Professional Documents
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the buying and selling of real estate. There is the perception that if money comes from a practitioner, or a practitioners trust account, or if a lawyer is involved in a transaction, it is clean, i.e. untainted by crime. In the overwhelming majority of cases this is correct; however, it is this very fact that is the attraction of laundering the proceeds of crime through legal practices. Launderers want clean money and, for example, a cheque drawn on a trust account is perceived to be clean. Launderers also engage in the buying and selling of real property, frequently using legal practitioners to facilitate the transaction. While there are no reported cases in this jurisdiction of practitioners having faced criminal prosecution for money laundering offences, there are reported cases overseas.3
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LEGAL PR ACTITIONER S WHO FAIL TO GUAR D AGAINST UNWITTING INVOLVEMENT IN CLIENTS MONEY L AUNDER ING OR FINANCING OF TERRORISM ACTIVITIES M AY FACE CRIMINAL OR CIVIL ACTION, WITH THE POTENTIAL FOR VERY SERIOUS CONSEQUENCES. BY PADDY OLIVER
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Practitioners may be actively engaged in money laundering, passively engaged, or used unwittingly by money launderers. The risks may not be widespread, but they are real. The Law Society for England & Wales states that: Solicitors are key professionals in the business and financial world, facilitating vital transactions that underpin the economy. As such, they have a significant role to play in ensuring their services are not used to further a criminal purpose. As professionals, solicitors are obliged to act with integrity, uphold the law, and to not engage in criminal activity. 4 The risks faced by practitioners around ML/TF include: 1 criminal proceedings5 for breaches of the substantive money laundering or terrorist financing offences under the Criminal Code Act 1995 (Cth) (Criminal Code), the AML Act, or the Charter of the United Nations Act (Cth) 1945;6 2 civil proceedings for regulatory offences under the AML Act, with civil penalties or alternative enforcement action (administrative penalties); 3 disciplinary action for potential misconduct arising from 1 or 2 above; 4 civil action brought by a client; and 5 reputational damage.
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the proceeds of crime might thus fall foul of the negligence test. Penalties under ss400.3400.8 range from 12 months imprisonment and/or 60 penalty units to 25 years imprisonment and/or 1500 penalty units, depending on the monetary value and the degree of culpability. Of more potential concern to practitioners is the s400.9 offence of receiving, possessing, concealing or disposing of money or other property where it is reasonable to suspect that the money or other property is the proceeds of a crime in relation to a commonwealth, state, territory or foreign indictable offence. 9 The burden of proof is reversed and placed on the defendant (s400.9(5)). The penalty is two years imprisonment and/or 50 penalty units (s400.9(1)). In addition to the principal money laundering offences, there are accessorial offences, including: attempting (s11.1); aiding, abetting, counselling or procuring (s11.2); incitement (s11.4); and conspiracy (s11.5). These wide-ranging money laundering offences could present problems for practitioners. For example, what would be
A MONEY LAUNDERING RELATED CONVICTION, WHETHER CRIMINAL OR REGULATORY . . . COULD POTENTIALLY LEAD TO A CUSTODIAL SENTENCE, PROFESSIONAL MISCONDUCT CHARGES, STRIKING OFF, AND LOSS OF LIVELIHOOD.
the criminal liability, if any, of a practice which allowed funds to pass through its trust account during a property transaction, where a practitioner had a reasonable suspicion that the funds were the proceeds of crime? What if the practice had received, possessed, concealed or disposed of funds which are found to be the proceeds of crime, or the instrument of crime? What would be the position if a client paid legal fees with cash and the practitioner suspected that the cash might be the proceeds of crime?
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in a customer identification procedure (s138); providing or receiving a designated service using a false customer name or customer anonymity (ss139 and 140). The s139 providing offence appears to pose the greatest risk to practitioners, suggesting that there is an imperative to be diligent in undertaking client acceptance procedures. Potentially most problematic are the tipping of f of fences. Section 1 2 3(1) prohibits disclosure to a person, other than AUSTRAC,10 that a s41(2) suspicious matter report has been made. Section 123(2) prohibits disclosure to a person, other than AUSTRAC of: a s41(1) suspicion having been formed, or any information from which the person could reasonably be expected to infer that the suspicion has been formed (s123(2)(c)), or any information from which the person could reasonably be expected to infer that a s41(2) report had been made (s123(2)(d)).
that statutory duty. This is of particular importance in the case of solicitors who, under their professional regulations and by dint of their status as officers of the court, have a further duty to ensure that such information is disclosed. Kerr LCJ outlined the approach that the courts should take when dealing with breaches by a professional person, stating (at 47) that a custodial sentence will almost invariably be required to make clear the importance of scrupulous adherence to the requirements of the legislation. Time will tell whether the Australian judiciary will take a similar approach.
First, a conviction would be a show cause event (s1.2.1), requiring the practitioner to explain why, despite the show cause event, they should be considered a fit and proper person to hold a local practising certificate (s2.4.26(2)). Second, the conviction would be capable of constituting unsatisfactory professional conduct or professional misconduct (s4.4.4 (c)(i)), leaving the practitioner open to a potential disciplinary complaint (s4.2.3). Whether a breach of a civil penalty provision of the AML Act would constitute professional misconduct or unsatisfactory professional conduct may depend on the seriousness of the breach. Certainly, a breach of the suspicious matter reporting obligation or failure to implement an AML/CTF program might be deemed sufficient to bring disciplinary proceedings. This type of breach may not constitute unsatisfactory professional conduct; however, it may constitute professional misconduct under the fit and proper requirement (s4.4.3).
GOOD REPUTATION MANAGEMENT WOULD REQUIRE PR ACTITIONERS TO BE ALIVE TO THE RISKS AROUND MONEY LAUNDERING AND TERRORIST FINANCING . . .
Penalties of two years imprisonment and/or a 120 penalty unit fine apply (s123(11)). Exceptions to the s123(2) tipping off offences include: dissuading a client from engaging in conduct that constitutes, or could constitute, the evasion of a taxation law or an offence against a commonwealth, state or territory law (s123(4)); disclosure to a legal practitioner to obtain legal advice (s123(5)); and exchange of information within designated business groups (s123(7)). In addition, s242 states that the AML Act does not affect the law relating to legal professional privilege. due diligence requirements (s36); failure to have or follow an AML/CTF Program (ss81 and 82); failure to report suspicious matters (s41); and record keeping obligations (Part 10). Civil penalties can be up to $11 million for a body corporate (such as an incorporated legal practice) (s175(4)), and up to $2.2 million for a person (including a sole practitioner or partnership) (s175(5)). As an alternative to civil penalty proceedings, AUSTRAC also has the power to accept enforceable undertakings (EU) from reporting entities (s197). An EU would require the reporting entity to undertake remedial action to comply with the AML Act. The EU regime is effective but can be costly in time and resources, depending on the terms of the particular EU. The acceptance of an EU would be publicised in the press and on the AUSTRAC website.
Disciplinary proceedings
As the majority of the criminal offences under both the Criminal Code and the AML Act are indictable offences they constitute serious offences under s1.2.1 the Legal Profession Act 2004 (Vic). Several consequences would f low from a conviction.
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Reputational issues
It is often forgotten by practitioners that clients select their legal representatives for many reasons including trust, reputation and legal knowledge. If a practitioner was charged with, or convicted of, a Criminal Code ML/TF or AML Act criminal offence or civil penalty, it is likely that their reputation would suffer. There is little doubt that the press, whether local or national, would take an interest in a solicitor charged with money laundering, and the subtleties of whether the charge was criminal or regulatory might be overlooked. Any disciplinary hearings after a criminal or civil case could also have a negative reputational effect. As 18th century American statesman and writer Benjamin Franklin said, it takes many good deeds to build a good reputation, and only one bad one to lose it. Good reputation management would require practitioners to be alive to the risks around ML/TF and to take a proactive approach to managing their reputation in general and the specific ML/TF reputational risks.
Conclusion
The risks to the profession from ML/TF are real and varied. The likelihood of breaching the Criminal Code or the AML Act may be low to medium, but the consequences of any such breach could be very high. The best defence will be to keep the potential launderer (and attendant law enforcement) away, and keep AUSTRAC and other regulators satisfied if, and when, they visit. This can be achieved by an in-depth understanding of the obligations and ML/TF risks, and by implementing a robust AML/CTF program. There may also be benefits for practices from better risk management linked to the AML Act.
PADDY OLIVER is a lawyer, management consultant and director of legal risk with SSAMM Management Consulting, and has worked extensively in risk management, compliance and anti-money laundering for legal and financial services organisations in Australia and the UK. 1. A later article will discuss management strategies to mitigate the risks of inadvertently breaching the antimoney laundering regime. 2. J Walker, The Extent of Money Laundering in and through Australia in 2004, September 2007, Criminology Research Council. 3. For example: United States v Gwiazdinski 141 F.3d 784 (7th Cir. 1998); United States v Goulding & Ushijima 26
F.3d 656 (7th Cir. 1994); The Attorney General of Zambia for and on behalf of the Republic of Zambia v Meer Care & Desai (a firm) and others [2008] EWCA Civ 875; and the UK cases cited below at note 11. 4. The Law Society, Anti-Money Laundering Practice Note, February 2008. 5. Only the Criminal Code and the AML Act will be discussed here, as they pose the greater risks to practitioners in general. 6. Part 4 relates to UN Security Council decisions on terrorism and dealing with assets: offence of dealing with freezable assets belonging to a proscribed person or entity (s20); offence of making available an asset to a proscribed person or entity (s21). Part 5 relates to UN sanctions, including the s28 offence of contravening a UN sanctions enforcement law. 7. The proposed designated services are currently under consultation; a draft can be obtained from www.ag.gov. au/www/agd/agd.nsf/Page/Anti-moneylaundering_ SecondTrancheofReforms. 8. Terrorist financing encompasses: getting funds to, from, or for a terrorist organisation; providing support to a terrorist organisation; financing terrorism; financing a terrorist. Sentences range from 15 years imprisonment to life imprisonment (Div 100). 9. Section 400.9(2) outlines certain conduct which is taken to fulfil the reasonable suspicion test. 10. Australian Transaction Reports and Analysis Centre (AUSTRAC) fulfills the role of Australias anti-money laundering and counter-terrorism financing regulator and specialist financial intelligence unit. 11. R v McCartan [2004] NICA 43; R v Duff [2002] EWCA Crim 2117; R v Griffiths [2006] EWCA Crim 2155. 12. Note 11 above.
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