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The Scope of Legal Professional Privilege and the Role of Lawyers in Anti Money Laundering and Combating Financing of Terrorism - The Case of Ethiopia

Jun 15 2015

1          Introduction

The attorney-client professional relationship is protected by law in every legal system. The protection conferred to professional privilege serves different purposes. From the human rights protection point of view, confidentiality of information obtained in the course of legal advice or legal proceedings promotes the right to a fair trial, the right to privacy and the right not to incriminate oneself. It protects citizens from arbitrary encroachment of their rights by investigatory authorities.

Depending on the legal systems adopted by various countries, the scope and the nature of the protections afforded to the attorney-client professional privilege and confidentiality of communication vary.

On the other hand, with the increase of organised and transnational crimes, such as terrorism and money laundering, there is a tendency to restrict the protection granted to the classic lawyer-client legal professional privilege. 

Accordingly, the threats posed by money laundering and the financing of terrorism to peace, security, the well-being and economic development of the international community call upon the international community to revise the protection of the principle of legal professional privilege and confidentiality. Particularly, the danger posed by money laundering to the financial system integrity and the world economic development and its significant linkage with the financing of terrorism further justifies putting a limitation on the applicability of legal professional privilege and confidentiality. In this regard, the FATF Recommendations encourage countries in combating ML/TF, to take measures that require lawyers and other independent legal professionals to report suspicious transactions to the appropriate regulatory organs in certain fields of transactions.   Further, the countries’ secrecy law should not be an obstacle to the effective implementation of the FATF Recommendations.

However, lawyers have raised their strong objection against the requirement of filing suspicious transactions report.  The objection was on the ground that it undermines the professional independence and compromises the principle of legal professional privilege and confidentiality.

The discussion in this essay mainly covers the concept of professional privilege and confidentiality, reasons for having professional privilege and confidentiality, its applicability in the cases of money laundering and the financing of terrorism and the current tendency that attempts to put restrictions on legal professional privilege.  In this regard, it explains the scenario where the application of legal professional privilege can be limited by legislation, and sheds light on the role of lawyers and independent professionals in AML/CFT efforts in STR regime.   

For the purpose of detecting and deterring ML/FT, international and national initiatives and measures that have been taken towards the restrictions as to the applicability of the principle of legal professional privilege will be explored.         

 

2       The Concept of Legal Professional Privilege and Confidentiality

 

The concept of legal professional privilege and confidentiality has been established over centuries in all legal systems.  The principle of legal professional privilege is the basic concept of justice.  It protects disclosure of information shared between a lawyer and a client with view to enabling the client to obtain legal advice or legal support.

It is important to understand that while privilege and confidentiality are distinct notions, there is a considerable overlap between them.  Confidentiality may encompass communication that may not be sufficiently covered underprofessional privilege. As a result, confidentiality is wider in scope than a privilege.  It may arise either from contractual or fiduciary relationship between a lawyer and a client.

For information to be privileged, it should be confidential.  However, every exchange of information made between a lawyer and client in a confidential way does not necessarily mean that the communication is privileged, as mere confidential information is not sufficient to claim privilege.

Information is privileged if it is communicated either to get legal advice or other legal support such as representation in actual or potential legal proceedings. The latter covers not only attorney-lawyer communication but also the documents and advice given by third parties.  Thus, confidential communication not made for the purpose of legal advice or legal support is not protected by legal professional privilege.Further, if a legal advice is sought for the purpose of committing or in furtherance of a criminal act, the information will not be covered within the ambit of legal professional privilege.

Depending on the legal system adopted invarious countries, the applicability of the concept of professional privilege varies. The legal   professional privilege varies in terms scope and applicability.  In countries dominated by civil law or continental law system, professional privilege is attached to the right of the client.  Such privilege encompasses the non-disclosure right of the client.In these countries, lawyers are obliged to keep information they obtained from their clients in their professional capacity. The breach of professional secrecy by a lawyer entails criminal, civil and administrative liabilities.

In countries that are dominated by a common law legal system, the privilege is still granted to a client,but can be waived upon the consent of the client. In some other jurisdictions the privilege attaches to a lawyer and thus, without the consent of his client the lawyer can waive the professional privilege he or she is entitled to.

There are also differences as to the concept of professional secrecy and theconcept of legal professional privilege in the common law and civil law jurisdictions.  Professional privilege is a rule of substantive law in some common law jurisdictions. In some common law jurisdictions, for example, in the UK, legal professional privilege is seen as part of the law of evidence l.  On the other hand, in some other jurisdictions, such as, South Africa, the legal professional privilege is part of substantive law.

Therefore,it is important to note that there is no single and uniform approach to the concept of legal professional privilege. 

3       The Importance of Legal Professional Privilege

The following subsections deal with the main important roles that legal professional privilege plays in human rights protection, administration of justice and the prevalence of the rule of law and other democratic values.

 3.1 Ensures the Protection and Promotion of Human Rights Principles

The basic concept underlying legal professional privilege is the protection and promotion of human rights principles. Accused persons are granted the right to a fair trial under various international and regional human rights instruments. The right to a fair trial under these human rights instruments include the right to have a defence counsel.In order to implement such right, there must be a mechanism by which attorney-client communication is protected. This in turn enables states to comply with the obligationsthey have undertaken to implement human rights instruments.

For a suspect or an accused person to obtain proper legal advice and assistance from a lawyer, he or she has to disclose and present all facts of his or her case without fear that the information will be disclosed.

In this respect, in the case of Schönenberger and Durmaz v Switzerland and in the case of Golder v United Kingdom, the European Court of Human Rights (ECtHR) held that:

‘an accused’s right to communicate with his lawyer out of hearing of a third person is the basic requirements of a fair trial in a democratic society and follows from Article 6 of ECHR. If lawyers were unable to confer with their client and receive confidential instructions from him without such surveillance, their assistance would lose much of its usefulness.’

The Court, by interpreting Article 6 of the ECHR, stretched the issues of professional secrecy or confidentiality to be considered as one of the requirements of fair trial and such right must be protected against arbitrary encroachment.Furthermore, the Court held that ‘interference with the lawyer-client communication or correspondence would amount to breach of the right to privacy, which is protected by Article 8 of the ECHR’.

3.2           Ensures the Proper Functioning of Justice System

The protection of legal professional privilege enhances the trust between a lawyer and a client relationship. The free communication that exists between a lawyer and a client in the first place assists the lawyer to get all information concerning his client and this enables him to provide a proper legal service to his client.

It is important to emphasize that the complexities of certain substantive and procedural laws require lay people to seek and rely on the assistance of professionals in that particular field.  However, if clients fear that the content of those consultations might be subject to disclosure, they do not trust lawyers to obtain legal assistance and they try to deal with their affairs by themselves.  In most jurisdictions, there is a legal maxim which says that ‘ignorance of the law is no excuse’.  This would cost people who do not know how to plead their claims and how to defend allegations brought against them in court of law to simply lose the rights they are entitled to if they are not supported by lawyers.

In addition, lawyers play an important role in assisting citizens to understand and comply with the laws of the state in which they are living in.  Lawyers also enhance better observance of law by clients.  They assist the prevention and detection of potential and actual breaches of laws by providing relevant advice to lay clients regarding their rights and obligations.

Therefore, the protection of legal professional privilege enhances the proper functioning of the justice system.

4  Anti Money Launderign and Compating Financing of Teterrorism and the Scope of  Legal Professional Privilege in International Standards and Instruments

With technological advance and complexities, the process of money laundering and the commission of other organised crimes are also getting complicated. Thus, in connection to this, the applicability of the principle of legal professional privilege has been diminishing significantly in recent years.  The techniques employed by criminals to launder the proceeds of crime also impose difficulties for law enforcing authorities to detect and investigate the crime. 

Furthermore, it is obvious that in order to get their dirty money laundered, criminals seek the assistance of lawyers, notaries, other independent legal professionals and accountants. Professionals in these fields are knowledgeable in law, banking, taxation and other relevant professions in contemporary business transactions. According to the FATF Report, lawyers’ trust accounts are used for the placement and layering of ill-gotten funds. Though lawyers and other independent professionals provide services for legitimate purposes, they are also highly vulnerable to be used as facilitators by criminals to legitimise the proceeds of criminal activities without raising any suspicions as to the source of the funds.

In the following sub-sections, the efforts that have been taken by the UN, regional organisationsand other standard settersto fight money laundering and the financing of terrorism and their implications for legal professional privilege will be examined.

4.1  The UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances

The United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances was the first international instrument adopted to deal with the laundering of the proceeds of illicit drug trafficking.Although this Convention did not use the term money laundering explicitly, it defined the concept of money laundering and calls upon states parties to criminalise it.

4.2           UN Convention against Transnational Organised Crime (UNCTOC)

In order to fight organised crime such as money laundering, the UN further adopted a Convention against Transnational Organised Crime (UNCTOC). This Convention criminalised money laundering in explicit term and allows all serious crimes as a predicate offences for money laundering. Also, it urges states parties to criminalise money laundering. 

The Convention further requires states parties to establish a comprehensive regulatory and supervisory regime that would assist in preventing, detecting and deterring money laundering. The regulatory and supervisory regimeapplies to all ‘banks and non-bank financial institutions and, where appropriate, other bodies susceptible to money laundering’. The regulatory and supervisory regime mainly encompasses the requirements of ‘customer identification, record-keeping and reporting of suspicious transactions’.  In addition, it is possible to argue that this instrument adopts a catch-all term that says ‘other bodies susceptible to money laundering’ to include lawyers and other independent professionalswithin the STR requirement asthey are susceptible to money laundering. Lawyers and independent legal professionals are vulnerable to money laundering because their chance of being used by criminals to assist in laundering the proceeds of crimes is considerably high.

The UNCTOC further urges states parties to ensure co-operation and exchange of information among administrative, regulatory, law enforcement and other authorities dedicated to combating money laundering.

It is important to mention herethat, in its anti-money laundering provisions, the UNCTOC adopted the approaches that are adopted by FATF.

4.3        UN Convention against Corruption (UNCAC)

In 2003, the UN adopted a Convention that facilitates anti-corruption campaign at international level. Almost all countries of the world signed and ratified this Convention,giving raise to its global applicability. UN Convention against Corruption (UNCAC) provides for the preventive measure for money laundering. In this respect, the Convention requires states parties to take measures to prevent money laundering. The preventive measures of money laundering provided under UNCAC are similar to that of the provisions under UNCTOC.

The Convention, in its criminalisation part, requires each state party to criminalise the laundering of proceeds of crimes. UNCAC requires each state party to apply the widest range of predicate offences to money laundering.In this regard, each state party is encouraged to ‘include as predicate offences at a minimum a comprehensive range of criminal offences established in accordance with the Convention’.

4.4     International Convention for the Suppression of the Financing of Terrorism

Most often, the financing of terrorism has been dealt together with money laundering, and hence it is important to look into the international response aimed at dealing with the financing of terrorism.  In 1999, the United Nation adopted an International Convention for the Suppression of the Financing of Terrorism.The Convention requires each state party to criminalize ‘terrorism, terrorist organisation and terrorist act’.

4.5 Council of Europe  Convention on Laundering, Search, Seizure and Confiscation of the Proceeds  from Crime and on the Financing of Terrorism

The CE has adopted a Convention that requires states parties to criminalize money laundering and the financing of terrorism.

In preventing money laundering and the financing of terrorism, the Convention requires states parties to adopt the FATF Recommendations.Further, the European Parliament has adopted Directives to implement the Convention and the FATF Recommendations.These Directives require lawyers and independent legal professionals to report suspicious transactions. However, the directives do not impose any obligation to disclose information obtained from clients in the course of ascertaining the legal position of clients or in representing and defending clients in legal proceeding.

4.6     The Financial Action Task Force (FATF) Approach

Besides the various international conventions adopted by the UN, in 1989 the Financial Action Task Force (FATF) on money laundering was founded by the G-7 countries.The FATF original purpose was ‘to set and promote an international standard to fight money laundering’. After the incident of 9 September 2001, it expanded its mandate and included combating the financing of terrorism.

Since 1990, the FATF 40 Recommendations have been undergoing revisions to include new developments and changes in money laundering. Accordingly, when the FATF expanded its mandate to include combating of the financing of terrorism,the Special Recommendations concerning the financing of terrorism were adopted and added to the Forty Recommendations of money laundering.

With view to combating money laundering through the efforts of several professionals including lawyers and independent legal professionals, the  FATF further took the initiative to identify these professionals as ‘gatekeepers’in combating money laundering and the financing of terrorism. On the gatekeepers’ initiative,the FATF pointed out its concern regarding the skill and expertise of lawyers and independent legal professionals being used by money launderers to legitimise the proceeds of criminal activities.Consequently, the FATF 40+8 Recommendations of 2003expressly required legal professionals to report suspicious transactions in certain areas.

Further, the FATF incorporated Recommendations that demand designated non-financial business and professions (DNFBPs) to comply with the preventive measures provided in the Recommendations.

In its preventive measures, the FATF which encourages DNFBPs, such as, lawyers to follow the customer due diligence and record-keeping requirements also strongly encourages reporting suspicious transactions when they engage in financial transaction on behalf of or for a client.These financial transactions are: ‘buying and selling of real estate; managing of client money, securities or other assets; management of bank savings or security accounts; organisation of contributions for the creation, operation or management of companies; creation, operation or management of legal persons or arrangements, and buying and selling of business entities’.

The lawyers and independent legal professionals are also required to file STR when they have reasonable grounds to suspect thatfunds are the proceeds of criminal activities or related to the financing of terrorism.

Furthermore, the FATF Recommendations does not require lawyers and independent legal professionals to report suspicious transactions where they are subject to professional secrecy or legal professional privilege.It is for each country to determine the matters that would fall under the legal professional privilege. This would generally include ‘information lawyers or other independent legal professionals obtained in the course of ascertaining the legal position of their client, or in the course of defending or representing their client in commenced, contemplated or pending litigation’.

Hence, in combating money laundering and the financing of terrorism,the FATF requires lawyers to provide information regarding certain transactions. Particularly, lawyers are required to report suspicious transactions when, on behalf of or for a client they engage in a financial transaction. However, such suspicious transaction reporting requirement from independent legal professionals has attracted criticisms from lawyers and bar association of different jurisdictions.

5             Criticisms against Reporting Suspicious Transactions by Legal Professionals

Lawyers and professional associations criticize the duty to report suspicious transactions on the ground that it violates ‘legal ethics and professional conduct’. The reporting duty required from lawyers in anti-money laundering campaign is further considered as being a threat to the independence of legal professionals by making them a state agent.

There is also a concern that money laundering cannot be controlled by imposing a reporting duty upon lawyers since there are other ample methods by which criminals launder the proceeds of their criminal conduct other than using lawyers as facilitators.

Further criticisms include:‘It undermines the sanctity of the lawyer-client relationship that is founded upon exclusive trust and the loyalty of the lawyer to the client; it is in consistence with the underpinning principles of lawyer-client privilege that guarantees individuals the right to get counsel including the right to be represented by a legal counsel of his own choice; it creates conflict of interest if a lawyer continues to assist a client after he made STR. In some jurisdictions, to continue advising or representing a client after the filing of STR would result in criminal and civil liabilities and the STR requirement would further result in inaccessibility of lawyers to the society and endangers the administration of justice.’

6    The Ethiopian Approach to Legal Professional Privilege in AML/CFT

Ethiopia is a signatory to most international standards and signed and ratified almost all international and regional conventions that deal with money laundering and the financing of terrorism. As it has been discussed earlier, the AU Convention, UNCAC and UNCTOC require states to adopt legislative and other measures that criminalise and prevent laundering of proceeds of crime and concealment or continued retention of property acquired by corruption and other organised crimes.  The provisions of UNCAC and UNCTOC similarly provide that, to deter and detect all forms of money laundering, states are required to have a comprehensive domestic regulatory and supervisory system for banks,  non-bank financial institutions and other bodies susceptible to money laundering.

In response to these provisions of the conventions, it first amended its Penal Code in 2005 to include money laundering and other criminal conducts born of advances in technology and the complexities of modern life.  In addition to amending the Penal Code of 1957, a law that is designed to prevent and suppress money laundering and the financing of terrorism was passed by the Ethiopian Parliament in late 2009 for the first time.Since,this law did not meet international standards and, was repealed recently by Proclamation No 780/2013. Moreover, this new Proclamation also repealed the provision regarding money laundering in the Criminal Code.The new AML/CFT law compels financial institutions and DNFIPs including lawyers, notaries and other independent legal professionals to take preventive measures such as record keeping and perform CDD measures when they prepare or carrying out financial transactions for their clients.The law further requires lawyers to disclose evidence and information they have acquired from their customers when they have reasonable grounds to believe that the fund is the proceeds of criminal conduct.However, lawyers, notaries and other independent legal professionals have no obligation to disclose information they acquire from their clients ‘in the course of determining the legal position or performing the task of defending or representing their clients in or concerning judicial proceedings, including advice on instituting or avoiding proceedings.’

On the other hand, the Federal Court Advocates’ Code of Conduct Regulation imposes an obligation on advocates to keep in secret the personal or organisational information of their clients or any other information he obtained in the course of their professional service even after the termination of the contract with clients.However, the advocate can disclose confidential information obtained from clients if the client gives his/ her consent.

Also, this Regulation provides conditions upon which advocates disclose confidential information.Accordingly, they can disclose confidential information of their client,among others, to carry out obligations expressly imposed by law. In this regard,to detect ML/FT AML/CFT law requires lawyers/advocates/ to report their suspicions to the Financial Intelligence Centre / FIC/ if they have reasonable grounds to suspect that their client is involved in ML/FT.

The law which requires lawyers to disclose certain information obtained from clients strikes a balance between the classic concept of legal professional privilege and the public interest.The fundamental interest protected by AML/CFT is the public interest. As discussed above, all international conventions aimed at the suppression of transnational organised crime including, terrorism, corruption, illicit drug trafficking require the criminalisation money laundering.

To fight money laundering effectively,these Conventions,inter alia,require the reporting of suspicious transactions by institutions susceptible to money laundering.In this respect, it has been mentioned that money laundering scheme involves the use of professionals such as lawyers and independent legal professional.The legitimate services such as ‘buying or selling of real property or business entities on behalf of a client, managing a client’s money, investments, or other assets; opening or managing a bank, savings or securities account on behalf of a client; organizing contributions for the creation, operation or management of companies on behalf of a client; or creating, operating or managing trusts, companies or similar structures on behalf of a client’often sought by criminals to launder criminal proceeds. Accordingly, lawyers and independent legal professionals are susceptible to money laundering and where appropriate, they are subject to the STR requirement.

Further, money laundering poses serious problems and threats to the stability and integrity of financial systems, the national and international economy. It also promotes terrorism, corruption and other serious crimes.  Hence, it destabilizes public peace and order. The challenges posed by terrorism to the international peace and security justify the STR requirements for lawyers and independent legal professionals and hence lawyers need to play their role in AML/CFT effort of the country.

On the other hand, the AML/CFT law does not totally negate the protection available to professional privilege.  The law still protects information obtained by lawyers from clientsin the course of ascertaining the legal position of clients and in representing or defending clients in judicial, administrative, arbitration or mediation proceedings.

Though it seems controversial, it is important to interpret the STR requirement provided under Article 17(1) of Proclamation 780/2013 in line with the FATF Recommendations. According to the FATF Recommendations, STR requirement set out in Proclamation No 780/2013 applies only to certain transactions such as, buying and selling of real estate and other financial transactions.  These transactions, by their nature,are financial or commercial and such transactions fall outside the strict context of legal advice and legal proceeding and may not necessarily be protected by the principles of legal professional privilege. Also, researches demonstrate that it is in these kinds of transactions that most of the time lawyers come into contact with the proceeds of crime.

Conclusion

The controversies and the criticismsregarding the duty to report suspicious transactions by lawyershave been discussed extensively. Lawyers have strongly resisted the requirement of reporting suspicious transactionson the ground that the duty to disclose information would be incompatible with the principle of professional secrecy. The reporting duty requirement regarding suspicious financial transactions often is considered as potential assault on lawyer-client privilege as it may involve information that must be treated confidential under a country’s secrecy law.

The protection afforded to legal professional privilege can serve various purposes. It is related to the protection of human rights specifically, the right to a fair trial and the right to privacy recognised under international and regional human rights instruments. Further, it serves to facilitate the proper functioning of the justice system by letting citizens who don’t have awareness about their rights and duties have free access to lawyers and obtain the proper assistance for their cases.

However, it must be noted that the protection given to legal professional privilege must not hinder the efforts to combating money laundering and the financing of terrorism. In this respect, lawyers and independent legal professionals are in a key position to play a role in preventing and detecting such crimes. Exempting lawyers from STR requirement would create a substantial gap in AML/CFT legal framework.

 

It is also important to note that, in disclosing confidential information for the purpose combating money laundering and the financing of terrorism, a balance has to be struck between legal professional privilege and countering money laundering and the financing of terrorism.

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Mesay Tsegaye

The blogger has LLB from Haramaya University and LLM in Transnational Criminal Justice and Crime Prevention – An African and International Perspective from the University of the Western Cape, South Africa and Humboldt University, Germany. Currently, she is a public prosecutor in the Federal Democratic Republic of Ethiopia Ministry of Justice.