1 March 2004
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10 February 2004
8 March 2004
1 November 2004
13 April 2004
The Proceeds of Crime Act offends every professional bone in my body which says to me that client confidentiality is sacrosanct,” says Nicholas Miller, a family law barrister at Bristol-based Guildhall Chambers. Earnest declarations of wounded professional integrity have hardly been in short supply since last October’s ruling by Dame Elizabeth Butler-Sloss, which made clear the scope of lawyers’ obligations under the act.
Divorce lawyers object to a law that they say turns them into Government narks, but where does this leave the family law system? Well, apparently in a state of some disarray. So far this year, Miller has seen three trials collapse days before their start dates because of some last-minute instruction where there “might or might not be a proceeds of crime angle”.
The Proceeds of Crime Act 2002 (POCA) extends the scope of a solicitor’s obligation to report suspicions of crime beyond major drug money laundering operations to potentially any crime. Under POCA, to avoid the risk of prosecution, a lawyer must disclose to the National Criminal Intelligence Service (NCIS) any suspicions that a client’s property may be criminal. Family law practitioners have been up in arms about POCA since Butler-Sloss’s ruling last October in the case of P v P. As of this week, the situation is likely to get worse. The Money Laundering Regulations 2003 come into force, creating a brand new offence of failing to report even if a lawyer has only “reasonable grounds” to suspect money laundering.
Of course, anti-money laundering regulations affect professionals of all disciplines, but the issue has proved to be particularly combustible among family law practitioners, because they are privy to the financial minutiae of their clients. Last month, a difference of opinion between the then-chair of the Solicitors Family Law Association (SFLA) David Burrows and the group’s governing body led to Burrows standing down. He believes that the group should take a tougher stance and challenge the legislation in the courts, but the group’s ruling body did not agree – and so he walked.
Miller’s indignation at the new legislation will strike a chord with all fellow family law specialists. “I resent enormously being forced against my will to act like a member of the Stasi and shop my own client,” he says. Of his three trials that were adjourned this year, he reckons that the first report to NCIS, which required the case to be abandoned, was “a load of nonsense”; the second was “equally pointless”; and the third, he says, was “pretty crazy”.
“The crime that we commit, and for which we are potentially liable for up to 14 years in prison and an unlimited fine, is dealing with the proceeds of crime or being concerned with an arrangement on an unauthorised basis,” Miller argues. “So what we’re asking for is authorisation to proceed [from the NCIS]. If this information comes through late – for example within 48 hours of the start date of trial – then you’re scuppered.”
At a law firm level, since the legislation came into force last February, money laundering officers have been kept busy. “Internally, POCA is a massive workload for us and the administrative cost is huge,” reports Kevin Robinson, a partner in Irwin Mitchell’s regulation and investigations department. “We have to comply with legislation as it is and not as we’d want it to be.” He reckons that his firm has so far made 17 reports and considered making well over 100 reports, mai-nly coming from the firm’s sizeable personal injury and family practices.
A quick survey of family law firms reveals a similar picture. The family department at Mills & Reeve claims to be reporting a couple of times a month. Devon-based family specialists Hartnell Chanot & Partners reckons it is reporting “once or twice a week”.
“Many practitioners are totally confused about what they should or shouldn’t be doing,” says Marcus Dearle, a family law partner at Withers. “Meanwhile, the NCIS is totally underfunded and understaffed and the whole process is in a shambles. Technically, you’re supposed to report anyone, even the cleaning lady, and I fear that the real villains are getting away with their crimes because of the smokescreen of all this confusion.”
Louise Delahunty, a partner with Peters & Peters and chairwoman of the Law Society’s serious fraud and money laundering taskforce, takes issue with the notion that NCIS is somehow swamped by trivial reports from divorce lawyers and has thus been rendered incapable of responding. “In fact, they’re much more au fait with how family lawyers and other specialists work and what they do – and they have been for about the last six years,” she says. “There’s definitely a greater understanding on their part and I believe that they’re well organised.” As Delahunty points out, the service will deal with faxed reports on a fast-track basis if a point is made of the urgency needed for consent to act.
No matter how efficient – or not – the NCIS is, it does little to allay fears about the impact upon the client of having to make a disclosure. “You have a small fire burning when the client walks into the office, and then you have to douse the fire with petrol before you’re allowed to put it out,” comments Roger Bamber, a family law partner at Mills & Reeve. In his view, to be involved in such a disclosure when a marriage is falling apart creates an intolerable strain, which for the sake of a few hundred pounds of tax is just not worth it.
Irwin Mitchell’s Robinson, as a white collar crime lawyer, recognises that POCA is not easy for family lawyers insofar as it provides the parties with an unfortunate “piece of litigation armour” at a particularly sensitive time. “Particularly on the breakdown of a relationship, people will be anxious to report to a criminal body anything that they possibly can about their former spouse, however trivial – for example if he worked as a bouncer one night a week,” he adds.
The legislation hardly encourages “full and frank” disclosure, agrees Philip Moor QC, chairman of the Family Law Bar Association (FLBA). “Word’s getting around that this act applies and there must be a dreadful suspicion that some people are using improper tactics,” the silk says. “I can see a husband saying to a wife that if you don’t accept my offer I’ll report myself and the whole house will go.”
Of course, the clampdown on money laundering is concerned with policing professionals of all stripes – so why are family lawyers so indignant? “The difference is that we have to investigate a family’s financial provisions very thoroughly and the client has a duty to give ‘full and frank’ disclosure to the court of all relevant financial circumstances,” explains Bamber. This means that solicitors go through their clients’ financial affairs with a fine tooth comb, teasing out the most sensitive information, and clients unburden themselves freely.
Bamber reckons the kind of deception that would have to be reported under POCA is unearthed very, very regularly (“in one in every 10 cases maybe”, he reckons).
This puts “an intolerable strain” on the professional relations, he says. “The client could be put in an appalling position of the wife having to shop the husband to NCIS or losing her solicitor – or possibly both – because maybe the husband is a farmer and, for example, has been taking cash for the sale of hay,” he says.
While family lawyers were appalled at the prospect of being turned into tax spies on behalf of the state, they were also reported to be glad of the clarity provided by P v P. However, money laundering specialists take issue with other aspects of the judgment that have been enthusiastically taken up by some family practitioners. In particular, Butler-Sloss concluded that the way the law had been drafted did not prevent a lawyer from telling their client what they had done as soon as they had made their report to NCIS – but not before. But the judge suggested that it was good practice to wait seven days before doing so.
Robinson disagrees. “Prior to filing a report you can’t tip off [because] there isn’t an offence,” he says. “But there is once you’ve filed the report – then you’d better not discuss the matter with the client. That isn’t as clear as the position in the judgment suggests.”
Delahunty agrees that many family lawyers have interpreted P v P as providing “a green light” to make a report and then immediately tell the client, but the regime is not so clear-cut. In fact, she points out that the Law Society guidance advises that no such communication should be made, unless it is covered by legal professional privilege or in anticipation of legal proceedings.
The issue of how best to respond to this threat to professional integrity has divided the lawyers. Former SFLA chair Burrows argues that forcing family lawyers to disclose their clients’ financial details to the authorities is incompatible with the Human Rights Act (HRA), as it breaches the client’s right for information to remain privileged. He claims that privilege can only be overridden by express statutory provision. To this end, he is hoping to launch a challenge by way of a High Court declaration of incompatibility with the HRA.
His dispute with the SFLA arose when the group’s own working party recommended challenging the Government; however, that decision was overruled by their national committee. “The Law Society and the SFLA are both supporting the Government against the very people they represent, and I find that a very uncomfortable position for the group to be in,” he says.
The SFLA is playing down the recent brouhaha and puts it down to “differences of opinion” over the approach to the problem, as opposed to a substantive difference over interpretation of the law.
It has recently released its own guidance – tentatively called ‘First thoughts on good practice’ – in which it notes that the issues raised by POCA present “perhaps the most significant academic challenge” currently faced by family lawyers. Philip Way, chair of the group’s POCA working party, believes that the uncertain regime, as it is presently interpreted, strikes a tolerable balance.
“It fairly achieves the Government objective of cracking down on money laundering without rupturing the privilege that is sacrosanct to lawyers,” he says.
Given that the proceeds of crime legislation is here to stay, what would lawyers like to see done?
Moor believes that “the obvious thing” would be to introduce a minimum figure below which reports need not be made. Bamber agrees. “The best we can hope for now is a practical compromise,” he says. “Either a minimum figure should be introduced, so, for example, we don’t have to worry about tax under £5,000 and jeopardise families for that.” Alternatively, he proposes that NCIS establishes a panel of specialist advisers which could help out “on a case-by-case basis”. He concludes: “I entirely accept what NCIS is doing, but there needs to be some cooperation on their part to help out the family law system.”
|PvP: the reach of the Proceeds of Crime Act|
Butler-Sloss’s ruling in P v P confirmed the worst fears about the reach of the legislation for divorce lawyers. As the judge put it: “An illegally-obtained sum of £10 is no less susceptible to the definition of ‘criminal property’ than a sum of £1m. Parliament clearly intended this to be the case.”
In that case, 52-year-old Mrs P was divorcing her 50-year-old husband after 24 years of marriage. She told her lawyers the couple’s assets could be worth more than £19m. But after seeing the financial details provided by Mr P and taking an accountant’s advice, the wife’s barrister and solicitor suspected tax evasion. The lawyers made a report to NCIS, who told them they could not tell their client or her husband that they had made the report, as this would constitute tipping them off.