Abattle is brewing between the regulatory authorities and legal practitioners over a recent directive mandating lawyers to register with the Special Control Unit against Money Laundering (SCUML) pursuant to the Money Laundering (Prohibition) Act 2011 (MLPA) and the Terrorism (Prevention) Act 2011.
Apparently poised to tighten the noose on Designated Non-Financial Institutions (DNFIs) to check money laundering and financing of terrorism, the regulatory authorities seem to have gone into high gear to compel compliance of DFNIs with these laws. In fact, some employees of DFNIs (including accountants) were arrested by the EFCC/SCUML for failing to comply with the AML/CFT laws. Head of SCUML Angela Nworgu reportedly said the arrest of the company executives “marks a turning point in the enforcement of the anti-money laundering laws.”
She added that the days of impunity and non-compliance by DNFIs were over, and promised that more arrests would be made. Legal practitioners are concerned that the dragnet may soon be extended to them. Further, Section 5(6) MLPA 2011 prescribes a daily N250,000 fine for failure of any DNFI (including legal practitioners) to comply with some aspects of the law as well as suspension, revocation or withdrawal of the DFNI’s licence “by the appropriate licensing authority as the circumstances may demand.”
But legal practitioners are kicking against the enforcement, saying the Anti-Money Laundering and Combating of the Financing of Terrorism (AML/CFT) laws are too onerous and would cripple professionalism and client-lawyer confidentiality. Legal practitioners are, however, not alone in this face-off with governments and regulators. The American Bar Association (ABA) has been engaged in a cat-and-mouse tussle with Congress to dissuade it from passing what is termed the “Gatekeeper Initiative” aimed to check money laundering and terrorism financing through the so-called “gatekeepers.”
The Gatekeeper Initiative is a plan by the government to impose stringent AML/CFT obligations on “gatekeepers” to the domestic and international monetary systems, such as lawyers, civil law notaries, trust and company service providers, real estate agents, accountants and auditors. These “gatekeepers” act as intermediaries in transactions where the identity of the underlying clients or the ultimate beneficiaries may not be disclosed. The regulators argue that customers introduced by such gatekeepers may pose higher risk to financial systems given that the regulatory authorities may place unreasonable reliance for Know Your Customer (KYC) and AML matters on the gatekeepers.
Lawyers however contend that such laws that compel them to disclose even routine transactions with their clients do grievous harm to client-lawyer privilege. According to ABA, these AML/CFT laws which are styled after the Financial Action Task Force (FATF) models “would undermine the traditional role of state courts in regulating lawyers, erode the attorney-client privilege and interfere with the confidential attorney-client relationship, impose excessive new federal regulations on lawyers engaged in the practice of law, and impinge on the delivery of legal services in general.”
ABA further asserts that though it “supports the enactment of reasonable and balanced initiatives” designed to detect and prevent money laundering and terrorist financing, “the ABA opposes any law or regulation that would compel lawyers to disclose confidential information to government officials or otherwise compromise the attorney-client privilege, including any mandate that lawyers file SARs on their clients. Such a requirement would directly conflict with numerous state bar ethical rules that require lawyers to maintain client confidentiality and to provide their clients with competent representation and undivided loyalty. Lawyers should not be subject to federal regulation in this area. Rather, lawyers should continue to be regulated primarily by state supreme courts (and their state bar agencies) that license the lawyers. Although lawyers should take reasonable steps to combat money laundering and terrorist financing, these actions should only be conducted in a manner that is consistent with applicable state bar ethical rules and standards.”
Accordingly, the prevailing trend in the United States is to adopt an AML/CFT model which does not target specific professions. Thus while the scope of the major money-laundering laws excludes lawyers, criminal laws prohibiting the laundering of money or terrorist financing apply to all individuals, including lawyers. Lawyers involved in money laundering, terrorist financing or facilitating either by their clients are subject to existing criminal and civil laws regarding money laundering and terrorist financing.
In Canada, lawyers have won a 10-year-old legal tussle against the regulatory authorities which attempted to enforce such draconian FATF-style laws on them. The court had granted injunction restraining the authorities from implementing the laws pending determination of the matter. In that celebrated case {RE: Federation of Law Societies of Canada v. Canada (Attorney General), 2011 BCSC 1270 (CanLII)}, the Federation of Law Societies of Canada, which represents the 14 self-governing bodies that oversee Canada’s legal profession, fought against the application of the rules to lawyers. Ottawa then also backed off a proposal to force lawyers to report “suspicious transactions.” The court held that compelling lawyers to collect and keep information about the identity of their clients (which investigators could later review) or allowing the AML/CFT regulatory agencies to search law offices without a warrant would violate the Canadian Constitution by jeopardizing the liberty of lawyers, or their clients, in a way that offends the “principles of fundamental justice” because it would override client-lawyer privilege.
Under the Money Laundering Act 2011, legal practitioners, chartered accountants as well as dealers in jewellery, cars, luxury goods, hotels, casinos and supermarkets are designated as DFNIs (Section 25). The minister may enlarge the list to bring in other professionals or operators. Compliance obligations for DFNIs under the MLPA are broadly categorised into customer identification and due diligence, preservation of transaction records, obligation to report transactions above statutory thresholds, creation of awareness about AML/CFT, and establishment of internal control policies and procedures. Accordingly, DFNIs/legal practitioners are required to register with SCUML, comply with transaction threshold requirements, designate AML/CFT compliance officers, and report transactions above statutory threshold to regulatory authorities.
For instance, MLPA 2011 provides in Section 1 that no person or body corporate shall, “except in a transaction through a financial institution,” make or accept cash payment of a sum exceeding N5 million or its equivalent, in the case of an individual; or N10 million or its equivalent in the case of a body corporate. Further, Section 5(1) enacts that DFNIs whose business involve cash transactions shall submit to the relevant ministry “a declaration of its activities.” Crucially, Section 5(1)(b) enacts that prior to any transaction involving a sum exceeding $1,000 or its equivalent (about N150,000), the legal practitioner shall “identify the customer by requiring him to fill a standard data form and present his international passport, driving license, national identity card or such other document bearing his photograph as may be prescribed by the ministry.” The clincher is perhaps in Section 5(1)(c) which enacts that the legal practitioner shall “record all transactions under this section in chronological order, indicating each customer’s name, forenames and address in a register numbered and forwarded to the ministry.” Section 6 of the Act also directs legal practitioners to report suspicious transactions to the EFCC within 7 days, failing which they will be liable to N1 million fine for each day which the offence subsists {Section 6(9)}. These customer identification and transaction records shall be preserved by the legal practitioner for at least five years (Section 7) and communicated on demand to the CBN or NDLEA (Section 8). Curiously, the licence of legal practitioners may be suspended by the CBN for default in developing programmes to combat money laundering (Section 9 (2).
It is these onerous provisions that legal practitioners are battling to shrug off, even as they question the legality of SCUM, a body set up by the Federal Executive Council [Decision No. EC (2005) 286] in September 2005. SCUML has the mandate to monitor, supervise and regulate DFNIs. Given that the minister’s regulation-making duty under the Act pertains only to “occasional cash transactions” {Section 5(4)}, it is doubtful whether SCUML (which is set up under such regulation) can have oversight functions over other transactions or obligations of DFNIs under the Act.
Indeed, the trend elsewhere has been to assign the AML/CFT regulatory function as it relates to legal practitioners to their professional/regulatory bodies. This is equally recognized by the FATF which specifically declared in its “International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation: The FATF Recommendations” of February 2012 that lawmakers need not make laws targeting specific groups such as legal practitioners. On supervision, FATF has equally suggested in Recommendation No. 28(b) that compliance with AML/CFT requirements “may be performed by (a) a supervisor or (b) by an appropriate self-regulatory body (SRB), provided that such a body can ensure that its members comply with their obligations to combat money laundering and terrorist financing.” It remains curious why the governmental authorities insist that legal practitioners must be supervised by SCUML or indeed why legal practitioners were categorized by the Act as DFNIs.
Indeed, many SRBs have taken up the challenge of self-regulation. For instance, the American Bar Association and other bar and specialty law associations developed and adopted the “Voluntary Good Practices Guidance for Lawyers to Detect and Combat Money Laundering and Terrorist Financing (“Good Practices Guidance”) in 2010 modelled after FATF’s risk-based approach (“Risk Based Approach Guidance for Legal Professionals”). The Good Practices Guidance is designed to encourage lawyers to be more vigilant about combating money laundering and terrorist financing, thus making the enactment of gatekeeper laws regulating the legal profession unnecessary. Lawyers may also be subject to ethical considerations contained in the ABA’s Model Rules of Professional Conduct (“Model Rules”).
It was Louise I. Shelley who said that “Transnational crime will be a defining issue of the 21st century for policymakers — as defining as the Cold War was for the 20th century and colonialism was for the 19th.” Accordingly, the threats posed to our collective well-being by the twin evils of money laundering and terrorist financing cannot be ignored. However, the major challenge is in finding creative ways to bring all AML/CFT stakeholders within an inclusive framework that makes them real partners in the battle. It does not seem that the framework under the MLPA 2011 has achieved this all-important goal.
Most of the world’s legal systems regard client-lawyer privilege as one of the building blocks of modern society. It is, therefore, not surprising that most jurisdictions are not inclined to subject legal practitioners to onerous requirements under the AML/CFT regime. Although the National Advisory Council of Designated Non-Financial Institutions (an amalgam of professional bodies such as the NBA, ICAN, ANAN as well as the supervising ministry, EFCC and SCUML among others) was charged with “regulating, monitoring and supervising” DFNIs, the council has seemingly been sidelined, given that SCUML has effectively taken up this role.
All stakeholders must be encouraged to agree on a framework that will preserve the cherished values of the legal profession while ensuring that legal practitioners are not used as conduits for money laundering and terrorist financing.
