The #legalprivilege under the provision of management and administration of trusts and companies’ services (From the AML/CFT prospective)

Trust and company service providers (TCSPs) are at a high risk of being used for money laundering or terrorist financing. The creation and management of trusts and companies might be readily used to disguise the ownership and control of assets that can help criminals to hide the proceeds of crime. The services TCSPs provide can be used to make transactions and ownership/control of property, more complicated and anonymous, which makes it harder to tell if funds have come from an illegitimate source.

Legal privilege generally covers communications between lawyers and their clients that are made for the purpose of seeking or providing #legal advice. On 8 December 2022, the #European Court of Justice (ECJ) issued a judgment in Case C-694/20, "Orde van Vlaamse Balies and Others v Vlaamse Regering" that provides a significant clarification of the scope of legal professional privilege under EU law. confidentiality of lawyer-client communications not only in relation to the exercise of the client’s rights of defence, but legal advice beyond the litigation context.

The ECJ confirmed that the obligation for lawyer-intermediaries advising on potentially aggressive cross-border tax arrangements to notify other non-client intermediaries of their reporting obligations vis-à-vis the tax authorities infringes the right to respect for communication between a lawyer and their client. With this judgment, the ECJ definitively confirms that EU legal professional privilege protects the the confidentiality of lawyer-client communications not only in relation to the exercise of the client’s rights of defence, but legal advice beyond the litigation context.

Regarding lawyers providing trust and corporate services, whether communications/correspondence with their clients would be covered by legal privilege, is depend on the nature of the communication and the role of the lawyer as a trust and company service provider. If the communication/correspondence involves seeking or providing legal advice, and if the lawyer is acting as an agent or intermediary for the client in facilitating that legal advice, then it's possible that legal privilege could apply. However, if the communication with the lawyer is purely operational or administrative in nature, or if the lawyer is not involved in facilitating legal advice or exercise of the client’s rights of defence, then legal privilege may not necessarily apply.

Legal privilege certainly, is applicable in cases where an investigation for ML is launched from a law enforcement agency, the tax authorities or other government bodies. From the other hand and it should be highlighted, the legal privilege should not be an issue and prevent the supervisory authority responsible of the oversight of the professional under question, to have a full access in client’s transactions and KYC files.

The #legal privilege and the supervisory authorities’ powers

Legal privilege typically does not extend to the supervisory authority powers, where a supervisory authority is established by law, responsible in particular for monitoring compliance by obliged entities with their European and national obligations relating to the fight against money laundering and terrorist financing # AML/CFT or #Sanctions compliance. In many jurisdictions, there are specific rules and regulations governing the disclosure of information to supervisory authorities, particularly for the self-regulated professional bodies.

These rules often require members to provide information to supervisory authorities as part of their regulatory compliance obligations. According to a UK report issued on 2022, titled “a privileged profession” written by Dr Helen Taylor and Dr Daniel Beizsley of Spotlight on Corruption: “legal professional privilege is a fundamental right that lies at the heart of the justice system. By protecting confidential information from disclosure, privilege helps secure access to justice. Yet this confidentiality is also open to abuse: it can be used to conceal wrongdoing involving the lawyer or to resist disclosure where there are no proper grounds for claiming privilege in the circumstances. In particular, there is a real risk that privilege can be asserted to avoid reporting suspicion or knowledge of money laundering based on information that is not, properly speaking, protected by privilege”

“Legal professional privilege undoubtedly has a valuable role to play in securing access to justice, but its potential for abuse or misapplication poses a challenge to AML regulation and supervision. There is a need for clearer guidance on its proper application in the context of a lawyer’s AML reporting duties and for mechanisms by which legal sector supervisors as well as law enforcement agencies can challenge claims of privilege by recourse to independent counsel”.