Lawyers have a duty to report suspicious deals

In 2004, the global anti-money laundering standards setter Financial Action Task Force undertook a study on the vulnerability of the legal profession to money laundering and terrorism financing.

The study noted that as financial institutions put anti-money laundering measures into place, the risk of detection has become greater for those seeking to use the banking system to launder criminal proceeds. The study confirmed that criminals were using mechanisms that involve services frequently provided by legal professionals for the purpose of laundering money.

Lawyers become vulnerable professionals when used, knowingly or unknowingly, by criminals to hide their ill-gotten wealth. Lawyers, like other facilitators of financial and legal transactions, need to safeguard their profession from abuse.

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In the fight against money laundering and terror financing, the role of financial institutions and designated non-financial businesses and professions, lawyers included, is preventative and to act as gatekeepers to prevent illicit proceeds from entering the financial system. The Financial Reporting Centre (FRC), established with the objective to identify proceeds of crime, combat money laundering and terrorist financing, enforces Proceeds of Crime and Anti-Money Laundering Act obligations, analyses suspicious transactions from reporting institutions and reports to investigative agencies. In turn, these agencies probe and prosecute identified offences and also seize assets.

It is imperative to demystify the myth on reporting obligations as it pertains to lawyers' reporting to the FRC suspicious transactions. This overarching obligation is not only for the common good and in the general interest of society, but it is also the core tenet of ethical practice of law.

So will the inclusion of lawyers as reporting entities under Proceeds of Crime Act erode the advocate-client privilege? The answer is an emphatic NO! The reporting obligations for lawyers only apply when they carry out specified financial transactions. Litigation is not among the specified transactions.

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Regarding privilege, the Evidence Act provides for client-advocate privilege. It states: “Notwithstanding the provisions of sec. 17, nothing in this Act shall affect or be deemed to affect the relationship between an advocate and his client with regard to communication of privileged information between the advocate and the client.”

Similarly, the LSK Digest of Conduct and Etiquette excludes the benefit of privilege if communication is made in furtherance of fraud or crime. Communication made to an advocate for the purpose of a defence in criminal proceedings are within the rule of privilege, a global practice for the legal profession.

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Opposition to the proposed amendment to sec. 44 of Proceeds of Crime Act to include lawyers is anchored on false ‘infringement’ of the advocate-client privilege. The scope of the proposed amendments in the Finance Bill 2019 only relates to specified transactions as defined in the application of reporting obligations.

Secure integrity

Kenya as a member of the global community is expected to secure the integrity of the global financial system by implementing the rules agreed upon by the comity of nations. Kenya is scheduled to be assessed in 2021 by the Eastern and Southern Anti-Money Laundering Group.

In the last assessment in 2010, Kenya was found to be deficient in a number of areas, including non-designation of lawyers as reporting entities under Proceeds of Crime Act. The non-designation of lawyers remains the only deficiency. The implication is that Kenya can be singled out as a high risk jurisdiction.

LSK has proactively developed draft anti-money laundering guidelines for lawyers intended to ensure that no illicit funds pass through a lawyer’s client account. As a statutory watchdog, FRC supports LSK commitment in helping to curb the vice, and is committed to ensure legal fraternity is protected from money laundering and terror financing.

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In a nutshell, the sacrosanct nature of the advocate-client privilege is duly protected under sec. 18 of Proceeds of Crime Act and Sec. 134 of the Evidence Act. Inclusion of lawyers as reporting entities will not infringe on the legally protected advocate-client privilege nor will it affect any professional and lawyer ethical obligations.

Mr Maika is the Director General Financial Reporting Centre

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