Members of AccountingWEB.co.uk's money laundering and crime discussion group provide expert analysis on the Prudential decision on whether legal professional privilege should apply for accountants.
In the wake of the Court of Appeal decision last week in the Prudential v HMRC case that legal professional privilege does not apply to accountants, AccountingWEB.co.uk member Clint Westwood posed two key questions for David Winch, the leader of our discussion group on money laundering and crime:
- Whether there are any remaining circumstances under which an accountant can claim to have received information under "privileged circumstances"? and;
- Whether this test is different as regards the accountant's obligations to file a report to SOCA under the Money Laundering Regulations as contrasted with the accountant's defence to a request for information by HMRC
In a nutshell, it's "no change" on MLR, replied Winch. "We need to be careful not to confuse two completely different things which have similar names and, in some respects, operate in slightly similar ways. The first is common-law legal professional privilege and the second is the statutory exemption from the obligation to report to SOCA information which has been received in privileged circumstances."
The Prudential case was about whether an accountant giving legal advice could be covered by the ancient common-law rule of "legal professional privilege" that information provided by a client to a lawyer in connection with obtaining legal advice or dealing with legal proceedings is "privileged" and therefore exempt from disclosure.
The only exemptions from the lawyer's duty not to disclose are if the client waives the privilege or is abusing it for a criminal purpose.
As Winch summarised it, "The moral of the story being that it is safer to bare your soul to your lawyer than to your accountant."
The exemption from reporting to SOCA is set out by statute law. It is an exemption of limited application (for example, it applies only to 'suspicious activity reports' to SOCA - in other words the reports made under Money Laundering Regulations 2007, s330 Proceeds of Crime Act 2002 and the parallel legislation relating to terrorist financing). The statute law sets out quite clearly that it applies to information received in 'privileged circumstances' (as defined in the statute) by lawyers and 'relevant professional advisers' (as defined - to include most qualified accountants).
The statutory exemption says that where information is received by a lawyer or 'relevant professional adviser' in 'privileged circumstances' there is no obligation to report it to SOCA. The Prudential case covers a separate point of law and has no impact on this statutory exemption.
"This does (and always has) led to some anomalies," Winch explained. For example, if you receive information in privileged circumstances that your client is engaged in say, trafficking heroin (or, more realistically, employing illegal immigrants), then you will not report that to SOCA. But if the police turn up at your office with an appropriate search warrant, your files (including that information) are open to them. That is because the files/information are not covered by common-law legal professional privilege even though the information was covered by the statutory exemption. The statutory exemption only exempts you from reporting to SOCA. A lawyer would still be covered by common-law legal professional privilege, so the police could not have access to their files.
How accountants might qualify for LPP
While Winch provided a comprehensive explanation why the Prudential decision will not affect accountants' MLR obligations, lawyer and AccountingWEB.co.uk regular 'Cymraeg_Draig' argued that privilege is a grey area - even for the legal profession of which he is also a member.
Giving advice direct to the client will always be challenged as not attracting professional privilege, but an accountant giving advice in legal proceedings might be more entitled to claim the right, he said.
If the solicitor acting for the client formally requests the advice and if the advice is given to the solicitor, not the client, and the solicitor pays for that advice (recharging it to the client as a disbursement) then the solicitor has engaged the accountant, not the client, and that most definitely would attract professional and legal privilege, he pointed out.
Suspicion and how it applies to professional reports
SWATuk managing director Mike Sturgess joined in to clarify the wider issue of suspicion as it applies to SOCA reports. "The discussion on suspicion, like suspicion itself, is subjective," he said. "One person's view of what is reasonable may well differ from another's and in extreme cases the courts have to decide what is or is not reasonable."
Even with a comprehensive set of legal definitions and precedents to draw on, there is plenty of scope for argument around the issue.
Back in the real world in which accountants live, Sturgess noted, "For every complaint I get about having to 'shop' my client I get a complaint that the accountant reported clear fraud or tax evasion and nothing seems to have happened as a result. The Treasury is indeed looking at the regulations, but I doubt very much that we will see any move away from the obligation to report suspicion as well as knowledge of money laundering. After all, the legislation is based on the EU Directive, which member states must implement," said Sturgess.
Visit the money laundering and crime discussion group to see the full version of this debate.