TY - JOUR
AU - Olarra Zorrozúa, Juan, Carlos
AB - Abstract This article analyses the different regulations that affect legal practice in Europe nowadays and the implications derived from those regulations which have evolved significantly in the past decade, to the extent of changing relevant concepts and institutions of the legal profession, from professional secrecy (legal professional privilege or client attorney privilege) to independence of lawyers. It also focuses on the application and interpretation of those regulations by the competent operators, watchdogs, surveillance bodies, courts and judges and even parliamentary chambers, closing with a general reflection on the perception of the role of legal advisors in contemporary societies. Introduction Since the beginning of the XXIst Century the ethical environment in the legal profession has evolved significantly for different reasons, especially in the areas of estate and tax planning, where there has been a noticeable increase in the volume of regulatory provisions intended to prevent money laundering and terrorism financing activities which at the end of the day are affecting essential institutions of the legal practice that are linked to fundamental rights such as the right to defence and the right to a fair trial. Most recently that increase in surveillance obligations imposed to lawyers has extended not only to money laundering but to the prevention of tax evasion and even tax avoidance to the extent of exchanging roles and turning legal counsellors in the avant-garde of the prosecution and reporting of such activities. Legal advisors have been always committed to the respect of the law as an essential guideline. However, this commitment also entails a determined defence of key institutions of legal advice, including, but not limited to professional secrecy which are now subject to questioning both at expert and public opinion levels and this is producing a devaluation of the general perception of the legal profession which should be a reason of concern and not only for lawyers. European professional regulations The Council of Bars and Law Societies of Europe (CCBE, abbreviation which derives from the initial French denomination Commission Consultative des Barreaux Européens), is an international non-profit association which includes as members the bars and law societies of 45 countries from the European Union, the European Economic Area, and wider Europe and has the regulation of the profession and the protection of the client through the promotion and defence of the core values of the profession among its most important missions. The sources of all references in this section are CCBE’s official publications. CCBE adopted two foundation texts. The first one is The Charter of Core Principles of the European Legal Profession which is aimed at applying to all of Europe and contains a list of ten core principles common to the national and international rules regulating the legal profession. According to CCBE the Charter is aimed both at lawyers themselves and at decision makers and the public in general. The second text is called Code of Conduct for European Lawyers which is a binding text on all Member States so that all lawyers who are members of the bars of these countries (whether their bars are full, associate or observer members of the CCBE) have to comply with the Code in their cross-border activities within the European Union, the European Economic Area, and the Swiss Confederation as well as within associate and observer countries. Core principles of the legal profession as defined by CCBE are the following: the independence of the lawyer, and the freedom of the lawyer to pursue the client’s case; the right and duty of the lawyer to keep clients’ matters confidential and to respect professional secrecy; avoidance of conflicts of interest, whether between different clients or between the client and the lawyer; the dignity and honor of the legal profession, and the integrity and good repute of the individual lawyer; loyalty to the client; fair treatment of clients in relation to fees; the lawyer’s professional competence; respect towards professional colleagues; respect for the rule of law and the fair administration of justice; the self-regulation of the legal profession. Among the above list it would be convenient to highlight at least three principles which appear as relevant in the context referred to in the introductory section. First, the independence of the lawyer and the freedom of the lawyer to pursue the client’s case which is in that sense a forefront reference which means that a lawyer has to be free in economical, political and intellectual terms to carry out his profession of giving advice and representing his client. This means that the lawyer must be independent of the state and other powerful external interests, but the lawyer must also remain independent of his own client if the lawyer is to enjoy the trust of third parties and the courts. Independence from the client appears then as the only reliable guarantee of the quality of the lawyer’s work. Historically, self-regulation of the profession is seen as vital in buttressing the independence of the individual lawyer and the external mandatory regulations referred to above have to be evaluated at the light of the need to preserve independence as a key value for the whole society. But probably the most essential element of the legal profession that is now at risk of being dramatically eroded is client attorney privilege, legal professional privilege, or professional secret; different denominations for a similar content: the right and—in some jurisdictions—duty of the lawyer to keep clients’ matters confidential. It is of the essence of a lawyer’s function that the lawyer should be told by his or her client things which the client would not tell to others and that the lawyer should be the recipient of other information on a basis of confidence as without the certainty of confidentiality there can be no trust. Observing confidentiality is not only a—fundamental human—right of the client, but, at least in some jurisdictions, also a duty of the lawyer not belonging to the client alone In any case this principle encompasses all these related concepts—legal professional privilege, confidentiality and professional secrecy. Finally, it is worth devoting some time to the principle of Loyalty to the client, which is of the essence of the lawyer’s role that makes it possible for the client to trust the lawyer as adviser and as representative. Loyalty to the client requires the lawyer to be independent, to avoid conflicts of interest, and to keep the client’s confidences and therefore this principle comprises the two mentioned above. In some occasions, the interaction between the principle of loyalty to the client and principles which set out the lawyer’s wider duties—dignity and honor, respect towards professional colleagues, and in particular, respect for the rule of law and the fair administration of justice-turns into a confrontation where the lawyer must make it clear to the client that he cannot compromise his duties to the court and to the administration of justice in order to put forward a dishonest case on behalf of the client. But in other situations those duties towards third parties must be framed and, where appropriate, confined to the boundaries derived from the loyalty the client deserves and expects from his lawyer. These principles, which are common to the regulation of the legal profession in most developed countries and jurisdictions, are now subject to ‘stress tests’ from time to time by different legal developments, some of them derived from international co-operation initiatives that may lead to weaken them irremediably. Anti-money laundering legislation Reference has to be made to DIRECTIVE (EU) 2015/849 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, which in fact implements the 40 + 9 recommendations of the Financial Action Task Force (FATF)—SECTION 12. This is the fourth legal instrument produced by the European Union on this field and only another brick in the wall, as the 5th Directive is to come in 2019. The reason to address this regulation is that its scope extends to lawyers and other legal professionals imposing duties that could be in conflict with some of the duties connected to the core principles mentioned in the above section. According to Article 2.1 , the Directive shall apply to the obliged entities referred to therein, among which it points at the some natural or legal persons acting in the exercise of their professional activities, namely notaries and other independent legal professionals, where they participate, whether by acting on behalf of and for their client in any financial or real estate transaction, or by assisting in the planning or carrying out of transactions for their client concerning the: (i) buying and selling of real property or business entities; (ii) managing of client money, securities or other assets; (iii) opening or management of bank, savings or securities accounts; (iv) organization of contributions necessary for the creation, operation or management of companies; and (v) creation, operation or management of trusts, companies, foundations, or similar structures. This inclusion on lawyers in the scope of application of the Directive as ‘obliged entities’ comes from the Second and the Third Directive, which enlarged the scope of money laundering prevention obligations to non-financial businesses and professions. The legislation entails, according to Article 33.1 (as it has been implemented in all Member States) that those obliged entities, and, where applicable, their directors and employees, are required to cooperate fully by promptly: informing the Financial Intelligence Units (FIU), including by filing a report, on their own initiative, where the obliged entity knows, suspects or has reasonable grounds to suspect that funds, regardless of the amount involved, are the proceeds of criminal activity or are related to terrorist financing, and by promptly responding to requests by the FIU for additional information in such cases; and providing the FIU, directly or indirectly, at its request, with all necessary information, in accordance with the procedures established by the applicable law. All suspicious transactions, including attempted transactions, shall be reported. There is no need to say that such obligations interfere frontally with the duties of the lawyer towards the client as explained above in this article, especially with independence, loyalty and professional secrecy, and that is why, since the initial versions of these regulations, exceptions were made in order to preserve the essential rights of the clients in their relationship with their lawyers. Accordingly, Article 34.2, imposes Member States to exclude from the obligations laid down in Article 33, among other, notaries, other independent legal professionals, auditors, external accountants and tax advisors only to the strict extent that such exemption relates to information that they receive from, or obtain on, one of their clients, in the course of ascertaining the legal position of their client, or performing their task of defending or representing that client in, or concerning, judicial proceedings, including providing advice on instituting or avoiding such proceedings, whether such information is received or obtained before, during or after such proceedings. However, to the perception of many legal counsellors, this exemption appeared to be narrower than what it would be required for an appropriate guarantee of the clients’ rights, as professional secrecy should be construed in the wider possible manner. The sole fact that there is an express limitation ‘to the strict extent’ shows a perception of professional secrecy as an (undesirable) exception. The European legal profession has shown continuing and serious concerns with regard to the reporting of suspicious transactions and other obligations under the second Directive and the Directives since then as the requirements on a lawyer to report suspicions regarding the activities of clients based upon information disclosed by clients in strictest confidence could imply a violation of a fundamental right. But unfortunately, the European courts seemed to prefer the narrow approach as it was clearly stated in the landmark decision by the European Court of Human Rights in Michaud v France, dated 6 December 2012. This case concerned the obligation on French lawyers (derived from the legislation implementing EU Directives) to report their suspicions regarding possible money laundering activities by their clients. Among other things, the applicant, a member of the Paris Bar and the Bar Council, submitted that this obligation, which resulted from the transposition of European directives, was in conflict with Article 8 of the Convention, which protects the confidentiality of lawyer–client relations. The Court held that there had been no violation of Article 8 of the Convention. While stressing the importance of the confidentiality of lawyer–client relations and of legal professional privilege, it considered, however, that the obligation to report suspicions pursued the legitimate aim of prevention of disorder or crime, since it was intended to combat money laundering and related criminal offences, and that it was necessary in pursuit of that aim. On the latter point, the Court held that the obligation to report suspicions, as implemented in France, did not interfere disproportionately with legal professional privilege, since lawyers were not subject to the above requirement when defending litigants and the legislation had put in place a filter to protect professional privilege, thus ensuring that lawyers did not submit their reports directly to the authorities, but to the president of their Bar association. Connection bewteen AML, tax evasion, and tax avoidance The inflexion point in the evolution of this set of regulations which affect essential elements of the legal profession came in 2017 when the European institutions started to consider that fighting money laundering and terrorism finance, on one side, and combating tax evasion and tax avoidance, on the other side, should be implemented by means of a single and global policy. The first signs of this common approach showed at the report of the European Parliament dated 16 November 2017 on the inquiry into money laundering, tax avoidance, and tax evasion. In that report, the committee points to the difficulties of regulating lawyers and law firms involved in setting up and maintaining offshore structures, as they often operate cross-border and at least in one-third country where the legal requirements are not subject to scrutiny or customer due diligence checks; highlights that lawyers and law firms often provide investment and tax advice and assistance in the setting-up of offshore entities, often in direct contact with UBOs; notes that the number of Suspicious Transaction Reports (STRs) made by lawyers, as well as by other predominantly self-regulated professions, is low, and notes also that reporting by lawyers is often triggered by revelations in the media; acknowledges that in most Member States the supervision of lawyers is carried out by bars and professional bar associations, which do not actively supervise their members, but rather act on the basis of complaints by clients; regrets that statistics on sanctions or disciplinary measures implemented by national bar associations are not publicly available in all EU countries; notes that members of the legal profession are subject to strict sanctions (civil and sometimes criminal) for any failure to adhere to AMLD obligations; notes also, however, that these strict disciplinary procedures rarely lead to being struck off the bar; notes that the scope of the statutory provisions on the client–attorney privilege of certain designated professional practitioners such as lawyers and notaries to refuse to testify or give evidence in tax matters is not clear and consistent in all Member States, let alone across Member States; highlights especially that in many Member States, lawyers cannot be sanctioned for advising non-residents on how to evade tax or launder money in another jurisdiction as per the territoriality principle; and notes that legal advisors have excluded themselves from legal obligations by invoking ‘professional secrecy’ in order to avoid performing CDD, even when they have not been acting as lawyers but as providers of financial services. The above extract from the report projects a shadow of suspicion over the activities of lawyers and a negative perception of essential elements of the client’s rights such as professional secrecy, which was further translated to the 5th Directive on Money Laundering Prevention. As it was expressed by the legal profession at the European Parliament by the time the amendment was being discussed CCBE’s position, although the European Commission justified the proposed amendment as part of efforts to fight money laundering and terrorist financing, in the time between the publication of the action plan and the publishing of the proposal the objective shifted away from fighting terrorism and towards strengthening measures to prevent tax avoidance—which is legal—and tax evasion—which is illegal—being most of the proposed amendments related much more tax avoidance and tax evasion than to money laundering or terrorist financing. Letting aside the political and technical discussion on what proportionate measures could be effective at fighting illegal tax evasion, AML/CTF legislation does not appear to be an appropriate vehicle for measures with a primary purpose of improving tax revenues. And the indiscriminate treatment of tax evasion and tax avoidance as similar concepts is not consistent with their nature and legal implications. Actually, there is a clear distinction to be made between what is illegal—tax evasion—and what is legal—tax avoidance. That having been said, focus needs to be put on another concept which bases this new orientation which is the ‘fair share’ of taxes that a tax payers should be obliged to assume, to be confronted with the legal tax debt that derives from the application of the relevant tax law construed in the most favourable or efficient manner for that taxpayer. There is a significant lack of clarity about the concept of ‘fair share’ of tax, a concept that is completely undefined and indeed indefinable but it seems to have an implicit suggestion that any action intended to lower the amount of that fair share should be regarded with suspicion. It is a fact that tax evasion deprives countries of necessary resources, and the European lawyers, represented by CCBE condemn such practices. However, tax avoidance, even where falling under the description of aggressive or abusive avoidance, is not illegal no matter the level of opprobrium society might place on such practices. The OECD makes the appropriate difference and recognizes for instance that mandatory disclosure rules are of relevance to counter aggressive or abusive tax avoidance, but does not mention tax evasion, which is addressed through obligations under criminal law. Dealing with both concepts as if they were the same, perhaps inadvertently, infers in the public consciousness that taxation professionals and other intermediaries are implicit in tax evasion activities when tax evasion and tax avoidance are linked. At the end of the day, this (deliberate) confusion of concepts promotes a negative perception of the legal practice related to estate and tax planning and an erosion of fundamental principles of the legal profession which lead to a damage in fundamental client’s rights. Professional advisers and lawyers are governed by their professional bodies to advise clients within the law. The rule of law, access to justice and legal certainty (all vital principles in every member state) require that a person be able to seek legal advice on any issue, including tax issues. A citizen must be entitled to take legal advice in any area, and his lawyer must be entitled to provide that advice. Professional secrecy/legal professional privilege is the right of the client to consult a lawyer in confidence—it is not the right of the lawyer. Professional secrecy is a privilege that ensures that any information you provide to your lawyer is kept confidential. As Lord Scott brilliantly expressed in Three Rivers DC v Bank of England (No 6), it is necessary in our society, a society in which the restraining and controlling framework is built upon a belief in the rule of law, that communications between clients and lawyers, whereby the clients are hoping for the assistance of the lawyers' legal skills in the management of their (the clients') affairs, should be secure against the possibility of any scrutiny from others, whether the police, the executive, business competitors, inquisitive busy-bodies or anyone else. Professional secrecy/legal professional privilege do not apply if a lawyer takes part in illegal actions of the client. This is the case in every EU Member State. There is no ‘difference in interpretation’. Privilege and professional secrecy do not, and will never, apply if a lawyer is facilitating an offence. Most—not to say all—lawyers do not, and never will condone, the actions of any lawyer who knowingly participates in any criminal activity of a client, whether relating to money laundering, tax evasion, or any other criminal activity. This is nothing new as comes plainly from positive legislation in different countries and form the crime/fraud iniquity exception in the common law environment, summarized among others in Clark v United States, where the US Supreme Court stated that: A client who consults an attorney for advice that will serve him in the commission of a fraud will have no help from the law. He must let the truth be told. and in Regina v Cox and Railton, back in 1884, where the English Courts established that ‘Communications made to a solicitor by his client before the commission of a crime for the purpose of being guided or helped in the commission of it, are not privileged from disclosure’. It can be concluded that there is no ethical issue in supporting the prosecution of criminal activities, including money laundering and tax evasion, and at the same time carrying out a firm defense of fundamental principles of the legal profession which are not old fashioned codes or practices in the benefit of a closed elite, but essential elements for the effectiveness of fundamental human rights. As the General Advocate at the European Union Court of Justice expressed in Azko & Ackros: If legal professional privilege (professional secrecy) did not exist lawyers would be unable to carry out satisfactorily their task of advising, defending and representing their clients, who would in consequence be deprived of the rights conferred on them by Article 6 of the ECHR and by Articles 47 and 48 of the Charter of Fundamental Rights, if lawyers were obliged, in the context of judicial proceedings or the preparation for such proceedings, to cooperate with the authorities by passing them information obtained in the course of related legal consultations. The risk of putting legal practice under suspicion There are other factors that have contributed to the development of an increasingly negative attitude of the authorities, regulators and investigators towards legal professional and some essential institutions like professional secrecy such as the 2008 financial crisis that produced the brutal economic recession for which, at least in the public’s opinion, the financial sector was largely responsible, but it has never been properly held accountable. The reputation of the financial services industry seems to have also engulfed the professions that advise it, including lawyers and as a consequence, legal practice, and particularly, some institutions such as professional secrecy, is often perceived as an inconvenience that gets in the way and prevents the agencies and watchdogs from doing their job. Same applies to non-white collar cases with exhaustive media coverage, where legal professional privilege is seen as an obstacle to the implementation of the concept of justice. At this stage, the trust in the profession seems to be declining, with the consequence that lawyers are often considered with suspicion. It is a challenging task to reverse this perception and try to restore the image of legal advisors in general—and of those practicing in the field of estate and tax planning, in particular—to the place where it belongs in our society. That of a profession intended to guarantee our clients the legal protection granted by the law in a developed and democratic country. And in doing so stress must be made on the importance of the defense of concepts which are the essence of the profession, such as professional secrecy as it encourages clients to make ‘full and frank’ disclosures to their lawyers, who are then better able to provide candid advice and effective representation and, in turn, serves broader public interests in the observance of law and administration of justice. Juan Carlos Olarra Zorrozúa is a Managing partner at Lexinter Abogados since 1998. Area: Private client, wills & estates and wealth planning. The author is also a Member of the adjunct & visiting faculty at IE Law School since 1996. He has been awarded with Best Teaching Projection (2011), the Best Professor Award (2001), and José María Cervelló Professorship award for legal publications in 2012. © The Author(s) (2018). Published by Oxford University Press. All rights reserved. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model)
TI - Ethical issues in legal practice
JF - Trusts & Trustees
DO - 10.1093/tandt/tty165
DA - 2019-02-01
UR - https://www.deepdyve.com/lp/oxford-university-press/ethical-issues-in-legal-practice-jRoH6z4Lui
SP - 52
VL - 25
IS - 1
DP - DeepDyve
ER -