Keeping it clean

The proceeds of crime bill, a European directive and the financial services authority will pressurise solicitors to fight money laundering as never before.

Jeremy Fleming reportsAt the end of last year, for many lawyers, money laundering probably conjured images of Martin Scorsese's extravagant film Casino: bright lights, high stakes, foreign gangsters in faraway places - in effect, another world.

If so, the picture will be different by the end of this year, with a host of developments bringing the issue to the fore.First, the Proceeds of Crime Bill going through Parliament proposes significant reforms.

It would create a new threshold akin to the test for negligence in money-laundering offences, replacing the requirement that lawyers must have actual suspicion of the offence with the question of whether it was reasonable for a solicitor in that position to have suspicion.

Meanwhile, the draft EU money-laundering directive's obligation has caused controversy in Europe where a parliamentary committee is backing the proposal of German MEP Klaus-Heiner Lehne to exclude 'giving legal advice' from the directive's regulations, with the aim of protecting privilege.

The implementation of the Financial Services Act later this year will see the new-look Financial Services Authority (FSA) taking a more active approach to money-laundering regulation; it intends to open channels between disparate regulatory bodies, among whom data has traditionally not freely been passed.

Keeping the subject on the boil, the House of Commons' international development committee last week issued a report on corruption, proposing anti-corruption legislation to comply with the Organisation for Economic Co-operation and Development's 1998 convention on the bribery of foreign public officials in international business transactions.

Unsurprisingly, the report considers money laundering at length.

George Staple, a consultant at City firm Clifford Chance, former director of the Serious Fraud Office, and chairman of the fraud advisory panel, a think-tank drawing influences from the professions, business and academia, gave evidence before the parliamentary committee.

He says that observers should stand back from the report on corruption, the amendments under the Proceeds of Crime Bill, and the imminent power of the FSA, and see them all as a 'complete package to deal with financial crime'.Mr Staple has been leading the rallying cry to tackle financial crime head-on for some time.

The fraud advisory panel was formed in response to the recommendations of Lord Roskill's report of the fraud trials committee, published in 1986.

It stated that the 'fragmentation of the present system' made it essential to have an 'independent monitoring system' for fraud.No government has implemented the proposal.

In the past, fraud has 'not been high enough up the list of the government's priorities', Mr Staple says.

More dangerously, he says, it has not been an issue for the executive board level of companies.

'Traditionally, this has been a matter dealt with by middle management,' he adds.

The report on corruption draws attention to the low level of reporting money laundering among lawyers and accountants, reiterating the complaints of the National Criminal Intelligence Service and FSA chairman Howard Davies, who said in 1998: 'We believe there is evidence that non-bank financial institutions are increasingly targeted by money launderers, which argues for an upgrading of our efforts outside the banking sector.' However, the key measures proposed by the Proceeds of Crime Bill have attracted criticism that they are too onerous for lawyers (see [2001] Gazette, 22 March, 1).Adam Cowell, business crime unit partner at Sheffield firm Irwin Mitchell, says the problem lies in the government's rationale behind the moves.

'They have a suspicion that lawyers are leaving unreported suspected cases of money laundering; that somehow the law is weighted in lawyers' favour.' But he adds: 'They don't have any evidence for this, no reasons.' If there is no evidence of lawyers deliberately leaving cases unreported, there are increasing reports of firms caught up in money laundering scams.

Neil Griffith, fraud expert at Denton Wilde Sapte, says he is now noticing solicitors among prosecutions being brought by the recently established City of London police fraud unit.It is looking at several cases involving law firms, among which is its probe into events prior to the departure from City firm DLA (then Dibb Lupton Alsop) in 1998 of corporate partner Mark Landale.

DLA has stressed that Mr Landale, who had his practising certificate suspended in 1999 and is under investigation by the Office for the Supervision of Solicitors, had sole responsibility for the matter in question and that no other lawyer was working with him on it.And the case relating to billions of pounds stolen from Nigeria's state coffers by former President Sani Abacha threatens to cast a shadow over City lawyers.

The Swiss authorities have opened a money-laundering inquiry after freezing $550m in accounts set up by General Abacha, his family and associates.Enrico Monfrini, the Swiss lawyer who is leading the attempt to recover the money, says: 'We know of British law firms that got involved to help or promote the action of the criminal organisations that helped launder Abacha's money.' One law firm, says Mr Monfrini, has links to Abacha's son Mohammed, who was charged last year with murdering Kudirat Abiola, wife of the late opposition politician, Moshood Abiola.Whatever the hindrances to legal practice, there are strong arguments for tight regulation to provide public confidence in the face of such stories.

Although Mr Cowell is opposed to more onerous regulatory measures, he says that there should be more education for lawyers to prevent any failure to report that might take place through ignorance.

But he says the Proceeds of Crime Bill's plans to lower the threshold - currently 10,000 - over which solicitors have to give transactions consideration for money laundering purposes, and changing the suspicion test, will be counter-productive.

'The problem is not that there is not enough regulation, but that the regulation that exists needs to be better observed,' he argues.

'Currently, solicitors genuinely don't suspect they are being used by money launderers and therefore don't report it.

The trick is better education, rather than increasing the ambit of the law.' But other lawyers, such as leading fraud expert Monty Raphael from niche white-collar crime firm London firm Peters & Peters - who also gave evidence before the parliamentary committee - are more welcoming of the changes.

Mr Raphael says it would be undesirable 'that the UK, one of the principal financial centres of the world, and a member of G7, should be seen not to be fully taking regulations on board in practice'.With globalisation increasing, Mr Raphael contends that transactional lawyers must anticipate more policing role of their clients.

He adds: 'It is not inconceivable that lawyers may soon have to report clients whom they suspect of corruption.' Mr Cowell says that for lawyers to be required to take on such a quasi-policing role may be unhealthy in a democracy.

But Mr Raphael says: 'It is increasingly a role that will be bestowed on them by government whether they like it or not.' Mr Griffith agrees: 'The Proceeds of Crime Bill shows that the government seems finally willing to match enthusiasm for anti-money laundering measures with resources.'And Mr Staple adds: 'The very idea of a lawyer reporting clients to the authorities is difficult at first sight.

But if a crime is being committed, any lawyer has a duty to try and prevent it.

A well-founded suspicion ought to be reported to the authorities, and it would be wrong if it wasn't.' He told the international development committee that there is a greater need than ever to implement the proposal of the Roskill report to set up a body to co-ordinate different state departments in tackling fraud.The report says: 'Corruption can only be successfully tackled where there is a greater degree of cooperation and coordination among all the interested parties.' If the government takes up the proposal, the fraud advisory panel would be the obvious choice for the job.