Relationship Tensions: protecting attorney/client privilege while respecting tax avoidance legislation
A number of legislative measures restraining the attorney-client privilege have been implemented in France during the past 20 years.
The most controversial of these restraints affect tax attorneys, who are often authors of the out-lines of tax regularisation. As a fundamental ethi-cal principle of the profession, the attorney-client privilege is actively protected by French attorney associations on all levels.
There are two main laws, which have determined the actual situation in France:
Directive 2005/60/EC
The first is Directive 2005/60/EC of the Euro-pean 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.
This was transposed into French law by the Order of 30 January 2005, and the legislation introduced a double obligation concerning attor-neys. 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.
The duty of vigilance requires attorneys to dis-suade their clients, if the operations which they are intended to commit reveal criminal character. They are obliged to withdraw their services, if these clients refuse to break down the suspicious operations. Where the duty of declaration is concerned, attorneys have to declare to TRAC-FIN (a special service of the French Ministry of Finance), suspicious transactions which, in their opinion, could be punishable by an imprison-ment above one year. If this offence is tax fraud, then disclosure is governed by the terms of the special Decree of 2010.
French law has developed the role of the Chair-man of the Bar, who acts as a ‘filter’ between the attorney and the Ministry of Finance. Their role is to assess the respect of the attorney-client privi-lege 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.
Some attorney’s activities are still covered by the attorney-client privilege and have no duty of declaration attached to them. This is notably the case, if an attorney just gives legal counsel, not aimed at money laundering or the financing of terrorism. TRACFIN has created an edited regulation containing a limited list of cases, in which attorneys are always obliged to proceed to a declaration of suspicion, such as financial or real estate transactions, opening bank accounts or management of stocks.
The law of 6 December 2013
The second piece of legislation is the 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 Cahu-zac, his wife and mother had held non-declared bank accounts in Switzerland and the Isle of Man. This political and financial scandal led to the adoption of a number of important measures within the Law of 2013, in order to fight against tax criminality, tax fraud, money laundering, cor-ruption and stock market criminality.
These are:
• The creation of a new jurisdiction: PNF (French national public prosecutor’s office)
• The reinforcement of the tax control adminis-tration’s capacity
• The creation of the new aggravating circum-stances for the most serious frauds, espe-cially for tax fraud committed by an organised crime gang. This includes liability for interme-diaries and counsel
Penal judges consider, that a tax attorney is bound by a reinforced duty of counsel, so that he has to think about the real aims of his client. A lack of vigilance of the attorney may be consid-ered as an element of complicity. Despite this the practice of tax optimisation is a public freedom and is not illegal per se. French judges are still obliged to respect the attorney-client privilege and the rights of the defense.
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 penalised by the Constitutional Court of France on request of the National Bar Counsel.
A recent illustration of the changes affecting tax counsel in France, comes from the Arlette Ricci case. In May 2017 the heiress of the fashion house Nina Ricci was convicted by the Court of Appeal of Paris for a two-decade long dissimu-lation of her inheritance of 17 million euros into a non-declared bank account in Switzerland. The tax attorneys for Arlette Ricci, who took an active part in the elaboration of tax outline, were fined, while Arlette received three years in prison and confiscation of the hidden inheritance. The judges held that tax attorneys are obliged to a reinforced counsel duty. According to the Court, professionals have to be able to separate tax optimisation from the organisation 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 attor-ney automatically become an accomplice to the offence committed by their clients.
In the aftermath of the Arlette Ricci case, new legislation was passed in France, with a gov-ernment decree of 18 April 2018, defining the lawyer’s obligations and sanctions attached to a potential breach of the duty of vigilance.
The acronym used for this legislation is ‘LAB-FT’ (Lutte contre le blanchiment de capitaux et le financement du terrorisme). This new legislation is consolidated under article L561-2 of the French Monetary Code. The sanctions are inspired by the Anglo-Saxon concept of disclosing the fault. Once the concerned lawyer is definitively convicted of a breach of the duty of vigilance, the sanction is to be posted on the website of the Conseil National des Barreaux, the French equivalent to the Law Society, for a period up to five years.
In the corporate practice, the LAB-FT has created an environment of suspicion, which now leads to an overly cautious approach to all transaction activities. The systematic requirement of a waiver declaration has become very inquisitive, since the questions do not concentrate any more on the origin of the funds, but on the destination and future use of the funds.