Proctor : May 2017
26 PROCTOR | May 2017 The reality of AML for solicitors ‘A fundamental attack on the civil rights of clients’ Anti-money laundering (AML) regulation may soon become a reality for Australian solicitors, with a strong call for its implementation following the 2013 report of the Financial Action Task Force. The implications of this proposal are of grave concern to Queensland Law Society, as it will attack the heart of the solicitor-client relationship. While this is not breaking news for the profession and has been in the pipeline for many years, it is closer to implementation. A brief history Nearly 30 years ago the Financial Tractions Reports Act 1988 (Cth) was introduced to monitor the flow of money in Australia. The year after this legislation was introduced, the task force was formed by several nations to further address this issue in the illicit drug trade. Australia is now one of 34 members of the task force. It was not until 2003 that the task force included lawyers within the scope of its ‘non-financial business and professions’ ambit, and it was recommended that this group undertake measures such as due diligence and record keeping. Three years later, in 2006, the Anti-Money Laundering/Counter-Terrorism Financing Act 2006 was passed by the Australian Government to ensure that the nation aligned with the task force’s requirements. This Act established a reporting regime that originally targeted the financial and gambling sectors, and bullion dealers. It was also anticipated that lawyers would be brought into the regime after the initial legislation was introduced, however this did not occur. One possible reason for the delay may have been the 2007 federal election, which saw a change of government. Most recently, the task force released the 2013 report which referred to the “vulnerabilities of legal professionals to money laundering and terrorism financing”. This brought the focus back to Australian solicitors and there is now a strong call for legal practitioners to be brought into the AML/CTF regime. The Society holds portentous concerns about the effects of this proposal. Citizens have a right to the protection of their confidences – particularly when it comes to legal professional privilege. These changes will undermine the integrity of the solicitor-client relationship if implemented as currently proposed. Current obligations for solicitors It is important to note that the legal profession in Australia is already heavily regulated when it comes to ethical and professional obligations concerning a client’s criminal activity. The Australian Solicitors Conduct Rules 2012 contain a number of fundamental duties. These include the first and paramount duty to the administration of justice, avoiding compromise to integrity or professional independence, following a client’s lawful proper and competent instructions, and the right to terminate the engagement for just cause and on reasonable notice. Breaching any of these rules may constitute “unsatisfactory professional conduct” or “professional misconduct”. A solicitor can – in certain circumstances – terminate the client engagement for just cause on reasonable notice. Legal practitioners are required to treat client money as trust money across all Australian jurisdictions. The receipt and use of trust money is also heavily regulated in this country and there are already obligations in place to report irregularity within lawyers’ trust accounts, which are held by banking institutions, who are subject to this scheme. Under the current arrangements, when a legal services commissioner or similar authority learns that a practitioner has committed a breach, they must report the person to the relevant law enforcement or prosecution authority. There are also obligations set out for reporting under the Property Exchange Australia. It is important to recognise that lawyers are already aware – and there are substantial professional obligations in place – that they must manage the risk of being an instrument to a client achieving an illegal or improper purpose. Although it is obvious, it is also important to note that lawyers as individuals are subject to Division 400 of the Criminal Code Act 1995 (Cth). The offences under this division apply to a lawyer who inadvertently or unwittingly allows an act of money laundering to occur as a result of failing to make proper enquiries. Obligations under AML/CTF It is vital that Australian legal practitioners understand what will be required of them under the AML/CTF regime ahead of the potential changes. There are significant offences, sanctions and risks for “reporting entities” who fail to meet their obligations. General obligations include: • identification and verification – Reporting entities must identify and verify a customer’s identity before providing the customer with a designated service and also must carry out ongoing due diligence on clients. • reporting – Reporting entities must register and report to AUSTRAC suspicious matters, certain transactions above a threshold amount, and international funds transfer instructions. AUSTRAC is, in turn, authorised in certain circumstances to provide that information to domestic regulatory, national security and law enforcement agencies and certain international counterparts. • developing and maintaining an AML/ CTF program – Reporting entities must introduce into their businesses, and comply with, AML/CTF programs which are designed to identify, mitigate and manage money laundering, terrorist financing and other risks that the reporting entity might reasonably face in its business. • record keeping – Reporting entities must make and retain certain records, and retain certain documents given to them by customers, for seven years. The Anti-Money Laundering and Counter- Terrorism Financing Rules Instrument 2007 (No.1) provides further clarification on specific AML/CTF program requirements that reporting entities should have. In particular, the reporting regime will place solicitors in an untenable position in which they are no longer able to protect the client’s entitlement to open and reasoned advice. This system creates an inherent and intolerable conflict for a practitioner to represent the client without the intrusion of the state into that relationship.