UK: Client Confidentiality Versus the Fight Against Money Laundering in France

"A well organised society ensures a patient gets a doctor, a litigant benefits from the assistance of a lawyer, a catholic receives confession from a priest. However, neither the doctor nor the lawyer, nor the priest would be able to accomplish their duty if the confidences made to them were not governed by professional privilege. Therefore, it is of great importance that these various confessors commit themselves to preserve secrecy through the duty imposed on them, without any condition or any reservation, otherwise no-one will dare confide in them if they fear the disclosure of a confidence".

Note of M. Garçon under Article 378 of the former French criminal code.

The duty of client confidentiality is one of the pillars of a liberal society and a state governed by the rule of law. However, in this global age, the movement towards transparency in the international business community is imposing new duties upon lawyers to report to relevant authorities suspicious transactions made by their clients.

The duty of client confidentiality of French lawyers is enshrined in law. Article 2 of the "Règlement Intérieur du Barreau de Paris" (Paris Bar Code of Conduct) stipulates that it is:

"general, absolute and not limited in time. The lawyer being the necessary confidant of a client, this secrecy is established in the public interest.

A lawyer cannot be released from this duty by his client, any authorities or any third party in general".

A breach of this professional duty constitutes a breach of the Code of Conduct rules. In addition, it also constitutes a criminal offence defined under Article 226-13 of the French Criminal Code:

"The disclosure of secret information by a person entrusted with such a secret, either because of his position or profession, or because of a temporary function or mission, is punished by one year’s imprisonment and a fine of d15,000."

The criminal offence is committed as soon as the information is disclosed (even if there is no malicious intent) except in two limited circumstances provided for under Article 226-14 of the French Criminal Code: when a person informs a judicial, medical or administrative authority of cruelty or deprivation of which he has knowledge and which has been inflicted on a minor under fifteen years of age, or a person unable to protect himself because of his age, mental or physical state.

Lawyers in France are, however, also required to observe:

• A general principle of good conduct defined under Article 1.3. of the "Règlement Intérieur Harmonisé" (Harmonised rules common to most bars in France, hereafter referred as "RIH");
• The prohibition on participating in the drafting of any illegal document (Article 7.4 of the RIH);
• Article 324-1 of the French Criminal Code which defines broadly the offence of money laundering:

"Money laundering is facilitating by any means the false justification of the origin of the property or income of the perpetrator of a felony or misdemeanor which has brought him a direct or indirect benefit.

Money laundering also comprises assistance in investing, concealing or converting the direct or indirect products of a felony or misdemeanor.

Money laundering is punished by five years’ imprisonment and a fine of d375,000".

Lawyers must also identify their clients as specified in the Code of Conduct for lawyers in the European Union (Article 19.3.1.1 of the RIH):

"A lawyer shall not handle a case for a party except on his instructions. He may, however, act in a case in which he has been instructed by another lawyer who himself acts for the party or where the case has been assigned to him by a competent body.

The lawyer should make reasonable efforts to ascertain the identity, competence and authority of the person or body who instructs him when the specific circumstances show that the identity, competence and authority are uncertain".

Therefore, a lawyer needs to:

• know the precise identity of his or her clients (legal entity or natural person);
• check the economic beneficiaries of the legal work;
• check that this legal work is in line with the clients’ means;
• check the origin and destination of the assets; and
• retain all documents concerning the legal work carried out.

In spite of the numerous duties already incumbent on lawyers, the question of reporting suspicious transactions is regularly raised by the French Parliament, even though such reporting would inevitably breach the duty of client confidentiality.

This question was raised, for example, in 2001 at the time of the passage of the Act on "Nouvelles Régulations Economiques" (New Economic Regulations, hereafter referred as "NRE Act") and has been raised again with the transposition into French law of the EU directive of 4 December 2001 on money laundering.

The NRE Act n2001-420, adopted on 15 May 2001, amended Act n90-614 of 12 July 1990 on the fight against money laundering. The earlier Act related to the proceeds of drugs offences, originally dealing only with credit and financial institutions and later extended to other professionals. The NRE Act has extended the scope again to other professional sectors: legal representatives, casino managers, and dealers in high value goods, such as precious stones, metals or works of art.

The French Parliament has postponed extending the Act to chartered accountants, independent legal professionals, and therefore to lawyers. It is waiting for the outcome of negotiations taking place at European level regarding the amendment of a 1991 EU directive before requiring members of all financial or legal professions to report suspicions of money laundering.

The subject of lawyers reporting suspicious transactions is currently extremely sensitive in France. Whilst the need for governments to take active steps to prevent money laundering is accepted, there is a need to ensure that reporting obligations are not so widely drawn so as to pose an unwarranted interference in the right of confidentiality. The Department of Justice is preparing the text for the transposition into French law of the EU directive 2001/97/EC of 4 December 2001 amending EU directive 91/308/EEC on prevention of the use of the financial system for the purpose of money laundering. The new EU directive which must be implemented by all Member States at the latest by 15 June 2003 widens the scope of the application of the 1991 directive to other activities vulnerable to money laundering and, in particular, to lawyers.

Article 6.1 of the 2001 EU directive states that all professionals subject to the directive, need to inform the relevant authorities of any fact which might be an indication of money laundering and furnish all necessary information. However, Article 6.3 of the directive provides that Member States shall not be obliged to apply this previous provision to a certain number of professionals and, in particular, to lawyers in the course of their ascertaining the legal position for their client or performing their task of defending that client for the purpose of judicial proceedings.

Furthermore, the 2001 EU directive states in recital 17 that "there must be exemptions from any obligation to report information obtained either before, during or after judicial proceedings, or in the course of ascertaining the legal position for a client". The directive adds that "legal advice remains subject to the obligation of professional secrecy unless the legal counsellor is taking part in money laundering activities, the legal advice is provided for money laundering purposes, or the lawyer knows that the client is seeking legal advice for money laundering purposes".

The French State has announced that it will use the discretion reserved under Article 6.3. and not apply the obligation, on the part of lawyers, to declare in the course of their ascertaining the legal position for their client or performing their task of defending such client for the purpose of judicial proceedings. However, if the current lobbying organised by French lawyers fails, it seems that lawyers in France carrying out M&A advisory activities or having involvement with assets (as trustee) will have to inform the relevant authorities of any fact which might be an indication of money laundering. French lawyers’ duties in relation to client confidentiality would thus be undermined.

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