The government has cracked down on money laundering and terrorist financing with tough legislation. But is it too harsh on solicitors? Edward Nally argues that legal professional privilege must be protected


I have felt uneasy for some time about our money laundering regime. I think it is now time for us to take stock and to take action. The implementation of the Proceeds of Crime Act 2002 into our domestic legislation has created a level of anxiety in the wider profession and among our clients that I have not experienced for a long time. I say this both as a practising solicitor and in my role as President of the Law Society.



Clearly, lawyers have a duty to assist in the prevention of financial crime and in securing the confiscation of its proceeds. We must do all that we can to ensure that lawyers do not become the unwitting facilitators of money laundering activities through their client accounts. At the same time, we must do all we can to preserve clients’ ability to consult their lawyers in confidence. It is very much in the public interest that we should do that.


Nally: ‘gold-plated’ legislationMoney laundering and terrorist financing have the potential to be extremely damaging to the legal profession and to society as a whole. The legal profession is faced with the alarming prospect of infiltration and abuse by those attempting to launder money. So, for this reason I do not suggest that we should abdicate our responsibilities or be excused from falling within the reach of the regime.

However, my concern is that the necessary domestic implementation of European directives has been gold-plated in the UK.


The UK is widely thought to have a more severe regime, affecting both lawyers and the public, than anywhere else in the world. How can that be right? Understandably, the fight against terrorism intensified in the aftermath of the dreadful attacks on New York and Washington in September 2001. Combating terrorism by controlling the source of its funding appeared both an appealing and necessary message to the wider international community.


But is there not a supreme irony in the fact that the US, the very seat of the tragedy, lags behind the rigour of our own regulation? The same applies to other parts of the world that might be thought to be fertile territory for financial crime. Now, of course, the UK has an obligation to implement the second European directive, which we have done through the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2003. A third directive is under consideration, which has the scope to extend our money laundering responsibilities even further, possibly into the areas of trusts, for example.


The problem in the UK seems to me to be that our government has gold-plated the legislation in a way that was unnecessary. Ministers now need to take stock of the practical effect of the measures, especially on innocent parties. They need to consider whether they have hit the right targets.


Applying an all-crimes test to our legislation without even excluding trivial sums of money has caused confusion for law firms large and small up and down the country and their clients, and to UK business as a whole.


Our major commercial firms now find themselves reporting clients whom they suspect may have breached some highly technical provision that is nonetheless criminal – perhaps a breach of the financial assistance provisions of the Companies Act, or some health and safety breach or the like.


At the other end of the spectrum, family lawyers have the unenviable task of considering petty tax evasion that they become aware of through their work. Conveyancing solicitors blanch at the arrival of even modest amounts of cash to complete conveyancing transactions. The source of the funds will in all probability be legitimate but the risk to the solicitor of getting it wrong is creating a culture of fear.


The National Criminal Intelligence Service must be overwhelmed with reporting and requests for appropriate consent. What is being done with this information? What impact is that having in solving financial crime or averting the threat of terrorism?


The government should be asking these questions and giving credible answers to the profession and the public.


We all know as practising solicitors that a report about a client breaches client confidentiality, but even reporting a third party makes us uneasy. It also tests the very principle of solicitor/client privilege and we must protect that to the maximum possible extent within the law. If the government wants to interfere with that established principle, it needs to take a much more proportionate approach.


So what do I want? I intend that the Law Society should lobby hard for change and to bring common sense to the regime in some areas.


Specifically, I would like to see the all-crimes test reviewed. I would also like to see proper reporting back from government about the impact of the regime and what success it has achieved in the fight against financial crime before any thought is given to implementing a third directive.


And, finally, I would like to see the government acknowledge that legal professional privilege should be cherished and not eroded further in the pursuit of grape-shot legislation.


If all of this involves a legal challenge by the Law Society – or intervention into an appropriate case to test the proportionality of the regime – then we have a duty to do just that.



Edward Nally is the Law Society President