APRL's Seventh International Professional Responsibility Conference, Paris Lawyer’s Reporting Obligations in Corporate Transactions: When does legal privilege prevent a report and when is it overridden by the “Crime Fraud Exception”? Peter Burrell 12-14 April 2016

When does legal privilege prevent a report and when is it overriden by the “Crime Fraud Exception”? What are the reporting obligations on lawyers? How far can a lawyer go in assisting a client? When and how can privilege be lost?

What are the reporting obligations on lawyers? First under the Third Money Laundering Directive (2005/60/EC) Article 22 – applies to notaries and other independent legal professionals when acting in any financial or real estate transaction or assisting in the planning or execution of transactions concerning, inter alia, the buying and selling of real property or business entities; organising contributions necessary for the creation, operation or management of companies (Article 2(1)(3)(b)); requires reports where a person knows or suspects or has reasonable grounds to suspect that money laundering or terrorist financing is being or has been committed or attempted.

What are the reporting obligations on lawyers? (cont’d) Secondly under national laws e.g., The Proceeds of Crime Act 2002 Section 330 – Failure to disclose where a lawyer knows or suspects or has reasonable grounds for knowing or suspecting that another is engaged in money laundering and where the information giving rise to the suspicion came to him in the course of a business in the regulated sector.

How Far can a lawyer go in assisting a client? Article 1 – Third Money Laundering Directive obliges Member States to prohibit money laundering which is defined to include: the conversion or transfer of property, knowing that such property is derived from criminal activity or from an act of participation in such activity, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such activity to evade the legal consequences of his action; the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is derived from criminal activity or from an act of participation in such activity; the acquisition, possession or use of property, knowing, at the time of receipt, that such property was derived from criminal activity or from an act of participation in such activity.

How Far can a lawyer go in assisting a client? (cont’d) Section 338 – Money laundering offences similar to those in the Third Directive, concealing, acquiring, using processing criminal property or being concerned in arrangements relating thereto. You make a disclosure before committing a money laundering offence and you obtain consent to proceed. Other local laws of aiding, abetting, facilitating a crime.

When and how can privilege be lost? Article 23(2) – Member States shall not be obliged to apply the obligations laid down in Article 22(1) to notaries, independent legal professionals, auditors, external accountants and tax advisors with regard to information they receive from or obtain on one of their clients, in the course of ascertaining the legal position for their client or performing their task of defending or representing that client in, or concerning judicial proceedings, including advice on instituting or avoiding proceedings, whether such information is received or obtained before, during or after such proceedings.

When and how can privilege be lost? (cont’d) Article 23(2) – Section 330 A legal adviser does not have to make a report under s.330 if the information came to him in privileged circumstances. Information or other matter comes to a professional legal adviser in privileged circumstances if it is communicated or given to him – by (or by a representative of) a client of his in connection with the giving by the adviser of legal advice to the client by (or by a representative of) a person seeking legal advice from the adviser, or by a person in connection with legal proceedings or contemplated legal proceedings. But that does not apply to information or other matter which is communicated or given with the intention of furthering a criminal purpose.

When and how can privilege be lost? (cont’d) Under English common law privilege is a fundamental right: In R v Derby Magistrates’ Court ex parte B [1996] Lord Taylor characterised legal professional privilege as follows (at 507D): “The principle which runs through all [the cases] is that a man must be able to consult his lawyer in confidence, since otherwise he might hold back half of the truth. The client must be sure that what he tells his lawyer in confidence will never be revealed without his consent. Legal professional privilege is thus much more than an ordinary rule of evidence, limited in its application to the facts of a particular case. It is a fundamental condition on which the administration of justice as a whole rests.” There is an exception known as the “crime/fraud exception”: In broad terms, this exception provides that there is no privilege in documents or communications which are themselves part of a crime or a fraud, or which seek or give legal advice about how to facilitate the commission of a crime or a fraud.

When and how can privilege be lost? (cont’d) The standard before the exception is triggered is that: there is a very strong prima facie case; that there was a criminal purpose in seeking advice from the lawyer; and the privileged material was produced in furtherance of that purpose. Application in a commercial context: CITIC Pacific Ltd v Secretary for Justice [2012] 2 HKLRD 701 Recent challenges by the SFO – David Green alleged that companies are impeding SFO investigations by using the privilege of communication with lawyers to their benefit. The SFO is prepared to challenge head-on the claims of privilege which they believe to be ill-founded (The Times, 5 February 2015).