Prophesying the future is easy when the outcome is obvious.

Back in February, I wrote a piece about the European Parliament’s investigation of the Panama Papers scandal, including the role of lawyers. I wrote then that the parliament’s relevant committee was asking awkward questions about the role of lawyers in the affair, which could lead to conclusions we don’t like. And so it has proved.

In essence, the parliamentarians on the committee appeared to consider the current state of regulation on legal professional privilege as nothing more than a front behind which mass illegality takes place, such as the funding of terrorism, arms trafficking, mass drug addiction and other ills financed by the transfer of illicit funds. They appeared to imply that lawyers continue to insist blindly on the importance of confidentiality, while denying any responsibility for the illegality that is enabled by it. They thought that the public interest is not being served by the current set-up.

Their draft report has now been available for a few weeks. The section relating to lawyers gives a flavour of what was apparent before: they say that regulating lawyers and law firms involved in setting up and maintaining offshore structures is difficult; the number of suspicious transaction reports by lawyers is low; statistics on sanctions or disciplinary measures implemented by national bar associations are not publicly available in all EU countries; disciplinary procedures rarely lead to lawyers being struck off; the scope of lawyer-client privilege leading to refusal to testify or give evidence in tax matters is not clear and consistent in all member states, let alone across member states.

Their resulting recommendations are drastic, crossing various sacrosanct boundaries, and should cause us grave concern. For instance, they call for:

  • a shift from self-regulation to appropriate supervision and state controlled regulation for currently self-regulated professions via a separate and independent national regulator/supervisor.
  • regulation for tax intermediaries with incentives to refrain from engaging in tax evasion and tax avoidance and shielding beneficial owners.
  • the creation of an EU framework for compulsory codes of conduct for intermediaries.
  • an EU certification of intermediaries to practice as tax professionals, together with the possibility to withdraw licences if they are proved to promote or enable tax evasion, aggressive tax planning and money laundering.
  • adoption by the law profession - while waiting for the phasing out of self-regulation at the EU level - of a methodology whereby the lawyer-client privilege principle does not impede adequate suspicious transaction reporting or reporting of other potentially illegal activities.

Now this is still only a draft report by a committee of the European Parliament. Amendments are being proposed (and the representatives of the European bars in Brussels are lobbying as hard as they can). And it has yet to be approved by the whole parliament.

But the timing is unfortunate. I wrote in June about the publication of a draft directive on dealing with tax intermediaries and tax avoidance, also partly prompted by the Panama Papers scandal. The provisions in the draft directive relating to legal professional privilege are overall in accordance with the bars’ views: there will be a duty on member states to take measures to give lawyers the right to a waiver from filing information on a reportable cross-border arrangement where lawyers are entitled to legal professional privilege under the national law of the member state. In such circumstances, the obligation to file information becomes the responsibility of the taxpayer, and lawyer intermediaries must inform taxpayers of this responsibility.

So we have two European institutional documents colliding in their treatment of the same subject, with almost opposing views of how to deal with it. I do not see the parliamentary committee’s views as succeeding in their current form, but that is not the point. They are out there now, and the danger is that they may influence the more traditional approach currently taken in the draft directive – or in future directives. We should try to avoid that.

There is little point in thinking that we will soon be out of the EU, and so none of this will affect us. Much of the impetus for the Commission’s draft directive comes from the work of the Organisation for Economic Co-operation and Development (OECD), and in particular its BEPS Action 12 - and I am sure that we will continue to be part of the OECD after Brexit. Cross-border work into the EU will also require us to obey EU rules. Ideas in any case drift across borders.

We have two choices: to continue to support the current privilege structure without further reflection, or to reflect on what the Panama Papers parliamentarians are telling us and see whether our present structure needs modification to take account of their concerns. It is not an easy choice.

Jonathan Goldsmith is Law Society Council member for EU matters and a former secretary general of the Council of Bars and Law Societies of Europe. All views expressed are personal and do not necessarily reflect the views of the Law Society Council.