PIs breached confidentiality by disclosing bank investigations

Out-Law News | 26 Jun 2019 | 3:19 pm | 4 min. read

Private investigators hired by the owners of a Tanzanian bank to conduct an internal investigation into money laundering allegations breached confidentiality obligations by disclosing information to international regulators, an English court has ruled.

The investigators had attempted to rely on a public interest defence to justify disclosures made to the Central Bank of Cyprus (CPC) and FinCEN, the US Treasury's Financial Crimes Enforcement Network, about the Cypriot branch of FBME Bank (FBME). However, High Court judge Mrs Justice Cockerill dismissed their arguments, finding that the investigators' disclosures were "premature and speculative" and were not sufficiently specific to benefit from protection.

Investigations expert Alan Sheeley of Pinsent Masons, the law firm behind Out-Law, said that the case "emphasises that the law of confidence is still very much alive and well, and will not be voided by general statements by the disclosing party of 'in the public interest'".

"A party considering breaching confidence, whether express or implied, must think long and hard about what he specifically wants to disclose, to whom he is disclosing it - including whether there are any jurisdictional difficulties - why he is disclosing it, and ultimately how the disclosure will assist the third party," he said. "This case clearly highlights that a 'document dump' to a third party is a dangerous way forward, and one that will likely result in an adverse order being made against the disclosing party."

Sheeley Alan

Alan Sheeley

Partner

This case clearly highlights that a 'document dump' to a third party is a dangerous way forward, and one that will likely result in an adverse order being made against the disclosing party.

The investigators, Nigel Brown and Alec Leighton, were engaged by FBME's owners in 2014 after the CBC took over the running of the Cyprus branch of the bank in response to its designation by FinCEN as an institution of "prime money laundering concern". Brown and Leighton were hired to investigate these allegations under a retainer, which contained strict terms as to confidentiality.

FBME alleged that, after the relationship ended, the investigators handed documents and information uncovered during their investigation to the CBC, FinCEN and other law enforcement agencies, as well as to a number of media outlets and investigative journalists. The investigators argued that their disclosures to law enforcement and regulators were justified in the public interest due to the bank's criminal activity, and also that they had been compelled to deliver information to the CBC. They denied any disclosures to the media.

The judge found no evidence of the alleged disclosures to the media, and quickly dismissed these. She then went on to consider the investigators' defences of compulsion and public interest in relation to their disclosures to the regulators. The documents relied upon by the investigators to support their claims of compulsion referred merely to "requests" and the potential consequences of failure, which the judge concluded was not "the language of compulsion".

On the public interest point, the judge agreed that respect for confidentiality was itself a matter of public interest, as set out in previous cases and academic writing on the subject. For this reason, a public interest defence to disclosure is available only in limited circumstances, where the importance of disclosure is "such that the duty otherwise owed to respect its confidentiality should be overridden". This generally means that the disclosure relates to serious misconduct or is important for safeguarding public welfare, or is of comparable public importance.

The judge concluded that this strict test had not been met in this case, and that the disclosures had therefore breached confidentiality. The investigators too often referred to "criminality" in broad terms and did not specify which allegations needed to be brought to a regulator's attention; most of their assertions were "premature and speculative"; and the disclosures added little to what was already known by the regulators. The money laundering allegations were already in the public domain thanks to the FinCEN notice, and the detail added by the investigators was "granularity not substance".

Having upheld FBME's claim of breach of confidentiality in part, the judge went on to consider an "academic" point submitted by the bank in its lawyer's closing statement which considered the interplay between the public interest defence and legal professional privilege. FBME attempted to argue that the investigators should be treated as "being akin to [their] lawyers", making the case for confidentiality even stricter. In the leading case on the point, Lord Millet went as far as to describe a lawyer's duty of confidentiality towards their client as "unqualified".

However, Mrs Justice Cockerill said that this leading case, Prince Jefri Bolkiah v KPMG, was a very different one, and not about the interface between duties of confidentiality and public interest disclosure. She said that, despite FBME's best attempts, she "[did] not regard the case as authority for the proposition that the public interest defence to an action based on breach of confidentiality can never be available to lawyers (or those to be treated as analogous to lawyers)".

"The fact that the duty is said by Lord Millett to be 'unqualified' does not necessarily import that there are no exceptions to it," she said.

"I would regard it as surprising if the proposition contented for were to represent the law in the context of cases ... where a similarly important duty of confidentiality was displaced by a truly overriding case on public interest. If a client disclosed crucial details of an intended bomb attack on a nursery school as part of his consultations with his lawyer, would this court say that the obligation of confidentiality could not be overridden by the need to save the lives of hundreds of children? I strongly suspect it would not," she said.

Tom Stocker

Partner

Parties and their advisers should take note and ensure the wording in retainers and letters of engagement is sufficiently precise, and backed by substance, to satisfy the requirements for the privilege claimed.

The judge then explicitly considered whether there was any basis for legal professional privilege or legal advice privilege to exist in this case. She concluded that there was not. FBME contracted with the investigators "to assist the lawyers in providing comprehensive legal advice to [its owners] in respect of the FinCEN notice", which she said "falls neatly between the two stools of legal advice privilege and legal professional privilege".

"No authority was cited for the proposition that parties can create a privilege which otherwise does not exist, by private agreement," she said.

Corporate crime and investigations expert Tom Stocker of Pinsent Masons said: "Labels relating to legal professional privilege mean little if unsupported by fact".

"Here, the wording in the retainer letter was insufficient to support a claim for legal professional privilege. Parties and their advisers should take note and ensure the wording in retainers and letters of engagement is sufficiently precise, and backed by substance, to satisfy the requirements for the privilege claimed," he said.