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Role of lawyers in curbing money laundering

Sunday August 25 2019

money laundering

Criminals were making use of mechanisms which involve services frequently provided by legal professionals, for the purpose of laundering money. PHOTO | FILE | NATION MEDIA GROUP 

SAITOTI OLE MAIKA
By SAITOTI OLE MAIKA
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In 2004, the global anti-money laundering standards setter Financial Action Task Force (FATF) undertook a study on the vulnerability of the legal profession to money laundering and terrorism financing (ML/TF).

The study noted that, as financial institutions put anti-money laundering (AML) measures in place, the risk of detection has become greater for those seeking to use the banking system to launder criminal proceeds.

The study further confirmed that criminals were making use of mechanisms which involve services frequently provided by legal professionals, for the purpose of laundering money.

As the saying goes, kibaya cha jitembeza, criminals tend to have an affinity to live large.

Lawyers become important facilitators in this scheme for making legitimate transactions on behalf of their “clients” who would avoid disclosing the source of their income.

OBLIGATION

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Lawyers become vulnerable professionals, 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.

In the fight against ML/TF, the role of financial institutions and designated non-financial businesses and professions, lawyers included, is preventative and act as gate keepers to prevent illicit proceeds from entering the financial system.

The Financial Reporting Centre established with the primary objective to identify proceeds of crime, combat money laundering and terrorist financing enforces POCAMLA obligations, analyse suspicious transactions from reporting institutions and disseminate reports to investigative agencies.

In turn, the investigative agencies further investigate 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.

DISCLOSURE

So, will the inclusion of lawyers as reporting entities under POCAMLA 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.

The provisions of the Evidence Act relating to the privilege of advocates in Sec. 134 (1) says: No advocate shall at any time be permitted, unless with his client’s express consent, to disclose any communication made to him in the course and for the purpose of his employment as such advocate, by or on behalf of his client, or to state the contents or condition of any document with which he has become acquainted in the course and for the purpose of his professional employment, or to disclose any advice given by him to his client in the course and for the purpose of such employment.

The provisos to this section is pertinent: It states: “provided that nothing in this section shall protect from disclosure — (a) any communication made in furtherance of any illegal purpose; (b) any fact observed by any advocate in the course of his employment as such, showing that any crime or fraud has been committed since the commencement of his employment, whether the attention of such advocate was or was not directed to the fact by or on behalf of his client.”

PRIVILEGE

Sec. 18 of POCAMLA provides for client-advocate privilege: In that provision, subsection 1 provides: “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.”

Sub-sec.(2) further states: “The provisions of subsection (1) shall only apply in connection with the giving of advice to the client in the course and for purposes of the professional employment of the advocate or in connection and for the purpose of any legal proceedings on behalf of 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.

Opposition to the proposed amendment to sec.48 of POCAMLA to include lawyers is anchored on false ‘infringement’ of the advocate/client privilege.

GLOBAL STANDARDS

The scope of the proposed amendments in the Finance Bill, 2019 only relates to already enacted specified transactions as defined in sec.48 on the application of reporting obligations, which are:

Buying and selling of real estate; managing of client money, securities or other assets; management of bank, savings or securities accounts; organisation of contributions for the creation, operation and management of companies; creation, operation or management of legal persons or arrangements, and buying and selling of business entities.

Clearly, litigation is not one of these specified transactions.

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 (ESAAMLG).

SHORTFALLS

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 POCAMLA.

A lot has been done to address the deficiencies but non-designation of lawyers remains the only deficiency.

The implication is that Kenya can be singled out as a high risk ML/TF jurisdiction and a safe haven for ML/TF.

The LSK has proactively developed draft AML/CFT Guidelines for lawyers, intended to ensure that no illicit funds pass through a lawyer’s client account.

As a statutory watchdog, FRC supports LSK’s commitment in helping curb money laundering and remains committed to ensure that the legal fraternity is protected from ML/TF.

In conclusion, the sacrosanct nature of the advocate-client privilege is duly protected under sec. 18 of POCAMLA and Sec.134 of the Evidence Act.

The upshot of this is that inclusion of lawyers as reporting entities will infringe the legally protected advocate-client privilege nor will it affect any professional and ethical obligations bestowed on lawyers.

Mr Saitoti ole Maika is the director general, Financial Reporting Centre

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