MEPs ditched vital amendments to the third money laundering directive last week, in a setback that could see lawyers exposed to criminal penalties for 'tipping off' clients that they may have to make a report to the authorities.

A series of changes that had been sought by lawyers across Europe were dropped just 24 hours before a crunch meeting of the European Parliament's civil liberties committee last week, as a result of pressure to get the legislation through in one sitting.


The proposed amendments would have ensured that tipping-off offences contained in the directive remained optional for member states, allowing the UK to keep its carve-out providing a defence to tipping-off in cases covered by legal professional privilege, in the Proceeds of Crime Act 2002 (POCA). The wording of the new directive will make tipping-off penalties mandatory for all member states.


Lawyers had also lobbied for an amendment requiring a review of the impact of the second money laundering directive, before the third was implemented. A further amendment would have allowed mutual recognition of client identification checks, so that checks already performed on a client by lawyers elsewhere in Europe would not need to be repeated in the UK.


Jonathan Goldsmith, secretary-general of the Council of Bars and Law Societies of Europe, said: 'We are very disappointed at the outcome. We put forward strong arguments for waiting for an impact assessment on the second directive before implementing a third. In the UK, reporting requirements have led to difficulties in knowing what to report.


'We abhor the breach of confidence which the tipping-off provisions will entail and are not persuaded that the directive will actually deal with the issue of money laundering.'


Alison Matthews, money laundering reporting officer at national firm Irwin Mitchell and a member of the Law Society's money laundering task force, added: 'We hope that the amendment relating to tipping-off will be reintroduced, but if not, then we do have a problem in the UK and we will lose the POCA exemption. The whole idea of that protection is that privilege belongs to the client, not the solicitor. It is about being able to give proper legal representation, and that is fundamental for access to justice.'


Law Society chief executive Janet Paraskeva said it had lobbied successfully for a range of improvements to the third directive, and for a more risk-based and flexible approach to money laundering regulation. She added: 'We will work with the government to ensure that the resulting domestic legislation is proportionate and practicable, and protects the fundamental rights of individuals who seek legal advice.'


The draft directive is expected to be adopted at its first reading in the European Parliament's June plenary.