It happened in England (see their Law Society’s sophisticated guidelines) in R. v McCarten  NICA 43, but a similar law is coming our way: this month, the Anti Money Laundering and Counter Terrorism Financing Bill 2006 was introduced into federal parliament. Another bill is anticipated which will extend it specifically to lawyers, discussed below. (Update: see the Blakes take here.)
The English cases are digested in this Lawyers’ Weekly article. In R v. Griffin, a proceeds of crime case, the solicitor was jailed for 15 months, though in circumstances of wilful blindness:
“In R v Griffin, Griffin acted on behalf of clients who were selling a property for less than one-third of its market value in an attempt to prevent the property being considered an asset in a proceeds of crime confiscation hearing. The property was being sold by drug traffickers to an estate agent for the amount of the outstanding mortgage. Griffin stated that he had relied on the explanation of the estate agent, whom he had trusted for years, for the reason behind the transaction. The judge in sentencing Griffin to 15 months’ imprisonment stated that Griffin had ‘clearly closed his eyes to the obvious’. The estate agent and the drug traffickers were convicted of money laundering.”
One wonders how long the drug traffickers had to go to jail for.
See also: R. v Duff  1 Cr.App.R. (S.) 88, discussed in R. v McCarten  NICA 43.
The exposure drafts have been out for a year. The bill presently only proposes the regulation of financial institutions, bullion dealers and casinos, but its application to lawyers is coming. Its specific application to lawyers, that is: if you happen to engage in one of the services listed as being intended to catch a banker, then you just have to hope that the exclusions designed at this stage to carve out from the operation of the scheme the usual day to day work of solicitors are properly drafted. Granted though, that’s a little hyperbolic, since the likelihood of a solicitor being prosecuted before the phase of the introduction of the new legislation by which solicitors are intended to be caught is presumably slight.
The Bill sets out the obligations of “reporting entities” in relation to designated services. But a reporting entity is any person who carries out designated services. An example of a “designated service” is “making a loan, where the loan is made in the course of carrying on a loans business”. I know some solicitors who routinely lend money.
The obligations of reporting entities go far beyond the main present reporting obligation on lawyers qua lawyers, s. 15A of the Financial Transaction Reports Act, 1988 (Cth.) which requires the reporting of transactions entered into by or on behalf of a solicitor involving AUD$10,000 or more in cash to Austrac within 15 days. As the President of the NSW Law Society said in his 1 April 2004 President’s Message:
“Australia is a member of the Financial Action Task Force (FATF), an intergovernmental body established to develop and promote policies on money laundering and terrorist financing. As part of this group, the government has obligations to put in place mechanisms which will have implications for our profession. New proposals would also extend the reporting requirements to a much wider range of professions and businesses than the existing bank and financial institutions, including lawyers, accountants, real-estate agents, gem dealers and casino operators.
Instead of merely looking at cash thresholds, the proposal is for an activity-based focus. In effect, solicitors may have to conduct customer due-diligence on transactions such as buying and selling real property, and creating companies, trusts and partnerships. Solicitors will have to satisfy themselves that the client is the person they say they are, and ascertain the client’s reason for pursuing the transaction. We will be testing the bona fides of our clients.”
The initial specific application of the new regime to solicitors is recommended to involve specific focus on:
- buying and selling of real estate and businesses;
- managing of client money, securities or other assets;
- management of bank, savings or securities accounts;
- organisation of contributions for the creation, operation or management of companies; and
- creation, operation or managemnet of companies and other legal persons.
In such cases, the obligations will not stop at mandatory reporting. They will require due diligence in relation to client identity verification (compare the 100 points test when you open a bank account already) at the beginning of the retainer, and sometimes during the retainer. So too in respect of people giving instructions on behalf of clients. And investigations to quell suspicions of money laundering are required.
An example of the kind of thing which would be required to be reported would be where:
“the [lawyer] suspects on reasonable grounds that information that [she] has … may be relevant to investigation of, or prosecution of a person for, an evasion, or an attempted evasion, of a taxation law” (cl. 41(1)(f) Anti-Money Laundering and Counter-Terrorism Financing Bill 2006).
The things to be reported would include the client’s (or client’s agent’s) identifying details, the sources relied on to establish identity, and the details of the matter that have triggered the suspicion.
There would be an immunity (cl. 235) against civil suit and from prosecution “in relation to anything done, or omitted to be done, in good faith … in compliance, or in purported compliance, with” the Act.
But there would be an offence of advising the client of the making of a report, or of the forming of a suspicion such as to give rise to a need to report, or of any other information from which the client might infer that the suspicion had been formed (c. 123).
So what about legal professional privilege? The 49 recommendations of the international body (FATF) which Australia is scrambling to accommodate in the proposed legislation include one (no. 16) which says:
Lawyers, notaries, other independent legal professionals, and accountants acting as independent legal professionals, are not required to report their suspicions if the relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege.
The interpretative notes to that recommendation say:
It is for each jurisdiction to determine the matters that would fall under legal professional privilege or professional secrecy. This would normally cover information lawyers, notaries or other independent legal professionals receive from or obtain through one of their clients: (a) in the course of ascertaining the legal position of their client, or (b) in performing their task of defending or representing that client in, or concerning judicial, administrative, arbitration or mediation proceedings. Where accountants are subject to the same obligations of secrecy or privilege, then they are also not required to report suspicious transactions.
Countries may allow lawyers, notaries, other independent legal professionals and accountants to send their STR to their appropriate self-regulatory organisations, provided that there are appropriate forms of co-operation between these organisations and the FIU.
That sounds like pretty good protection to me, so long as “professional secrecy” includes the lawyer’s equitable duty of confidentiality or implied contractual term of confidentiality. One can only imagine the English legislation wasn’t as kind: otherwise, how did the solicitors go to jail?
An excellent resource is the web-based updates to Rosemary Pattenden’s excellent book The Law of Professional Client Confidentiality.
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- Costs disclosure obligations and consequences of not complying: part 1