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Divorce lawyers were alarmed at a High Court ruling last week by the country’s most senior family judge, fearing that it will seriously undermine client-lawyer confidentiality by requiring lawyers to report suspected tax irregularities.
In P v P, (8 October 2003), Dame Elizabeth Butler-Sloss confirmed that barristers and solicitors negotiating divorce settlements risk committing a criminal offence if they fail to report to the National Criminal Intelligence Service (NCIS) any suspicion that some family assets result from tax evasion or social security fraud under the Proceeds of Crime Act 2002 (the act), which came into force in February.
The ruling has taken family lawyers by surprise. They have been aware of the possible impact of the legislation on their routine work in negotiating divorce settlements for some time, but they have been awaiting clarification over when a disclosure to the NCIS should be made and in what circumstances they could inform their client or the client’s former spouse about disclosures without unwittingly being seen to be ‘tipping off’ the owner of the suspicious property.
“There’s nothing in the legislation which prevents a solicitor taking instructions from any client,” commented David Burrows, chairman of the Solicitors Family Law Association (SFLA). “Up until now we’ve always had a duty of confidentiality to our clients. This has now been weakened by a competing duty to disclose suspicions over property to the NCIS.”
He went on to say that solicitors might “lose some of the trust which is essential to the solicitor-client relationship”, which was “regrettable”. He added: “At this stage, we can only hope that the NCIS will act promptly and fairly in response to reports.”
Under the act, the term ‘criminal property’ includes any benefit derived from committing a criminal offence, including fraud, drug dealing and tax evasion, irrespective of how little money is involved. Permission will normally be granted by the NCIS within seven days to enable the solicitor and the client to continue with the case.
Philip Way, chairman of the SFLA’s Proceeds of Crime Act Working Party, flagged up the concern that parting couples might turn to DIY divorce procedures to avoid any disclosure by lawyers. “Divorcing couples with something to hide will not be able to avoid committing an offence under the act simply by avoiding legal advice – they may well also be committing an offence if they arrive at their own agreements outside the courts. However, their agreements will not be enforceable and this may cause greater problems in the long run.”