or her actions in doing so are “likely to prejudice any investigation that might be conducted” following the filing of that SAR.¹

Separately, any individual or corporate entity (i.e. not only those carrying on business in the regulated sector) may commit an offence if they know or suspect that the NCA or another enforcement authority is conducting an investigation by making a disclosure “likely to prejudice the investigation”.²

The prohibition on disclosing the fact that a SAR has been filed or its contents is not absolute. Whether a disclosure will be problematic depends on an assessment of the potential impact of that disclosure by reporting entities (or individuals within them).

In some cases, a long period may have elapsed since the SAR in question was filed. Details of matters leading to the filing of the SAR may have independently entered the public domain. In such cases, reporting entities (and individuals within them) seeking to comply with their obligations to disclose all relevant matters to counterparties in separate civil litigation often legitimately conclude that the risks associated with revealing the existence of a SAR and/or details of the matters giving rise to that SAR are relatively low. In many cases, these will be matters highly relevant to their defence of claims being pursued against them.

The issues arising from the collision between confidentiality obligations relating to SARs and disclosure requirements in separate civil litigation were highlighted in Lonsdale v National Westminster Bank [2018] EWHC 1843 (QB). In that case, the High Court allowed the Claimant to inspect SARs filed in respect of him. For further details, please see our separate briefing. Lonsdale and other cases have underlined the importance of keeping in mind the possibility that the contents of SARs may be read by claimants in others in separate proceedings, and to keep them as factual as possible (without compromising the quality of the SAR itself).

The solution?

The circular implicitly acknowledges that those making decisions within reporting entities will not typically have all the necessary information to enable them confidently to make a judgement about whether releasing details of SARs may have a negative effect on ongoing investigations. It sets out a procedure involving contact with the NCA to assist reporting entities with making decisions about what may safely be disclosed about SARs. In reality, it puts in writing a procedure already widely adopted by reporting entities and their representatives, who commonly engage with the NCA to ascertain if it has any specific objections to particular details being released in the course of separate civil proceedings.

It makes clear that reporting entities should approach the NCA “at the first opportunity” if they are compelled to disclose SARs in civil proceedings (whether under the Civil Procedure Rules or a court order).

It invites reporting entities to provide details of all SARs they anticipate will be disclosable, a summary of any claim or defence, the reason(s) why it is anticipated that disclosure of SARs will be required, relevant court deadlines and any other relevant material. It states that, having considered these matters, the NCA may provide a view to the reporting entity and/or the Court about how it may be possible to mitigate the risks associated with disclosure of details of the SARs in question (or alternatively, as is commonly the case under current informal arrangements, may indicate that it does not have a view).

The circular does not commit the NCA to providing any assistance to decision makers within reporting entities (or indeed necessarily to providing any indication one way or the other about whether disclosure of details of SARs will be appropriate). It is also careful not to provide any guarantees that contact with the NCA using this procedure will yield assurances about whether disclosure of particular matters will amount to the commission of tipping off or other offences.

The circular describes the procedure in relatively brief terms. It does not, for example, elaborate on the circumstances in which the NCA will consider it necessary to communicate with the Court but not with the reporting entity in relation to questions about disclosure of details of SARs. This may be one area on which reporting entities and their representatives will wish to seek further clarification from the NCA.

The circular cannot provide definitive answers to decision makers within reporting entities seeking to strike the difficult balance between confidentiality obligations in relation to SARs and disclosure requirements in civil proceedings. What to disclose will remain a matter for their judgement in every case. With that said, the circular is likely to receive a broadly positive reception as a constructive attempt to encourage engagement with and consistency of approach by the NCA.

[1] Section 333A, POCA

[2] Section 342, POCA

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