Money Laundering And Terrorist Financing: Who Should Regulate Lawyers?

Money Laundering And Terrorist Financing: Who Should Regulate Lawyers?

Money Laundering And Terrorist Financing: Who Should Regulate Lawyers?


By Emeka Nwadioke, a legal practitioner

A battle is currently brewing between the regulatory authorities and Nigeria's legal practitioners over a recent directive mandating lawyers to register with the Special Control Unit against Money Laundering (SCUML) pursuant to the Money Laundering (Prohibition) Act 2011 (MLPA) and the Terrorism (Prevention) Act 2011.

Apparently poised to tighten the noose on Designated Non Financial Institutions (DNFIs) in a bid to check money laundering and financing of terrorism, the regulatory authorities seem to have gone into high gear to compel compliance of DFNIs with these laws. In fact, some employees of DFNIs (including accountants) were arrested by the EFCC/SCUML for failing to comply with the AML/CFT laws. Head of SCUML Angela Nworgu reportedly said the arrest of the company executives "marks a turning point in the enforcement of the anti-money laundering laws."

She added that the days of impunity and non-compliance by DNFIs were over, and promised that more arrests would be made. Legal practitioners are concerned that the dragnet may soon be extended to them. Further, Section 5(6) MLPA 2011 prescribes a daily N250,000 fine for failure of any DNFI (including legal practitioners) to comply with some aspects of the law as well as suspension, revocation or withdrawal of the DFNI's licence "by the appropriate licensing authority as the circumstances may demand."

But legal practitioners in particular are kicking against the enforcement, saying the Anti Money Laundering and Combating of the Financing of Terrorism (AML/CFT) laws are too onerous and would cripple professionalism generally and client-lawyer confidentiality in particular.

The Gatekeeper Initiative is a plan by government to impose stringent AML/CFT obligations on "gatekeepers" to the domestic and international monetary systems, such as lawyers, civil law notaries, trust and company service providers, real estate agents, accountants and auditors. These "gatekeepers" act as intermediaries in transactions where the identity of the underlying clients or the ultimate beneficiaries may not be disclosed.

Lawyers however contend that such laws that compel them to disclose even routine transactions with their clients do grievous harm to client-lawyer privilege. According to ABA, these AML/CFT laws which are styled after the Financial Action Task Force (FATF) models "would undermine the traditional role of state courts in regulating lawyers, erode the attorney-client privilege and interfere with the confidential attorney-client relationship, impose excessive new federal regulations on lawyers engaged in the practice of law, and impinge on the delivery of legal services in general."

ABA further asserts that though it "supports the enactment of reasonable and balanced initiatives" designed to detect and prevent money laundering and terrorist financing, "the ABA opposes any law or regulation that would compel lawyers to disclose confidential information to government officials or otherwise compromise the attorney-client privilege, including any mandate that lawyers file SARs on their clients." Such a requirement would directly conflict with numerous state bar ethical rules that require lawyers to maintain client confidentiality and to provide their clients with competent representation and undivided loyalty. Lawyers should not be subject to federal regulation in this area.

Accordingly, the prevailing trend in the United States is to adopt an AML/CFT model which does not target specific professions. Thus while the scope of the major money-laundering laws excludes lawyers, criminal laws prohibiting the laundering of money or terrorist financing apply to all individuals, including lawyers. Lawyers involved in money laundering, terrorist financing or facilitating either by their clients are subject to existing criminal and civil laws regarding money laundering and terrorist financing.

In Canada, lawyers have won a 10-year-old legal tussle against the regulatory authorities which attempted to enforce such draconian FATF-style laws on them. The court had granted injunction restraining the authorities from implementing the laws pending determination of the matter. In that celebrated case (RE: Federation of Law Societies of Canada v. Canada (Attorney General), 2011 BCSC 1270 (CanLII)).

Under the Money Laundering Act 2011, legal practitioners, chartered accountants as well as dealers in jewellery, cars, luxury goods, hotels, casinos and supermarkets are designated as DFNIs (Section 25). The minister may enlarge the list to bring in other professionals or operators. Compliance obligations for DFNIs under the MLPA are broadly categorized into customer identification and due diligence, preservation of transaction records, obligation to report transactions above statutory thresholds, creation of awareness about AML/CFT, and establishment of internal control policies and procedures. Accordingly, DFNIs/legal practitioners are required to register with SCUML, comply with transaction threshold requirements, designate AML/CFT compliance officers, and report transactions above statutory threshold to regulatory authorities.

For instance, MLPA 2011 provides in Section 1 that no person or body corporate shall, "except in a transaction through a financial institution", make or accept cash payment of a sum exceeding N5 million or its equivalent, in the case of an individual, or N10 million or its equivalent in the case of a body corporate. Further, Section 5(1) enacts that DFNIs whose business involve cash transactions shall submit to the relevant ministry "a declaration of its activities". Crucially, Section 5(1) (b) enacts that prior to any transaction involving a sum exceeding $1,000 or its equivalent (about N150, 000), the legal practitioner shall "identify the customer by requiring him to fill a standard data form and present his international passport, driving license, national identity card or such other document bearing his photograph as may be prescribed by the ministry."

The clincher is perhaps in Section 5(1) (c) which enacts that the legal practitioner shall "record all transactions under this section in chronological order, indicating each customer's name, forenames and address in a register numbered and forwarded to the ministry." Section 6 of the Act also directs legal practitioners to report suspicious transactions to the EFCC within 7 days, failing which they will be liable to N1 million fine for each day which the offence subsists (Section 6(9)). These customer identification and transaction records shall be preserved by the legal practitioner for at least five years (Section 7) and communicated on demand to the CBN or NDLEA (Section 8). Curiously, the licence of legal practitioners may be suspended by the CBN for default in developing programmes to combat money laundering (Section 9(2)).


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