Anti-money laundering / know your client procedures – Are these privileged documents?

In the case Dr. Suzanne Wolfe Martin noe (the “Plaintiff”) vs. X (the “Defendant”) decided on the 21 June 2021, the First Hall Civil Court (the “Court”), presided over by honourable judge Robert G. Mangion, examined in detail certain provisions of the law which deal with the disclosure of information in court. The Court, throughout the judgment, detailed those instances in which (i) documentation is deemed to be admissible in court and those instances in which (ii) documentation is deemed as being “privileged” and consequently, not admissible.

The case under examination concerned a bank (the Defendant), the officials of which were being summoned to produce the“anti-money laundering/know your client procedures” before the Court, more specifically, the bank’s procedures vis-à-vis onboarding, ongoing monitoring, and suspicious transaction reporting.

The facts of the case are as follows:

In brief, the Plaintiff suffered damages and claimed that the Defendant defaulted on certain antimoney laundering and counter terrorism financing (“AML-CTF”) obligations, which as a subject person, they had a duty to comply with. On the 12 January 2021, an employee of the Defendant was demanded to produce before the Court the “employee manuals, AML/KYC manuals, onboarding templates, internal memos, and operating procedures” of the Defendant company.

When arguing against this, the Defendant stated that (i) the requested documentation formed part of the company’s internal procedures and were therefore believed to be sensitive information which should not be divulged to the public and that (ii) in accordance with Article 9 of the Professional Secrecy Act (Chapter 377 of the Laws of Malta), a court may authorise or make an order requiring the disclosure of secret information pursuant to an “express provision of law for the specific purposes for which that provision was enacted”.

The Plaintiff claimed that the documents which were being requested were the “best evidence which the party may be able to produce” and it was therefore in the interest of the Plaintiff that such documents be produced by the Defendant.

The Court’s considerations:

The Court commenced by asserting that “the burden of proving a fact shall, in all cases, rest on the party alleging it” and that “all evidence must be relevant to the matter in issue between the parties”. To elucidate this further, the Court here referred to Article 570 and Article 637 of the Code of Organisation and Civil Procedure (Chapter 12 of the Laws of Malta) (the “COCP”) which state that:

“the writ may require the witness to produce any document, or other thing, which belongs to the contending parties or to any of them, or which is under the charge or custody of such witness, or which, according to law, he is bound to produce” additionally, “it shall be lawful to demand the production of documents which are in the possession of other persons ... (c) if the party demanding the production of the documents, although he is not the owner or co-owner thereof, shows that he has an interest that such documents be produced by the other party to the suit”.

Legislation

The Court noted that, in accordance with Article 632(1) of the COCP “any declaration made by a party against his interest or any other writing containing any admission, agreement or obligation is admissible as evidence”.

The Court went on to refer to sub-article (3) of Article 637 of the COCP which describes those documents which, due to their “privileged nature” cannot be demanded to be produced in court. The Court noted that no reference nor exceptions are made in relation to the provision of internal bank documents and manuals, and nor is there any other provision, specific to banks or other financial institutions, dealing with this.

In fact, Article 34(2) of the Banking Act (Chapter 371 of the Laws of Malta) simply states that:

“No person, including past and present officers or agents of a bank, shall disclose any information relating to the affairs of a bank or of a customer of a bank which he has acquired in the performance of his duties or the exercise of his functions under this Act and any regulation or Banking Rules made thereunder except (c) when lawfully required to do so by any court or under a provision of any law.”

It was therefore noted by the Court that upon an order of a court any bank official would also be obliged to reveal any information which the court deems necessary.

Diverting its attention to Article 16 of the Prevention of Money Laundering and Funding of Terrorism Regulations (Subsidiary Legislation 373.01) and Part 1 of the Implementing Procedures (the “IPs”), the Court noted that it is only when, “a subject person, a supervisory authority, any official or employee of a subject person or a supervisory authority, or any person from whom the Financial Intelligence Analysis Unit has demanded information” in relation to (i) a suspicious transaction report made to the FIAU; (ii) when the FIAU demanded information within the context of a ML/FT analysis; (iii) when information has been or may be transmitted to the FIAU within the context of a ML/FT analysis; and (iv) when a ML/FT analysis or investigation has been, is being carried out or may be carried out by the FIAU or by a law enforcement agency, that the person: “... who discloses to the person concerned or to a third party, other than as provided for in this regulation, the fact that information has been demanded by the Financial Intelligence Analysis Unit or that information has been or may be transmitted to the Financial Intelligence Analysis Unit, or that an analysis or an investigation has been, is being, or may be carried out, shall be guilty of an offence...”.

In considering all the above, the Court concluded that the information/documentation which the Plaintiff is requesting the Defendant to produce, is not to be considered as “privileged” as it does not fall within any of the exceptions / list of prohibited documents catered for within the law.

Conclusion

Throughout its ruling, the Court clearly stated that prior to determining whether certain documentation may be requested in court, the Court must first determine whether the documentation being demanded is relevant to that particular case and is deemed necessary for a court to appropriately give their final verdict. The court will then assess whether the document(s) being requested falls within the category of privilegeddocumentation, as per the law.

In conclusion, the Court examined in detail the relevant provisions of the law, and, in light of all of the above, determined that the documentation being requested was undeniably pertinent to the facts of the case (being damages suffered by the Plaintiff due to the fact that the Defendant defaulted on certain AML-CTF obligations).

The Court demanded that the Defendant produced all documents being requested by the Plaintiff (or parts thereof).