The Australian Constitution is short on citizen protections, with very few restrictions on the power of government.
For that reason, protections from our common law are fragile and should be surrendered only in the face of strong evidence that the remedy is not worse than the disease.
The presumption of innocence, the right to a fair and open trial, and the right to counsel who are duty bound to act in your interest are all cornerstones of the free democracy which we think immutable but which are, in fact, held in place only by the mortar of convention which can be swept away in a single act of Parliament.
“When lawyers deliberately betray their client’s trust or act in ways contrary to their client’s interests, it can have a devastating impact on the client. It is also, as this inquiry has shown, apt to undermine both the integrity of the criminal justice system and public confidence in the legal profession.”1
Legal professional privilege; or the ability to obtain clear advice on the law and its applicability to the citizen and their affairs from someone who will not turn state’s informer the minute a client leaves their office is a fundamental right.
The importance of this has been recognised by the High Court for generations. The court has always been careful to balance the general need to private communication with a lawyer with the public interest.
That balance is not an easy one to strike, yet the proposed AML/CTF tranche two regime takes a sledgehammer to the scales and runs the risk of turning nearly every solicitor in the country into a ‘Lawyer X’-style informer. While the consultation paper states that privilege will be maintained, the contradictory duty of a lawyer to report suspicions of possibility of illegality based on privileged information is impossible to reconcile.
The baseline rationale for legal professional privilege is the sheer complexity of the law. Australian individuals and businesses are now subject to thousands2 of pages of legislation, subordinate legislation, regulations, enforceable standards, administrative guidelines and binding rulings a year, all subject to the maxim that “ignorance of the law is no excuse for breaking it”.
Even experienced lawyers struggle to keep up with the torrent. Ordinary people with a business to run and lives to lead have no chance of doing so. To navigate this administrative and legal maze, a citizen needs advice, and to get it they need to be able to communicate openly and in full with their lawyer.
Without all the facts, legal advice based on a partial version of events is useless. Without the guarantee of professional confidentiality, a citizen can’t provide all the facts without risk of their request for advice being used against them.
The AML/CTF tranche two proposal contains a requirement that any solicitor providing “designate services”3 who suspects that a person or transaction is linked to a crime must inform on their client to the authorities.
There is no presumption of innocence. There is no threshold of seriousness for the supposed offence. The offence committed by a solicitor who fails to spot a client’s misfeasance is one of strict liability: whether you actually knew is irrelevant. Nearly every small law firm in the country will be saddled with the obligation to constantly analyse their clients and transactions for signs of illegality.
Against this profound erosion to individual rights in Australia, the opaque international group that makes these rules (the Financial Action Task Force, or FATF) offers no evidence that such measures imposed on legal advisors elsewhere have done anything to de-fund terrorists or disrupt organised crime networks.4
Assertions that SME advisors “are at risk of engaging in money laundering” are made, but never supported.5 “Case studies” in consultation documents list the very few occasions in which corrupt solicitors have deliberately assisted a money-laundering operation. By doing so these people knowingly breached existing legal and ethical obligations. They can, and should, be punished using existing law. These (very rare) bad apples ignored one set of regulation and will, naturally, simply ignore new ones.
The only justification offered, ultimately, is that other places do it, (notably excluding the United States), so we should too. The consultation reference also contains the somewhat hysterical assertion that Australia risks “grey listing”6 by FATF if we do not comply with its non-binding recommendations. Not one country has ever been grey-listed for supposedly weak regulatory controls on lawyers.7
The UK experience seems to be that the forced conscription of solicitors as state informers is a failure. In 2019-2020 only 0.52% of all Suspicious Matter Reports in the UK came from lawyers,8 and there are no reported instances of major crime networks being disrupted as a result.
It would appear that the criminals are not in the least inconvenienced by the scheme and the only winners are the compliance advisors, happy beneficiaries of a $2.7 billion dollar market in consultancy services.9 Unsurprisingly, compliance advisory companies are enthusiastic supporters of the extension of AML/CTF regulation in Australia and are reported uncritically by gullible journalists and in reports from the bureaucrats who will be the beneficiaries of the new information stream.10
Currently, banks and other financial institutions have active AML/CTF programs, devoting millions of dollars to internal expert teams required to identify anomalous transactions. No doubt those programs are useful and have made our financial system more resistant to misuse. But these complex processes are well outside any conceivable ability for a small business to implement.
The current proposal simply imposes the same ultimate obligations on small legal practices as on multinational banks without any sensible consideration of how to achieve compliance nor the cost of doing so.
Current (and longstanding) ethical guidelines prohibit solicitors from knowingly assisting anyone to break the law or to conceal that they have done so. A solicitor’s duty to clients is already subject to our paramount duty to the court and the administration of justice.11 If a solicitor becomes aware that their client is likely to commit a serious offence in the near future they can already report it.12
In short, the case for expensive reforms which significantly erode the rights of every Australian has not been made.
David Bowles is a Queensland Law Society ethics solicitor. The views expressed in this article are those of the author.
1 Commissioner Margaret McMurdo AO, ‘Royal Commission into the Management of Police Informants’ (the Lawyer X Royal Commission) final report. (p72).
2 Tens of thousands? Nobody knows. The Federal Parliament alone now passes (on average) 139 pieces of primary legislation a year (Cf: Parliamentary Education Office). Just one of them, The Taxation Administration Act 1953 is 598 pages, before you even start on the regulation and quasi-regulatory explanatory rulings generated at an ever increasing rate.
3 Defined very broadly, including cottage conveyancing, business sales, company and trust formation, and potentially estate work.
4 ‘Money Laundering and Terrorism Financing Vulnerabilities of Legal Professionals’, FATF Report 2013.
5 Research presented as evidence of significant lawyer involvement in money laundering usually does not, on examination, actually support the contention, for example, ‘Money Laundering in Canada: an Analysis of RCMP Cases’, 2004, Schnieder S, Nathanson Centre for the Study of Organised Crime & Corruption, is sometimes presented as ‘evidence’ of lawyer involvement in money laundering. However, in the few instances in which it is suggested the lawyer involved should have had suspicions, they all related to acceptance of large sums of cash to fund a real estate purchase. In Australia, existing cash transaction reporting laws adequately address this risk and have done so for some time. Academic analysis designed to investigate the degree to which professional involvement is knowing (vs unwitting) generally concludes that active participation is very limited and usually occurs in tax-shelter jurisdictions with poor surrounding controls. There is even less evidence for the proposition that an additional layer of regulation will do anything to lessen the number of instances of wilful assistance; ‘Lawyers as Money Laundering Enablers? An evolving and contentious relationship’, 2022, Levi, M, Global Crime.
6 Essentially, being put on a naughty list, which comes with economic disadvantages.
7 Given that Zimbabwe, Botswana and Mauritius have recently been removed from the grey list (all without mandatory lawyer reporting in place), this claim can be treated with a grain of salt. The fact that this assertion is presented as a fact places the bona fides of the so-called ‘consultation’ process in serious doubt.
8 UKFIU. Suspicious Activity Reports Annual Report 2020. National Crime Agency, 2021.
9 ‘Anti Money Laundering (AML) Market size by Component’, 2023-2032, Global Market Insights.
10 Legal and Constitutional affairs committee, AML Report, Chapter 2 ‘Regulation of gatekeeper professions’ citing several such ‘compliance experts’, seemingly without any consideration of the structural conflict of interest.
11 Australian Solicitors’ Conduct Rules; Fundamental Duty 3.
12 Australian Solicitors’ Conduct Rules; Rule 9.2.4.