Disclosure of Suspicious Activity Reports (SARs) in civil litigation

On 7 July 2021, the UK Government published a Circular on the use of SARs in civil litigation, intended to help ‘protect’ those obliged to report suspicions of money laundering under the Proceeds of Crime Act 2002 (POCA), including financial institutions.

Reports of suspicious activity made to the NCA contain potentially sensitive information and, to protect the reporters and subjects of SARs and to minimise the risk of jeopardising current or future law enforcement investigations, must be kept confidential. This requirement for confidentiality is underpinned by the inclusion within POCA of offences of ‘tipping off’ and prejudicing an investigation, which may be triggered if a person discloses (i.e. shares with another) the fact that a SAR has been made or that a money laundering investigation is being contemplated or carried out. Civil proceedings involving subjects of SARs (including, for example, where a customer relationship has been terminated) present particular challenges for reporters seeking to comply with POCA in light of obligations on parties to give disclosure of documents which are material to the dispute.

Don’t mention the SAR

The Circular observes that the submission of a SAR in itself does not oblige a reporter to terminate a customer relationship and the reporter ought to be able to defend such a decision by reference to the internal processes which gave rise to it. To that end, the Circular recommends that reporters “avoid referring to SARs in the documentation of their internal decision-making processes” and instead focus on the basis for the relevant decision, referencing (as appropriate) commercial factors, risk appetite reasons, non-compliance with agreed terms and conditions, or inability to apply the required customer due diligence measures. Taking this approach would reduce the likelihood of SARs falling within the scope of disclosure obligations in civil proceedings. In practice, however, flagging risks related to a customer, making decisions about the continuation of the relationship and identifying an obligation to file a SAR are often events that are intrinsically linked and may be addressed together within internal communications.

The Circular does not provide any guidance as to how these mixed communications should be addressed, though it does acknowledge (even where its recommended approach has been followed) that there will be circumstances where a reporter is required to disclose the SAR itself. In those cases the reporter is asked to contact the NCA “at the first opportunity”, providing (inter alia) details of (i) all of the SARs they anticipate will be disclosable; (ii) a summary of any claim/defence; (iii) the reason why it is anticipated that SARs will be required to be disclosed; and (iv) relevant court deadlines. The Circular notes that the NCA will endeavour to respond “within a reasonable timeframe” having considered any potential risks to the reporter or ongoing investigations, and may make representations as to how it may be possible to mitigate those risks which a reporter can “take…into account in making its decision on whether to proceed with the proposed disclosure”. However, the NCA will be unable to provide reporters with assurances regarding offences of tipping off or prejudicing an investigation. It is noted that “SARs exist on the NCA’s database for six years and could become relevant to a current or future investigation at any point during those six years…[or] remain relevant to ongoing investigations after this time”. The Circular is merely guidance and cannot be relied upon as a basis for withholding a SAR which falls within the scope of a party’s disclosure obligations or, as noted, provide assurance that its disclosure will not result in an offence being committed. However, it does provide a route by which a party can seek information from the NCA which may provide comfort as to whether disclosure of the SAR is likely to trigger an offence. It may also support applications to vary the scope of disclosure, employ safeguards to protect the confidentiality of the SAR or seek permission, pursuant to CPR 31.19(1), to withhold it on public interest grounds.

Communications referring to the SAR

More challenging decisions will be presented by other disclosable communications which make reference to a SAR. Redactions may be applied to those references prior to giving inspection but it is likely to be challenging for a party to provide sufficient transparency regarding its approach without revealing the reason behind the redactions. In many cases, the context surrounding the redaction may in itself be enough to reveal the existence of the SAR. In those situations a party may be forced to decide between seeking to withhold the entire communication on public interest or (where applicable) privilege grounds – which could very well weaken its defence to the claim – or relying on the argument that producing a document in which express references to a SAR have been redacted could not constitute a disclosure likely to prejudice an investigation for the purposes of the POCA offences.

To avoid these difficult decisions, the distraction of disclosure disputes during civil proceedings and the risk of criminal liability, reporters are advised to follow the guidance set out in the Circular to the extent possible. Where operational requirements do not allow for it or where the matters concerned are historic, reporters involved in civil proceedings who anticipate that they may need to disclose SARs or communications referring to them are advised to notify the NCA and seek guidance at the earliest possible stage.

This article forms part of our Parallel Proceedings Autumn 2021 update.