Legal privilege and MLR

We've just done a report on the Prudential case in which the ICAEW are fighting the Law Society to get accountants' tax advice recognised as having the same status as solicitors' legal privilege.

My own feeling is that this might be something of a symbolic case for the ICAEW that it may have to take to the Supreme Court with a relatively slim chance of overturning hundreds of years of common law precedent (and legal self-interest). But haven't the Money Laundering Regulations eaten away at the concept so much that any gains will be relatively small.

I understand from David's previous contributions to the site that some privilege applies where clients are being advised on legal cases, but don't the MLR requirements ride roughshod over the wider ideal? I'd welcome members' interpretation of the case and its wider significance, and will also pose a similar question on the article itself. Thanks all.

Comments
cymraeg_draig's picture

Personal opinion

cymraeg_draig | | Permalink

The Money Laundering Regulations are bad law.  Any law which relies upon someone's "opinion" or "supicion" is fatally flawed as it is a matter of personal opinion - what makes you suspicious, perhaps will not raise any suspicion in my mind - as I'm such a trusting soul :).

The Pru case does raise interesting and very important points. Ignoring the "official" line my personal view is that client confidentiality SHOULD apply to advice given by accountants. 

Currently we have the ludicrous situation where - 

  1. A client comes to me with my accountants hat on and asks how he can fiddle his tax - I'm obliged to report this under MLR.
  2. A client comes to me with my legal hat on and tells me he's worried because he's fiddled his tax and will I defend him - I have no oblgation to report, indeed Im specifically forbidden from doing so.

So, I have to report the one who has not yet actually committed a crime, but, I cant report the one who already HAS committed a crime. ??????????????????

My opinion, (and this is my personal opinion) is that all records handed to the accountant by the client should be handed over to HMRC, BUT, the accountant's advice, discusion, and indeed his working papers, should be privaleged.  How can any professional give open and honest advice if all the time he is looking over his shoulder in case of accusations. 

As for MLR - in its current form it's actually a joke. 

  

davidwinch's picture

Detailed analysis

davidwinch | | Permalink

If we subject this to more detailed analysis (or hair-splitting, depending upon your point of view) the Money Laundering Regulations 2007 and the related provisions of s330 Proceeds of Crime Act 2002 (as amended) arguably do not affect common-law legal professional privilege.

By way of background (and being brief) the 'common law' is law which is not to be found in any statute passed by Parliament, but it is the law because everyone accepts it to be the law and it is based on time-honoured fundamental principles.  An example of common law is the offence of 'cheating the public revenue' - sometimes still used in the prosecution of tax evasion.  The 'rules' in relation to common law offences have been developed and refined over decades or even centuries of court decisions.  (Off topic, but in Scotland such non-parliamentary law is much more important than in England & Wales.  For example the Theft Act 1968 does not apply in Scotland, where theft is a common law offence.)

One of the fundamentals of the common law is that communications relating to legal advice given by a solicitor to his client remain confidential and the courts cannot oblige those communications to be revealed against the wishes of the client.  (This is sometimes misunderstood to mean that all communications between a solicitor and his client are protected, but this is not the case.)  This common law protection (and other very similar common law protections) are sometimes referred to as "legal professional privilege" or LPP.  This is something of a misnomer because the protection belongs to the client, not to the legal professional, but it's a useful shorthand terminology.

It is also the case that the MLR and s330 (as originally enacted) gave statutory protection from the obligation to report suspicions of money laundering so that a lawyer was expressly not required to report information received in the context of giving legal advice.  Technically that is not an application of common law legal professional privilege, it is a statutory exemption which has a similar impact in specified circumstances.

But the European Directive on which the MLR are based actually refers to lawyers and accountants and therefore the UK enactment did not faithfully reflect the EU Directive.  The ICAEW amongst others objected to this.  Eventually the MLR and s330 were amended to extend the statutory exemption to qualified accountants.

Now the MLR and s330 are out of step with English common law.  But does that matter?

The lawyers say that does not matter and it would be inappropriate to extend the common law privilege to cover legal advice by anyone other than lawyers.  One 'reason' for this is that lawyers are technically officers of the court and accountants are not.  (The 'proper' title of a solicitor is “solicitor of the Senior Courts of England and Wales”.)

On the other hand one could argue that accountants have a long history of serving the public interest (and not simply the interest of their client) in their role as statutory auditor under company law (and similar legislation).

Also accountants, when acting as expert witnesses, owe a primary duty to the court which over-rides their duty to their client.

So one might argue that accountants, like lawyers, recognise a wider responsibility and their clients deserve the benefit of common law LPP in relation to legal advice from either profession.

But then what about actuaries, surveyors, etc., etc.?

I rather suspect this appeal will go to all the way to the Supreme Court.

David

www.AccountingEvidence.com

davidwinch's picture

Debating the law with C_D

davidwinch | | Permalink

C_D

I am going to debate the law with you here!

The MLR and s330 Proceeds of Crime Act 2002 do indeed oblige an accountant to report where he subjectively suspects money laundering by someone.  It may well be the case that I, being of a nasty and devious mind, form a suspicion and report it in circumstances where you, having led an innocent and virtuous life, do not suspect anything reportable.

However the MLR and s330 also require both of us to report where there are objectively reasonable grounds for suspicion of money laundering by someone, based upon information which has come to us in the course of our professional work.

So it is not the whole story to say that the MLR and s330 rely on matters of personal opinion.

Secondly you are not obliged to report under MLR a client who comes to you and who (having as yet done nothing wrong) asks you how he might go about fiddling his tax.  This is not reportable as, having derived no benefit from crime, the client cannot be engaged in money laundering.  Therefore you have no suspicion to report.

If, on the other hand a client came to you and said, "I have been fiddling my tax for years and have banked the proceeds in Lichenstein.  I hear HMRC have reached an information exchange agreement with Lichtenstein recently.  Where in the world can I now send that money and the benefit of my future tax evasion and still avoid HMRC finding out about it?"  Then you would be obliged to report that to SOCA because the client could not avail himself of the protection of legal professional privilege when seeking your advice for the purpose of advancing a criminal activity.

Take a third example.  A client comes to you and says "I have evaded taxes in the past.  I cannot sleep for worrying that I might be found out.  What would happen to me if HMRC did find out and how can I regularise my tax affairs?"  In this case you would be exempt from disclosure because the client would be seeking legal advice.

In all three of these cases the position is exactly the same whether you are a lawyer or an appropriately qualified accountant.

You will appreciate that, in law, neither the conveyancing file of a solicitor nor the working papers file of an accountant would normally be regarded as protected by legal privilege.  The solicitor and the accountant can equally well be ordered to hand these over to the police by, for example, a production order under s345 PoCA 2002.

David

cymraeg_draig's picture

David

cymraeg_draig | | Permalink

 

The MLR and s330 Proceeds of Crime Act 2002 do indeed oblige an accountant to report where he subjectively suspects money laundering by someone.  It may well be the case that I, being of a nasty and devious mind, form a suspicion and report it in circumstances where you, having led an innocent and virtuous life, do not suspect anything reportable.

Posted by davidwinch on Thu, 22/07/2010 - 19:30

 

Finally - someone recognises that I have led such a virtuous life that only the fact I'm not dead stops me from achieving sainthood :) 

 

___________________________________________________

Secondly you are not obliged to report under MLR a client who comes to you and who (having as yet done nothing wrong) asks you how he might go about fiddling his tax.  This is not reportable as, having derived no benefit from crime, the client cannot be engaged in money laundering.  Therefore you have no suspicion to report.

Posted by davidwinch on Thu, 22/07/2010 - 19:30

 

Actually I would suspect - it seems fairly clear to me that anyone asking his accountant how better to fiddle his taxes, has almost certainly already been fiddling, and is seeking a less obvious and possibly more profitable way to do so. However, would I "suspect" enough to report ?

 

__________________________________________________

If, on the other hand a client came to you and said, "I have been fiddling my tax for years and have banked the proceeds in Lichenstein.  I hear HMRC have reached an information exchange agreement with Lichtenstein recently.  Where in the world can I now send that money and the benefit of my future tax evasion and still avoid HMRC finding out about it?"  Then you would be obliged to report that to SOCA because the client could not avail himself of the protection of legal professional privilege when seeking your advice for the purpose of advancing a criminal activity.

Posted by davidwinch on Thu, 22/07/2010 - 19:30

 

Agreed because he is not seeking legitimate professional advice - he is seeking advice on how to further his criminal activities, as opposed to seeking advice on how to deal with the consequences of those activities ie. being charged.

 

_________________________________________________

Take a third example.  A client comes to you and says "I have evaded taxes in the past.  I cannot sleep for worrying that I might be found out.  What would happen to me if HMRC did find out and how can I regularise my tax affairs?"  In this case you would be exempt from disclosure because the client would be seeking legal advice.

Posted by davidwinch on Thu, 22/07/2010 - 19:30

 

Again agreed - the key phrase being "how can I regularise...".

 

________________________________________________

In all three of these cases the position is exactly the same whether you are a lawyer or an appropriately qualified accountant.

Posted by davidwinch on Thu, 22/07/2010 - 19:30

 

In theory you are correct, however in practice its not that simple.

The courts start from the premise that all client-lawyer communications are privaleged - unless someone can show they are not.

They start from the premise that all accountant-client communications are NOT privaleged unless you can show that they are.

I'm not saying that is right, merely that it is a fact of life.

 

______________________________________________

You will appreciate that, in law, neither the conveyancing file of a solicitor nor the working papers file of an accountant would normally be regarded as protected by legal privilege.  The solicitor and the accountant can equally well be ordered to hand these over to the police by, for example, a production order under s345 PoCA 2002.

Posted by davidwinch on Thu, 22/07/2010 - 19:30

 

Working papers are, in my view, a grey area.  It is quite usual to have documents containing information which is privaleged, but, which also contain information which, on its own, would not attract privalege.  I have seen requests for production orders succesfully resisted where whole documents have been ruled as privaleged because of literally one phrase or sentence within the document. 

I have also seen cases collapse where privaleged material has been wrongly acquired by the prosecution.

In my view, and this is a personal view, there should be absolute and total privalege between ANY professional advsor and his client. I believe this should extend beyond the legal profession to accountants, and doctors. On the other hand, I have never seen why priests historically enjoy this privalege.

 

 

" I have never seen why priests historically enjoy this privaleg

chatman | | Permalink

I imagine it is because of the enormous political power exercised ruthlessly by the church. 

confessional

The Black Knight | | Permalink

Perhaps we should all give advice wearing dog collars from within the confines of a confessional box. lol

of course every man of the cloth knows not to write the details down.

does the priest even identify the confessor or is that left to God I wonder ?

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