Undoubtedly, the most helpful decision this year for UK-based white collar crime lawyers was a tax related case in which the Supreme Court refused to extend legal advice privilege “LAP” to other professionals by reference to a legal function test. A copy of the decision is here (in pdf).
Having approved of Judge Rehnquist’s public interest justification for LAP, the Court restated the rule of law that communications with lawyers in professional practice should be protected “against the possibility of any scrutiny from others, whether the police, the executive, business competitors, inquisitive busybodies or anyone else.” The Court also pointed out that the protection could always be unilaterally waived by the client but not by the lawyer without the client’s consent.
Unless and until legislation intervenes, the decision should ensure that lawyers remain the first port of call in any potential non-contentious compliance or governance matter. Any other professional acting in the regulated sector, when confronted with reasonable grounds for suspicion or knowledge of criminal activity, such as bribery, would have to disclose such knowledge in accordance with s.330 of the Proceeds of Crime Act 2002 “the 2002 Act.” But this reporting obligation is not required in circumstances where LAP applies.
The protection afforded by LAP is not all encompassing. First, it does not apply at all to communications that might be made in furtherance of a crime or an offence. Second, a lawyer who through privileged communications becomes aware of a principal money laundering offense may well have to cease acting, particularly in transactional work, if the client refuses to disclose and refuses to waive LAP for the purposes of the lawyer making disclosure. Third, by continuing a retainer without making disclosure, even in an unrelated matter, the lawyer runs the risk that a client seeking exculpatory evidence, might waive LAP in order to show the lawyer’s apparent acquiescence and expose the lawyer’s conduct and advice to unfavourable scrutiny.
Most money-laundering cases revolve around the use and possession of criminal property under s.329 of the 2002 Act. A particularly troublesome issue is where a lawyer, in the course of providing legal advice, suspects or knows that a parent company is in receipt of dividends that have been earned from a foreign subsidiary’s unlawful activity (and meeting the double criminality test for money laundering), often conduct involving bribery by a foreign subsidiary.
Although s.329 provides “an adequate consideration” defence (one that often protects payment of professional fees from amounting to a money laundering offence), it is unlikely to be open to a parent company; dividends are received without consideration moving from the parent. Should a parent company, possessing the requisite knowledge or suspicion for a principal money laundering offence, refuse to disclose or waive LAP for the purpose of enabling the lawyer to make disclosure, the lawyer should generally terminate the retainer if not on the grounds of potential liability then certainly for ethical and reputational embarrassment.
LAP may be valuable in providing lawyers with initial compliance and governance work but it can be troublesome, and is by no means an impenetrable protection or a guarantee of a continuing retainer.
Alistair Craig is a commercial barrister practicing in London. He can be contacted here.