EU drops plan to make solicitors report all client advice over money laundering

COMPROMISE: European climb-down avoids clash with UK lawyers over issue of confidentiality

The European Union has pulled back from making lawyers' initial advice to clients subject to money laundering reporting requirements.

Under European Commission plans, a new directive would have extended reporting obligations to all stages of advice.

However, at a Council of Ministers meeting last week, a compromise text was adopted which adds to the exemptions from reporting: ' ...information [independent legal professionals] receive from one of their clients or obtain on one of their clients, in the course of ascertaining the legal position.'

The compromise follows lobbying from the UK government, which in turn was persuaded of the case by the Law Society.

It will please English solicitors, for whom the position on money laundering reporting will scarcely change under the proposed new regime.

It will still be opposed by continental European lawyers, who face no reporting requirements.

The Council of Bars and Law Societies of Europe - which represents Europe's lawyers to the Commission - opposes breach of client privilege and confidentiality under any circumstances.

The European Parliament, which passed the original draft on first reading, might oppose the compromise when it returns for the second reading before the end of the year.

It is thought that the German MEP who acted as rapporteur on the directive - the person who drafts a report on its contents - is unhappy with the changes.

The Council and the Parliament would have to resolve their differences for the directive to pass.

Countries would then have two years to implement it.

Roger Ede, who has led much of the Society's work on the directive, welcomed the compromise.

'Privilege will still be maintained whilst the lawyer is helping the client to establish his or her legal position prior to undertaking such transactions.'

But he was concerned that the Commission has made inroads into privilege.

'The directive will require lawyers to report information about money laundering obtained from clients in the course of private consultations whilst planning or carrying out financial transactions where legal proceedings are not involved.'

Neil Rose