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Legal sector better fight fincrime, role in creating anonymous ownership structures – or governments will make them: watchdog report

Whether you are called an attorney, a lawyer or a solicitor, global watchdogs say you better police yourself to adhere to global counter-crime compliance standards, more aggressively find potential instances of financial crime in customer relationships and be leery of someone asking to set up anonymous shell companies.

Those are just some of the findings, according to a joint report by the International Bar Association (IBA) and the Organisation for Economic Co-operation and Development (OECD), looking at the role of attorneys through the lens of the historic Panama and Paradise Papers leaks, where these and other gatekeepers – professional services firms, company formation agents and the like – gave easy entre to a cabal of risky, illicit, corrupt and terror-tinged groups.

The report, titled the “Role of Lawyers and International Commercial Structures,” lays out eight key principles for lawyers to follow to better sniff out criminal ties, avoid being part of and furthering illegal actions and is a helpful guide for the sector and federal and self-regulatory bodies to help judge when certain firms are willingly falling afoul of best practices.

The principles tackle issues including the depth and accuracy of customer due diligence, capturing and verifying beneficial ownership details and not tarrying when a client turns to the dark side, revealing their actions are tied to illegal activities.

One critical takeaway from the task force report: If these attorneys and law firms don’t better start regulating themselves and voluntarily ascribing to regional and international anti-money laundering (AML) standards to better uncover, and not shield, beneficial owners, look for governments to more completely, or for the first time, capture this groups in financial crime compliance regulations.

Here are some snapshots:

·       Principle 1: Non-facilitation of illegal conduct – When creating companies, trusts and partnerships, a lawyer should not facilitate illegal conduct, and should undertake the necessary due diligence to avoid doing so inadvertently.

·       Principle 2: Misuse of the duty of confidence and privilege – A lawyer should not use the confidential nature of the lawyer–client relationship or the principles of legal professional privilege to shield wrongdoers.

·       Principle 3: Client due diligence – The enquiries that a lawyer undertakes should be heightened if the risk profile of the client, the type of transaction, the origin of the funds, the parties involved and/or the jurisdiction fall within well-established international benchmarks for jurisdictions with increased risk of bribery, corruption and commercial crime.

·       Principle 4: Action where client conduct is, may be or becomes illegal – Where the conduct of a client is, may be or becomes illegal, even if it was originally legal and the lawyer continues to be retained by the client, a lawyer should advise the client of the consequences of the conduct and recommend that the client pursues alternative solutions.

·       Principle 5: Multijurisdictional risk – Where a transaction involves conduct by a client, agents or representatives of a client in more than one jurisdiction and the lawyer has reasonable grounds to believe that the conduct may be or may become illegal in a jurisdiction(s), a lawyer should verify that expert advice is or has been obtained by the client from a lawyer experienced in the conduct or transaction in that jurisdiction.

·       Principle 6: Use of illegally obtained information – Lawyers should strongly discourage a client from paying private parties or public officials to obtain illegal information, which of itself may constitute a criminal offence in many jurisdictions.

·       Principle 7: Disclosure of beneficial ownership – A lawyer should obtain and maintain up-to-date beneficial ownership information and take reasonable measures to verify its accuracy in relation to the lawyer’s client(s).

·       Principle 8: Advertising by lawyers on international commercial structures – Any advertising by lawyers should be transparent, accurate and truthful, (via the IBA).

MONROE’S MUSINGS:

This advice, guidance, threat, call to arms and general warning for the global legal sector could not come at a more appropriate time, and by groups very well acquainted with criminal patterns that have used, and abused, gatekeepers and their ilk for ill.

But the story also reveals a persisting, if somewhat hypocritical dichotomy, of the international legal sector and their, at times, adversarial relationship with AML rules. The issue is that without formal rules in place, that means the sector must police itself – ruthlessly so. But that mostly isn’t happening.

In many jurisdictions, like Canada and the United States, attorneys have furiously fought to keep formal compliance rules from ensconcing their sector – similar to how compliance rules capture most financial institutions.  

And in some countries, they have won, citing the challenge of keeping attorney-client privilege sacrosanct while simultaneously having to report potentially aberrant actions by a client, that may end up strengthening a government case, against that same client.

Conversely, in places like the Europe and the United Kingdom, solicitors and other groups are largely subject to AML obligations. So grafting AML onto attorneys and keeping attorney client privilege unharmed can coexist and has happened. In short, the sky hasn’t fallen.

But, as we mentioned, for the countries that still don’t have dedicated federal AML obligations for attorneys, these groups have agreed to an unstated bargain they will more fully and willingly check themselves and scrutinize their actions to the highest standards.

Sadly, however, as this report reveals, that isn’t happening. Meaning that country legislators and federal regulators are likely to capture attorneys with the burden of full AML programs and reporting on client transactions and aberrant behavior.

These watchdog groups argue, as well, that if things don’t change – drastically and quickly – attorneys saddled with expensive and intensive AML duties will have no one to blame for this encroaching compliance yoke, but themselves.

Source: ACFCS.ORG

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