New legislation is set to tighten the noose around those suspected of fraud.

Yet solicitors are ambivalent about the impact of the Proceeds of Crime Act 2002.

They will be under scrutiny when it comes to reporting suspicious activities and, as Jeremy Fleming reports, some fear that innocent people will be accused

It has been a busy year for those involved in the battle against money laundering.

A series of high-profile initiatives and headline news has seen the issue propelled into the public consciousness in a way previously unthinkable.

The Proceeds of Crime Act 2002 (POCA) imposes on a wider class of solicitor - those involved in transactions as well as investments - stronger duties to report suspicious clients to their internal money laundering officers.

There is no minimum amount of money required for them to do so, and the duty will stretch to suspicions of money obtained by any crime.

The dangers faced by solicitors who become involved - wittingly or otherwise - was also fuelled by news stories such as that of four solicitors and a paralegal arrested in a swoop by the crime squad in Lancashire last month (see [2003] Gazette, 3 July, 3).

The arrests were connected to Operation Norfolk, a huge police operation centred on drug trafficking.

London-based Byrne & Partners - with its snazzy offices including a massage room - reflects outwardly the changes afoot at firms rising to meet the challenges of the new law.

The firm consists of most of City firm Dechert's fraud lawyers, who left earlier this year.

They set up the new practice at least in part because of new POCA regulations which prevent alleged criminals from using frozen or restrained funds to pay legal fees to defend the cases against them.

This meant that much more of the fraud work would be publicly funded, which did not really fit the Dechert model.

Partner Nicola Boulton says money laundering has always been around but that its current prominence arises from the fact that it is now easier to catch people.

She says: 'Although there is a debate in the UK about identity cards, in any practical sense these actually already exist.

Bank cards and credit cards all give vital information, and the world is a much smaller place.

You can't have an anonymous numbered offshore account in Switzerland any more - not one where the bank does not itself have obligations to the Swiss authorities.'

When the POCA's new money laundering obligations on solicitors come into force - it is thought that this will be early next year - there is likely to be a big increase in the number of suspicious transaction reports to the National Criminal Intelligence Service (NCIS).

Christopher Murray, head of criminal law at London firm Kingsley Napley, says: 'A recently published KPMG report has highlighted the large number of outstanding reports already made to NCIS that remain to be allocated and investigated.

This confirms the fears expressed by the Law Society when the Bill was going through Parliament of the need for greater resources at NCIS.' Louise Delahunty, chairwoman of the Law Society's money laundering and serious fraud task force and a partner with London firm Peters & Peters, says: 'We hope that NCIS will be able to cope, and are having regular meetings and feedback from NCIS in order to ensure that the implementation of this legislation is practicable.'

Matthew Frankland, another partner with Byrne & Partners, says the focus that POCA seems to put on the professions is more a question of timing than anything else: 'These things go in cycles.

A few years ago prosecutors focused on offshore business tax arrangements, then it moved to duty evasion and then bureaux de change, now it is moving to the professions.'

But he says there is ignorance of the new rules among both solicitors and prosecutors.

While lawyers may be over cautious and make unnecessary disclosures, he warns that there is a danger of prosecutors wrongly imputing money laundering in innocent cases.

He says: 'Many of the lawyers I speak to about the new regulations think they are allowed to do things which actually break the law.

Yet they often feel they cannot do what is perfectly legal.'

Ms Delahunty adds: 'Whether too many reports of minor matters will be made is a question of how the new "all crimes" test is interpreted.

In lobbying on the Bill, the Society pointed out the dangers of extending the predicate offence to all crimes when there was no provision for de minimis.

We are concerned about over-reporting of minor matters, but hope that the relevant government agencies will deal with this issue proportionately.'

But the price of not knowing can be great.

Mr Frankland says: 'I acted for one solicitor who was recently arrested by the Metropolitan Police for alleged money laundering.

When I arrived in his cell, his face was white as a sheet and he looked absolutely terrified.

The police were convinced they had a cast-iron case against him and I think he felt the same.

When the facts and the law were unravelled in the interview, both parties realised that, at best, he was a witness - not a defendant.'

Mr Murray says the POCA has a significant effect on the way lawyers view their clients' instructions and their ability to provide independent advice.

'The category of lawyers covered by the money laundering regime under the regulations will eventually be extended to include family lawyers dealing, for example, with a conveyance in a divorce,' he explains.

Mr Murray says the POCA also has grey areas that could cause problems.

'Solicitors will be exempt - if the current draft regulations go through - from making a disclosure if the information comes to them as "professional legal advisers" in privileged circumstances.

'This will cause anomalous difficulties for those who receive privileged information but who are not "professional legal advisers" - such as accountants retained and instructed by solicitors as experts in litigation.

'Indeed, a solicitor's secretary typing a defendant's proof of evidence will be in a similar situation; both individuals will have to make a disclosure of privileged information.'

It is not just for solicitors that there are fears.

Clients - particularly those from immigrant communities - may also be adversely hit.

Ms Boulton says there is an ethnic and cultural dimension to the issue, because 'many immigrants from the Indian subcontinent and the Middle East have businesses which deal only in cash, making them more exposed under the new rules'.

But there are also unexpected opportunities for work appearing as a result of the recent changes.

Peter Binning, a partner with niche London fraud firm Corker Binning, says another big effect of the POCA will be an expansion of global work through mutual assistance orders.

He explains: 'Under the POCA, funds may be restrained much earlier on in a domestic criminal investigation than was the case before.

But soon foreign investigators will also be able to restrain assets in the UK, under POCA regulations which have not yet been introduced.

These - and similar provisions enabling mutual assistance under the Enterprise Act - will cause a big increase in restraining applications from overseas.'

Mr Binning says these will come mostly from the US, 'because they are the most enthusiastic criminal and anti-trust investigators, and will use the new powers'.

He adds: 'There are a lot more opportunities appearing and we are already doing external confiscation orders work.'

Lawyers acting in this field must market their reputation carefully to make the best of the new opportunities that acting for those accused of money laundering - including solicitors - will bring.

Ms Boulton says: 'If you organise a seminar on defending money laundering allegations, it's not the kind of thing that chief executive officers are going to rush along to.'

But Mr Frankland adds that fraud lawyers are more cuddly than their commercial colleagues: 'We give clients more care and attention.

If they lose in court, they face losing everything: money, home, liberty and reputation.

In many cases even the most experienced business people are completely at sea in the criminal justice system.'