The conflict between the attorney – client privilege and the anti – money laundering legislation in France

Published 14 July 2017 by rothpartners

Since two decades a number of legislative measures restraining the attorney-client privilege have been implemented in France. The most controversial consequences have affected the tax attorneys, who are often authors of the outlines of tax regularization. Being a fundamental ethical principle of the profession, the attorney-client privilege was actively protected by French attorneys associations on all levels. The debate still being actual and very boisterous!

There are two main laws, which have determined the actual situation in France:

  1. Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, which was transposed in French law by the Order of 30 January 2005. This legislationintroduced a double obligation concerning attorneys: the duty of vigilance (also known as “know your client”) and the duty of declaration in case of suspicion of an offense, especially if this offence is money laundering.

-        In terms of the duty of vigilance completed by the duty of caution, attorneys have to dissuade their clients, if the operations which they are intended to commit reveal criminal character. They are obliged to withdraw the dossier, if these clients refuse to break down the suspicious operations.

-        In terms of the duty of declaration in case of suspicion of an offence, attorneys have to declare to TRACFIN (a special service of the French Ministry of Finance) about the amounts, which to their opinion participate in offences punishable by an imprisonment above 1 year or if this offence is tax fraud in terms of the special Decree of 2010. An important precision, made by a French law transposing the European Directive, is the introducing in the procedure of the declaration of the Chairman of the Bar. He is supposed to be a “filter” between the attorney and the Ministry of Finance. His role is to assess the respect of the attorney-client privilege and to send the declaration to the Ministry of Finance only if necessary. The European Court of Human Rights held in its decision of 6 December 2012, that the presence of the Chairman of the Bar is a proportional and legal measure.

Nevertheless, some attorney’s activities still being excluded from the scope of these arrangements, so that they still being covered by the attorney-client privilege and there is no duty of declaration for them. This is notably the case, if the mentioned activity is attached to a jurisdictional procedure (even eventual one) or if attorney just gives the legal counsel not aiming money laundering or financing of terrorism. TRACFIN has after all scheduled an exception to this “exception from the scope”. The edited regulation contains a limited list of cases, in which attorneys are always obliged to proceed to a declaration of suspicion, like in case of financial or real estate transaction, opening bank accounts or management of stocks.

  1. Law of 6 December 2013, which has been adopted as a consequence of the “Cahuzac-affair”. Jérôme Cahuzac was the Minister of budget under President François Hollande and was accused of tax fraud and money laundering. The press investigation revealed that Jérôme Cahuzac, his wife and mother had held non-declared bank accounts in Switzerland and Isle of Man. This political and financial scandal has led to the adoption of a number of important measures by the Law of 2013 in order to fight against tax criminality, tax fraud, money laundering, corruption and stock market criminality:

-        The creation of a new jurisdiction: PNF (French national public prosecutor’s office)

-        The reinforcement of the tax control administration’s capacity

-        The creation of the new aggravating circumstances for the most serious frauds, especially for the tax fraud committed by an organized crime gang. Concerned were also the intermediary and counsels, what has worried tax attorneys, who work out the outlines for tax optimization.

Since there, French judges mistrust the advising attorneys. Penal judges consider, that a tax attorney is bound by a reinforced duty of counsel, so that he has to think about real aims of his client. A lack of vigilance of the attorney may be considered as an element of complicity. But actually, the practice of tax optimization is a public freedom and is not illegal per se. That’s why French judges are still obliged to respect the attorney-client privilege and the rights of the defense. This battle is to be continued!

Two finance laws of 2014 and 2015 tried to introduce even more serious penalties for tax frauds and new obligations for tax counsels, but they were penalized by the Constitutional Court of France on request of the National Bar Counsil.

The recent illustration to the reality of the tax counsel in France is the Arlette Ricci Affair. In May 2017 the heiress of the fashion house Nina Ricci has been convicted by the Court of Appeal of Paris for a 20 years long dissimulation of her inheritance of 17 million euros on her non declared bank account in Switzerland. The tax attorney of Arlette Ricci, who took an active part in the elaboration of tax outline, has been also convicted to a fine, which is an alleged punishment in comparison to Arlette’s one: 3 years in prison and a confiscation of hidden inheritance completed by a fine. The judges held again that tax attorneys are obliged to a “reinforced counsel duty”. According to the Court, professionals have to be able to separate tax optimization from the organization of insolvency. The other obligation which is “duty of reinforced vigilance” seems to be an obligation to guess the real intention of the client. Otherwise, the attorneys become automatically accomplice to the offence committed by their clients.