Names of junior AML staff not disclosable under standard disclosure

For many firms subject to the anti-money laundering regulations it is a case of 'damned if you do, damned if you don't':

Failure to report suspicious activity can lead to criminal sanctions, whilst reporting can lead to civil claims by clients for losses caused by delayed transactions.  However, the Court of Appeal has recently made complying with these obligations a little less risky.

In an important judgment for all firms subject to the obligation to make Suspicious Activity Reports (SARs) under the Proceeds of Crime Act 2002 (POCA), the Court of Appeal has held that firms are able to maintain the anonymity of those employees making reports to a firm's nominated officer.

On 13 October, the Court of Appeal handed down its judgment in the case of Shah & Another v HSBC Private Bank (UK) Ltd [2011] EWCA Civ 1154. The case arose out of four transactions delayed because of SARs made by the defendant bank's employees, a delay which the claimants alleged caused losses of over $300 million. The issue which fell to be determined by the Court of Appeal was whether the obligations of standard disclosure required the disclosure of the names of individual employees other than the nominated officer when a firm raised in defence to a claim for breach of contract its obligations under POCA.

When disclosing internal documentation as evidence in the original proceedings, the bank redacted the identities and names of those sending and receiving memos and internal reports. The bank's position was that the names of the individual employees further down the reporting chain were not required in fulfilment of its obligations to make standard disclosure, and that, even if they were, the bank was entitled to withhold their names on the ground of public interest immunity. The claimants wanted the names to be disclosed because they suspected that the disclosures were made by employees with whom they had had previous dealings and who held a grudge against them.

The Court held that the relevant test was that for standard disclosure under CPR 31.6. On this basis the Court held that, even partially redacted, the bank's disclosed documents contained the raw material on which the manager responsible for supplying the SAR to SOCA stated that he formed his suspicion. Therefore, in making out their claim, the claimants were not relying upon the employees' names. Further, the Court held that it was not enough that the names might lead to a train of inquiry which might adversely affect the bank's case. Disclosure of the names on either ground did not meet the stringent test set out in CPR 31.6. Having reached this conclusion, the competing issues of public interest did not arise and did not need to be considered by the Court.

Those subject to the provisions of POCA will be relieved to see the Court of Appeal formulate the test for standard disclosure along these strict lines. As their Lordships commented, one of the purposes behind the drafting of the CPR was to reduce the scope of discovery in civil actions, preventing 'fishing expeditions'. By handing down their judgment their Lordships have curtailed the ability of claimants to use trains of enquiry to get behind properly established defences based upon statutory obligations under POCA.