Regulation of Lawyers'

Compliance News
Committee Update of the International Bar Association Section
on Public and Professional Interest

SEPTEMBER 2017 NO 2
 NEW WAVE OF BILLS IN URUGUAY AGAINST ATTORNEYCLIENT PRIVILEGE
Guzmn Ramrez
Bergstein Abogados, New wave of bills in Uruguay
against attorneyclient privilege
Montevideo
gramirez@
bergsteinlaw.com
I
n 2016, the Uruguayan government
submitted before Parliament two bills,
remarkable for their potential impact
on legal practice. The first one provided
the prohibition on invoking attorneyclient
privilege before the Tax Office (Direccin
General Impositiva). The second one decrees
attorneys obligation to report suspicious
transactions which could be related to money
laundering. Brief analyses of both bills are
outlined below.
Prohibition on invoking attorneyclient
privilege before the Tax Office
In July 2016, the Uruguayan government
filed a bill with a particularly risky provision
(Article 17), which prohibits the invoking
of attorneyclient privilege before the Tax
Office. This provision echoes past inclinations
of the Uruguayan authorities. More than
a decade ago, the Tax Office attempted to
incorporate a similar provision in the
20052009 Budget Bill. The then-Parliament
noted the unconstitutionality of such a
provision and decided to erase it from
the Budget Bill. Thankfully, current
parliamentarians have finally decided to keep
attorneyclient privilege safe, expressing the
same wisdom showed by their predecessors.
Approval of Article 17 would have turned
the Tax Office into a super-judge. The
Uruguayan Tax Office would have been
able to exercise super powers (ie, powers
broader than those which judges currently
have). Article 17 would have allowed
the Tax Office to ignore attorneyclient
privilege without providing any judicial
proceeding to control and guarantee the
legality (and the lack of arbitrariness) in
the exercise of such super powers. Further,
the Uruguayan Tax Office would have been
authorised to:
a) require any attorney who would be
advising and/or defending a taxpayer
(innocent, until proven otherwise) to
make a statement against his/her client;
and
b) use this statement both in the context of
an audit and a trial.
REGULATION OF LAWYERS' COMPLIANCE SEPTEMBER 2017
Article 17 intended to fundamentally
weaken the capacity of attorneys to advise and
defend clients before the Tax Office. Who
would be willing to hire an attorney knowing
that the Tax Office could require this attorney
to make a statement against their own
client? But, more than damaging attorneys,
Article 17 would have damaged the rights
of taxpayers, taking away their right to have
the best legal advice/defense possible (ie, a
relationship which arises from absolute trust
and confidentiality, with the guarantee of an
honest dialogue between client and attorney).
Major legal personalities, including the
Attorney General and the Chief Justice,
publically expressed their disapproval of
the proposed Article 17. The Uruguayan
Bar Association (Colegio de Abogados del
Uruguay) shared the same view. In the end,
the Uruguayan Parliament listened to the
calls of the Uruguayan Bar Association, and
decided to amend Article 17 in order to
preserve attorneyclient privilege and avoid
future unconstitutionality claims.
Attorneys obligation to report suspicious
money laundering transactions
On 28 November 2016, the Uruguayan
government filed another bill, this time in
connection with the inclusion of attorneys in
the legal regime against money laundering.
If this bill is passed by Parliament, attorneys
will be obliged to report before the
corresponding authorities any suspicious
transactions that could be related to prior
criminal activity.
This obligation is already constitutional
in several countries (mainly European),
but many others are opposed, including
Canada, Japan, South Korea and the United
States. Opposing countries maintain their
position on the grounds that attorneyclient
privilege would be undermined by the
attorney obligation. As aforementioned,
every individual has the right to the best
legal advice/defense possible, and such legal
advice/defense needs minimum conditions of
trust and confidentiality in order to guarantee
an honest dialogue with an attorney.
9
 NEW WAVE OF BILLS IN URUGUAY AGAINST ATTORNEYCLIENT PRIVILEGE
Countries opposed to the obligation prefer
the practice of encouraging self-regulation
and professional education, rather than
forcing attorneys to act as informers.
The bill establishes certain restrictions on
the obligation to report. Attorneys would only
be required to report suspicious transactions
when such transactions were defined as any of
the following:
a) purchase agreements, preliminary purchase
agreements or assignment agreements of
purchaser rights on real estate properties or
commercial establishments;
b) management of moneys, bank accounts,
securities or other assets;
c) incorporation, performance or
management of companies, trusts or
other legal entities; or
d) performance of duties by order of clients
in the framework of financial or real
estate transactions.
Another restriction arising from the bill would
be related to the difference between legal
advice and legal defense. The bill provides
that an attorneys obligation to report suspicious
activity would be restricted to those cases where
they practice their profession as advisors in the
framework of the aforementioned transactions;
they would not be required to report when
they practice as defenders in any administrative
investigation or judicial proceeding.
Beyond that, the bill shows certain
particularities which could be potentially
dangerous for the legal profession, including:
a) Article 12 authorises Uruguayan anti-
money laundering authorities to request
from attorneys any information which
the authorities could deem useful for
the performance of their duties. Such
provision grants Uruguayan authorities
an excessive discretionary power which
might lead to arbitrariness.
10 INTERNATIONAL BAR ASSOCIATION SECTION ON PUBLIC AND PROFESSIONAL INTEREST
b) Article 35 clarifies that attorneys would be
required to report suspicious transactions
even though individuals involved in such
transactions would never have been
formally and duly sentenced for any
prior crime. Attorneys would be forced
to become not only informers, but also
private investigators and even factual
judges, for the purpose of collecting
evidence in connection with possible
prior crimes and to assert the possible
criminal liability of their clients.
c) Article 12 also provides that non-
compliance with the attorneys obligation
to report could trigger a fine of up to
US$2.4m. This seems to be a sanction
too severe for an obligation, the scope
of which is not clearly defined, thus
undermining the so-called principle of
legal certainty.
d) Article 22 states that compliance in
good faith of the obligation to report
would not lead to any liability for
attorneys. This provision seems to seek
to encourage attorneys to report any
potentially suspicious behaviour, even
when they may have doubts about the
pertinence of reporting.
The Uruguayan Bar Association has also
expressed its opinion against this new bill. The
Uruguayan Bar Association understands that:
a) fighting against money laundering is a
legitimate aim; and
b) attorneys actively and consciously
involved in money laundering
transactions are themselves real criminals.
However, fighting against money laundering
does not justify the ignoring of attorney
client privilege and, furthermore, the
obligation to report bill seems to undermine
the principle of proportionality.