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Requiring Lawyers to Submit Suspicious Transaction Reports: Implementation Issues and Current

International Trends 1 I. Introduction To prepare for this report, an informal survey was conducted among 35 legal professionals consisting of practicing lawyers, judges, law professors, clerks of court, an NBI agent and a retired Sandiganbayan justice. Text messages were sent to these respondents to ask them of their opinion on the FATF recommendation. In particular the following question was asked: “should lawyers be made to submit suspicious transaction reports to the AMLC if they suspect that their clients, in the course of their dealings with them, are engaged in money laundering activities?” . A large majority replied in the negative, invoking the principle of lawyer-client privilege and ethical considerations. There are a couple of those who said yes, invoking societal interest. Others offered interesting suggestions.

Should Lawyers be Required to Submit Suspicious Transaction Report?

Informal Survey Yes No Other 7 25 3

Today, I am posing the same question to this group, which is the basic theme of my presentation. However, instead of

1 By Dr. George V. Carmona, Lecturer, Philippine Judicial Academy, Ateneo de Manila University School of Law and San

Beda College Master of Laws program. The author is also an international development consultant.

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asking you point blank, let us look into the following scenarios:

Situation No. 1. Atty. Jose Cruz is a solo practitioner with a small law office in Laguna. The bulk of his work comes from clients who seek his assistance in selling or buying real estate. One day, a classmate from law school who is now based in Davao City referred to him a couple from Mindanao, Mr. and Mrs. Santos, who wants to purchase real estate properties anywhere in Laguna. As instructed, he arranged a series of meetings with lot owners who are selling their land. Before meeting with the lot owners, they went to a number of money exchange centers to convert the couple’s dollars to peso. Having prepared the necessary transaction documents, the lot sellers were paid immediately with cash. He was given a hefty commission and was invited to the hotel where the couple was staying for further instructions. Later, in the hotel room where the couple was staying, he was asked to notarize the deed of sale even in the absence of the supposed buyers (deed of sale named a number of persons, who the couple claimed are their married daughters and/or son-in-law). When he was given the money for the transfer taxes and other expenses, he was given dollars again and he noticed that the money came from a bag full of dollars in various denominations.

Suppose that two (2) weeks before, there was a kidnapping of foreigners in Mindanao and that according to the media, ransom was paid. In situations like this, is it proper to require Atty. Cruz to submit suspicious

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transaction report on Mr. and Mrs. Santos? Are the attendant circumstances in this case suspicious enough to warrant the submission of STR, if it were required by the government?

Situation No. 2. Atty. John Reyes is a young lawyer working in a law office in Makati. He is personally handling the account of a corporation (Chemsafe, Inc.) that imports chemicals from Taiwan for domestic use. One day, he was asked by the owner, Mr. Jose, to set up Promising Scholars’ Foundation (PSF) that would fund the scholarship of poor students all over the Philippines. The foundation was given an initial fund of P 1 million and every month it receives an average of P 1 million from Chemsafe and sister companies. Six (6) months after the incorporation of the foundation, he was asked to amend the primary purpose of the foundation to enable it to provide financial assistance to charitable institutions accredited by the PSF. At the same time, a group of Chinese businessmen, accompanied by the Chemsafe owner, asked him to incorporate and register five (5) corporations (charity corporations), whose primary functions are to engage in charitable works but are allowed to acquire and sell real properties if they receive enough donations. He was given a list of names to be used as incorporators.

Suppose that most of the donations of Chemsafe ended up in these five (5) corporations. Assume further that the financial statement of Chemsafe showed a steep increase in its net income on the year that the foundation was set up. Having familiarity with the concept of money laundering, Atty. Reyes strongly believes that his client is

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engaged in money laundering activities. Is it proper to require him to submit STR on his client? Suppose further that a plant of Chemsafe turned out to be a shabu laboratory and was raided by the police and subsequently, a case was filed against Mr. Jose. Knowing that a case is pending against him, Mr. Jose talked to Atty. Reyes and revealed that the Chinese businessmen convinced him to convert his plants into shabu laboratories. Can Atty. Reyes still submit the STR? The following day, he was asked by the Chinese businessmen to prepare the necessary documents for the transfer of the assets of charity corporations to another foundation. Is this sufficient ground to require Atty. Reyes to submit STR?

Situation No. 3. Another lawyer, Atty. Juan Vasquez, is a partner in a big law office. One day, his law office was approached by a group of Middle Eastern looking businessmen who told him that they represent some of the biggest charitable organizations in Saudi Arabia. They wanted to establish a foundation in the Philippines to provide funding assistance to religious organizations based in Mindanao. The transaction went smoothly and for more than a year the law office of Atty. Vasquez was handling the legal matters of the foundation and its beneficiaries, which all appeared to be legitimate organizations. Two and a half years later, a series of bombings rocked Metro Manila and Mindanao. These bombings and other terrorist activities went on for a couple of months. By sheer accident, Atty. Vasquez noticed that every time the foundation sends the

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money to its beneficiaries, some terrorist activities would happen within a month or so. There appears to be a pattern, which is difficult to ignore.

Supposing that a large amount of money has just been wired for transfer to the beneficiary organizations in Mindanao, is this a sufficient ground to compel Atty. Vasquez to file a STR on its client? Suppose further that within a month after the new money was given to the beneficiaries, bombs exploded in Manila and Mindanao resulting to large casualties, is this sufficient ground for enactment of a law to make Atty. Vasquez submit a STR? As the above hypothetical situations show, organized crimes and terrorist groups can be very creative in moving and/or concealing huge amount of illegal money across international boundaries through the international financial system. With the help of professional advisers and intermediaries, they are not only able to disguise and protect the source of the illicit fund but to also enjoy proceeds thereof without attracting the attention of authorities.2

It is for this reason that the FTAF enjoins its member countries to enact laws, regulations and administrative practice that would facilitate better cooperation by the so-called gatekeepers in the fight against money laundering. The gatekeepers are the professionals and intermediaries consisting of lawyers, notaries, real estate agents and dealers in high value goods, independent professionals, trust and company service providers, investment advisers, and accountants, who advise on and help with transactions involving the movement of money.3 2 Lim, Francis Ed., Anti-Money Laundering Initiatives: Ramifications on the Legal Profession (2007). 3 Zagris, Bruce, The Gatekeeper initiative: An Emerging Challenge For Professional Advisors Of International Business And Tax Matters (2002).

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II. The Gatekeeper initiative The "Gatekeeper Initiative" is a concept for anti-money laundering initiatives directed specifically at certain professionals, like lawyers, accountants and auditors. It stems from a Communiqué of the G-8 Finance Ministers in Moscow in October 1999 calling upon countries to consider various means to address money laundering with the help of professional "gatekeepers" to the international financial/business markets.4 It is now contained in the revised FATF 40 Recommendations, which represent a set of international standards for countries to establish an effective anti-money laundering regime. Although not binding, member countries are expected to adopt anti-money laundering policies that are compliant to these Recommendations. The Initiative seeks to impose due diligence requirements on gatekeepers similar to financial institutions (e.g. know their client, identify and report suspicious transactions and not tip off the persons engaging in suspicious transactions that a suspicious activity report has been filed). Past experiences in anti-money laundering enforcement showed that money laundering investigations stop as soon as they hit the lawyer’s office. Under the revised FTAF 40 Recommendations, which was introduced in March 2003, lawyers have specific gatekeeping roles when engaged in certain transactions. Of specific concern to the lawyers are Recommendations No. 12, 14 and 16. Recommendation 12 mandates the imposition of due diligence and recordkeeping requirements to lawyers when they “prepare for or carry out transactions” concerning the following:

• buying and selling real-estate; 4 ABA Position Paper on Gatekeeper initiative

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• managing client money, securities or other assets; • management of bank savings or securities accounts; • organization of contributions for the creation,

operation or management of companies; and • creation, operation, or management legal persons or

arrangements and buying and selling business entities. 5

In addition, Recommendation 16 extends to lawyers, notaries and other independent legal professional the requirement of suspicious transaction reporting when they engage in a financial transaction in relation to the activities mentioned above on behalf of a client.6 Recommendation 14 specifies that they should be “prohibited by law from disclosing the fact that a suspicious transaction report (STR) or related information is being reported to the FIU.”7

Recognizing that well established principles of lawyer-client privilege will be infringed upon by these prescriptions, the Recommendations contain provisions that seek to protect legal privilege and confidentiality. Recommendation 16 provide that lawyers, notaries, other independent legal professionals, and accountants acting as independent legal professionals, are not required to report their suspicions if the relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege. Although it states that “it is for each jurisdiction to determine what matters would fall under legal profession privilege or professional secrecy,” the Recommendation notes this would “normally cover information lawyers, notaries, or other independent legal professional receive from or obtain through one of their clients:

5 Recommendation 12 (d). 6 Recommendation 16. 7 Recommendation 14.

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a. in the course of ascertaining the legal position of their clients; or

b. in performing their task of defending or representing that client in, or concerning judicial administrative, arbitration, or mediation proceedings.8

In addition, the Interpretive Note to the Recommendations give the option of instituting a system whereby suspicious transaction reports would be submitted to a bar association or other legal self-regulatory organization (providing that organization cooperates with the country’s FIU). 9 Recommendation 14 moreover seeks to give lawyers legal protection “from criminal and civil liability for breach of any restriction on disclosure of information imposed by contract or by any legislative, regulatory or administrative provision, if they report their suspicions in good faith to the FIU, even if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred.”

IV. Adoption and Enforcemen t of Gatekeeper initiative by the International Community

More than four (4) years after the FATF revised its 40 Recommendations, a number of countries have already enacted a gatekeepers legislation to require lawyers to submit suspicious transaction reports and/or conduct due diligence on their clients. A study conducted by the International Bar Association (IBA) showed that of the 135 countries it surveyed, 85 have anti-money legislation covering lawyers.10

8 Interpretive Note to Recommendation 16. 9 Ibid. 10 see IBA website, http://www.anti-moneylaundering.org/globalchart.asp.

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In his review of anti-money laundering legislation in Southeast Asia, Attorney Francis Lim noted that the trend in anti-money laundering legislation in the ASEAN region appears to be geared toward incorporating gatekeeper initiatives. He noted that Singapore, Malaysia and Vietnam already expressly require lawyers to conduct customer due diligence and to report suspicious transactions. While Indonesia does not have a specific gatekeeper law, lawyers could be obligated to do the same if they provide Financial Services for their clients.11 Below are existing policies on the gatekeeping duties of lawyers in select ASEAN countries. Malaysia Malaysia is one of the ASEAN countries that has a gatekeeper legislation covering lawyers. Its Anti-Money Laundering Act 2001 (Act 613), which came into force on 15 January 2002, includes solicitors and advocates in the definition of “reporting institution.” Thus, a lawyer who provides relevant services has a legal responsibility to report suspicious transactions pertaining to money laundering to the FIU. Failure on the part of the lawyer to submit suspicious transaction report would make him liable for a money laundering offense that is punishable with a maximum fine of RM250,000. Lawyers are given immunity from civil and criminal liability when disclosing or supplying information pursuant to the Act, except when such disclosure is done in bad faith. Professional privilege between a lawyer and his client is superseded by the provisions of the Act for the purpose of complying with the reporting obligation, and said privilege will not acquit the lawyer for failure to report a suspicious transaction.12

11 Lim, Francis Ed., Anti-Money Laundering Initiatives: Ramifications on the Legal Profession (2007). 12 Ibid.

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Singapore Lawyers in Singapore are covered by its anti-money laundering and anti-terrorism laws – the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (“CDSA”) and the Terrorism (Suppression of Financing) Act (“TEFA”). Under the CDSA, any person (including a lawyer) is required to make a report to a police officer under the following circumstances:

(a) when the person is involved in an arrangement (including the giving of legal advice) and the person knows or has reasonable grounds to suspect that the arrangement facilitates the concealment of illegal benefits, the removal of illegal benefits from the jurisdiction, or the acquisition of property with illegal benefits; or

(b) when the person, in the course of his trade or

profession, comes to know or reasonably suspects that any property represents the proceeds of or is used in connection with prohibited activities (i.e. criminal conduct and drug trafficking).

Under the TEFA, on the other hand, any person (including a lawyer) is required to make a report to a police officer under the following circumstances:

(a) when the person has possession, custody or control of any property belong to any terrorist or terrorist entity;

(b) when the person has information about any transaction or proposed transaction in respect of any property belonging to any terrorist or terrorist entity; or

(c) when the person has information that may prevent the commission of a terrorism financing

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offence or secure the apprehension of a person involved in terrorism financing

In both instances, lawyers are given adequate legal protection from civil, criminal or administrative liability arising out of the disclosure.13 Thailand While Thailand has no specific provision that requires lawyers in general to file suspicious transaction reports, its anti-money laundering law provides that a persons who act as solicitors for investors, are required to report suspicious transactions. Section 16 of its Anti-Money Laundering Act of B.E. 2542 provides that “a person who is engaged in a business of operating, or advising to engage in investment transactions, or the movement of capital has a duty to report to the Office when there is probable cause to believe that such transaction may relate to asset involved in a commission of offense or is a suspicious transaction.” Vietnam Vietnamese lawyers are covered by Vietnam’s anti-money laundering law, subjecting them to the law’s reporting obligations when acting on behalf of and for their client in any financial or real estate transaction. Article 6(2)(a) of Decree No.74/2005/ND-CP states that “lawyers, legal counseling firms, lawyers’ offices, law partnerships are responsible for preventing, combating and reporting money laundering under this Law when they conduct monetary or other property transactions on behalf of their clients.”14 Reports are required to be submitted within 24 hours in special cases defined by the Decree, or 48 hours

13 IBA Anti- Money Laundering Forum: The La wyer’s Gu ide to Legislation and Compliance. http://www.anti-moneylaundering.org/countrydetail.asp?countryid=39. 14 IBA Anti- Money Laundering Forum: The La wyer’s Gu ide to Legislation and Compliance. http://www.anti-moneylaundering.org/countrydetail.asp?countryid=90.

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in normal cases, following the identification of the relevant transaction.15 V. Challenge Posed by the Legal Profession vs. Gatekeeper Initiative Introducing and enforcing domestic laws and regulations to operationalize the gatekeeper initiative has not been easy. As expected, it met stiff resistance from the integrated bar and other lawyer organizations. Laws that were enacted were either successfully challenged in the court and/or eventually withdrawn by the government. Below are some of the successful challenges mounted by the organized bar against gatekeeper initiative. American Bar Association The United States has not adopted a gatekeeper legislation for the legal profession partly because of the strong opposition of the American Bar Association (ABA) and partly in part “due to the sensitive and difficult questions raised by such provisions, the extensive state ethics rules that apply to the profession and govern confidentiality obligations, and the critical role of the attorney-client privilege and duty of confidentiality in ensuring clients obtain accurate and complete legal advice and assistance”.16 ABA argued that requiring lawyers to submit suspicious transaction reports on clients and establish "due diligence" compliance programs have serious legal and ethical implications. Specifically, it cited the following dangers:

• Undermines the independence of the bar. The Bar must never become an agent of the government. To assist clients in understanding the requirements of

15 Lim, p. 20. 16 Krauland, Edward J. and Aaron Hurtman, Money Laundering Enforcement And Policy (2004).

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the law and avoiding unlawful conduct, and to render sound legal advice, lawyers must be able to have candid and confidential discussions with these clients and act independently of the government.

• Threatens the attorney-clien t relationship. The confidentiality that clients have come to expect could be greatly eroded by a requirement that lawyers report -- in secret -- on vague, undefined "suspicious activities" of the client to government authorities. The trust relationship that is essential to the attorney-client relationship, the duty of loyalty owed to a client, must be maintained for the proper functioning of our system of justice.

• Erodes the attorney-client privilege. Filing a suspicious transaction report with the government could be inconsistent with the client's attorney-client privilege, the right against self-incrimination, and ethical rules concerning the maintenance of client confidences.

• Presents serious law practice management issues. Ethical obligations with regard to a client after a suspicious transaction report has been filed are problematic. Continuing to advise or assist the client would be precarious, exposing a lawyer or law firm to possible criminal prosecution. Yet terminating the relationship in the middle of a case or undertaking may lead to liability due to breach of contract or malpractice due to the collapse of a transaction. Lawyers may become less accessible to clients. The cost of legal services could increase

It noted that although attorneys may serve as gatekeepers to the domestic and international monetary system, they also serve as gatekeepers to the system of justice and

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administration of law for citizens of the U.S. and other countries.17 Canadian Bar Association In Canada, the Proceeds of Crime (Money Laundering) Act requires suspicious transactions to be reported by lawyers. The legal profession had vigorously opposed this requirement contending that it violates the Constitution and the attorney-client relationship, even if the law contained an exemption for privileged communications. Between 2001 and 2002 the Canadian legal profession, represented by the Law Society of British Columbia, the Canadian Bar Association, and the Chambre Des Notaires du Quebec and Barreau du Quebec, sued for exemptions from the law for lawyers in several provincial courts, receiving favorable rulings in every case. In view of the firm opposition of the legal profession, the Government of Canada announced in March of 2003 that it was rescinding controversial regulations implementing these requirements. Japan Federation of Bar Associations The bar association of Japan strongly opposed the gatekeeper initiative when a bill that required lawyers to file STR was proposed. It argues that by using the so-called gatekeeper legislation to impose lawyers the obligation to report “suspicious transactions” for the purpose of controlling money laundering, the role of lawyers in upholding the rule of law and bringing about a democratic society will be severely impaired. Thus, while it is important to fight for the eradication of money laundering, lawyers play a more important role in upholding the rule of law and bringing about a democratic society. 17 Zagaris, ibid.

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Because of this opposition, the Japanese National Police Agency decided to exempt lawyers from the obligation to report dubious money transactions to authorities under a bill to fight money laundering. This exemption comes as a concession to the Japanese Federation of Bar Association.18

VI. Introducing Gatekeepers Legislation in the Philippines Currently, the Philippines does not have a law to implement the recommendations of the FATF on the role of lawyers. Reporting and customers due diligence requirements are still limited to institutions regulated by the Bangko Sentral ng Pilipinas, the Securities and Exchange Commission and the Insurance Commission. Under the Anti-Money Laundering Act of 200119, as amended, only institutions that are regulated by the Philippine Central Bank, Securities and Exchange Commission and Insurance Commission are covered by the reporting and customer due diligence requirements. AMLAW provides that transactions in cash or other equivalent monetary instrument involving a total amount in excess of 500,000 pesos within one business day and suspicious transactions must be reported to the Anti-Money Laundering Council (AMLC). Although the informal survey conducted for this presentation covered only a small number of lawyers, it is indicative of how lawyers would react to the introduction of a gatekeepers legislation in the Philippines. Very clearly, practicing lawyers oppose the very idea of requiring them to file STR on their clients.

18 IBA Anti-Money Laundering Forum: The Lawyer’s Guide to Legislation and Compliance, IBA Anti- Money Laundering Forum: The Lawyer’s Guide to Legislation and Compliance. http://www.anti-moneylaundering.org/ countrydetail.asp?countryid=97. 19 Republic Act No. 9160 was amended by Republic Act No. 9164 in March 2003.

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The Rule on Privileged Communication as a Bar to Gatekeeping Legislation In the Philippines, a lawyer-client relationship is highly fiduciary in nature; it is delicate, exacting and confidential. It requires a high standard of conduct and demands utmost fidelity, candor, fairness and good faith.20 It is established from the very first moment a client asked the lawyer for legal advice regarding the former’s business.21 The objection of the lawyers to the gatekeeper initiative is grounded on a well-established legal principle that communications between lawyer and client are privileged. This principle disqualifies the former from testifying on any communication learned by him in confidence from his client, unless prior consent by the latter has been acquired. The prohibition even extends to the lawyer’s secretary, stenographer, or clerk.

Rule 130 of the Rules of Court Section 24. Disqualification by reason of privileged communication. — The following persons cannot testify as to matters learned in confidence in the following cases: xxx xxx xxx An attorney cannot, without the consent of his client, be examined as to any communication made by the client to him, or his advice given thereon in the course of, or with a view to, professional employment, nor can an attorney's secretary,

20 Marilay vs. Serina, AC No. 6951, May 4, 2005; see also Angeles vs. Uy, Jr., AC No. 5019, April 6, 2000. 21 Burbe vs. Magulta, AC No. 99-634, June 10, 2002.

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stenographer, or clerk be examined, without the consent of the client and his employer, concerning any fact the knowledge of which has been acquired in such capacity.

As if to emphasize the importance of this principle, the Revised Penal Code even criminalized betrayal of trust by a lawyer. Article 209 of the Code provides:

ARTICLE 209. Betrayal of trust by an attorney or solicitor. — Revelation of secrets. — In addition to the proper administrative action, the penalty of prisión correccional in its minimum period, or a fine ranging from 200 to 1,000 pesos, or both, shall be imposed upon any attorney-at-law or solicitor (procurador judicial) who, by any malicious breach of professional duty or of inexcusable negligence or ignorance, shall prejudice his client, or reveal any of the secrets of the latter learned by him in his professional capacity.

The Code of Professional Responsibility similarly states that a lawyer shall be bound by the rule on privileged communication in respect of matters disclosed to him by a prospective client. Furthermore, a lawyer owes fidelity to the cause of his client and shall always be mindful of the trust and confidence reposed in him. A lawyer must even preserve the confidences or secrets of his client even after the attorney-client relation is terminated.22 Expounding on this privilege, the Supreme Court explained that an effective lawyer-client relationship is largely dependent upon the degree of confidence which exists between lawyer and client which in turn requires a situation which encourages a dynamic and fruitful 22 Code of Professional Responsibility, Canons, 15, 17 and 21 as summarized in Lim, .

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exchange and flow of information. It necessarily follows that in order to attain effective representation, the lawyer must invoke the privilege not as a matter of option but as a matter of duty and professional responsibility.23 Lim also pointed out that the decision of the Supreme Court in Regala vs. Sandiganbayan further makes it difficult for gatekeeper initiative to take root in the Philippines. In the said case, the Court held that a lawyer cannot be pressured by the courts to disclose the name of his client under certain cases. While the general rule is that the identity of the client is not a privileged matter, the rule is qualified by some important exceptions, namely:

1. where a strong probability exists that revealing

the client's name would implicate that client in the very activity for which he sought the lawyer's advice;

2. where disclosure would open the client to civil liability;

3. where the government's lawyers have no case against an attorney's client unless, by revealing the client's name, the said name would furnish the only link that would form the chain of testimony necessary to convict an individual of a crime, the client's name is privileged;

4. the content of any client communication to a lawyer lies within the privilege if it is relevant to the subject matter of the legal problem on which the client seeks legal assistance; and

5. where the nature of the attorney-client relationship has been previously disclosed and it is the identity which is intended to be confidential, the identity of the client has been held to be privileged, since such revelation would otherwise result in disclosure of the entire transaction.

23 Regala vs. Sandiganbayan, G.R. No. 10813 and 105938, September 20, 1996

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It must be repeated though that Recommendation 16 states that a lawyer would not be required to report suspicious transactions where the “information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege.” The interpretive note to Recommendation 16 also states that each jurisdiction has discretion in setting the standards for professional secrecy and privilege. Furthermore, the interpretive note indicates a country would be allowed to institute a system whereby suspicious transaction reports would be submitted to a bar association or other legal self-regulatory organization (providing that organization cooperates with the country’s FIU). Exception to the Lawyer-Client Privileged Communication The lawyer-client privilege rule is not absolute. In a number of cases, the Supreme Court ruled that this privilege does not extend to the announced intention of a client to commit a crime. In the case of People vs. Sandiganbayan24, the Court held that a distinction must be made between confidential communications relating to past crimes already committed, and future crimes intended to be committed, by the client.

x x x Statements and communications regarding the commission of a crime already committed, made by a party who committed it, to an attorney, consulted as such, are privileged communications. Contrarily, the unbroken stream of judicial dicta is to the effect that communications between attorney and client having to do with the client's contemplated criminal acts, or in aid or furtherance thereof,

24 G.R. Nos. 115439-41, July 16, 1997.

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are not covered by the cloak of privileges ordinarily existing in reference to communications between attorney and client.

In Regala case, the Court reiterated that “lawyers are mandated not to counsel or abet activities aimed at defiance of the law or at lessening confidence in the legal system (Rule 1.02, Canon, 1, Code of Professional Responsibility) and to employ only fair and honest means to attain the lawful objectives of his client (Rule 19.01, Canon 19, Id.). And under the Canons of Professional Ethics, a lawyer must steadfastly bear in mind that his great trust is to be performed within and not without the bounds of the law (Canon 15, Id.), that he advances the honor of his profession and the best interest of his client when he renders service or gives advice tending to impress upon the client and his undertaking exact compliance with the strictest principles of moral law (Canon 32, Id.). These canons strip a lawyer of the lawyer-client privilege whenever he conspires with the client in the commission of a crime or a fraud.” VII. Implementation Issues Having discussed the FATF recommendation to introduce gatekeepers legislation in the country and the possible legal ramifications that it may cause, let me go back to the hypothetical scenarios described in the first part of this presentation. Using these situations, I will analyze possible implementation issues if the Philippines were to adopt a law or administrative policies in line with the gatekeeper initiative. Situation No. 1 In the first scenario, the transaction facilitated by Atty. Cruz is covered by Recommendation 12, which mandates due diligence and record keeping requirements to lawyers

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when they prepare or carry transactions concerning, among others, the buying and selling of real estate. Thus, Atty. Cruz would need to conduct due diligence on the couple.

In his paper, Lim questioned the fairness in the manner by which this recommendation is implemented among lawyers. He noted that the term “designated non-financial businesses and profession” for the gatekeeping tasks put the sole practitioners in equal footing with partners or employed professionals within professional firms. This condition, according to him, is inequitable and prejudicial, considering that sole practitioners normally have limited time, staff, and resources to adopt and comply with effective anti-money laundering laws or programs as compared with partnerships or professional firms. 25

Recommendation 16 would have also required Atty. Cruz to submit STR given the facts attendant to this transaction. The question, however, is whether or not the relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege. If it were, then filing of STR is not required by the said Recommendation. Situation No. 2 The same question would arise if Situation No. 2 is to be analyzed. As indicated in the hypothetical scenario, the lawyer fully believes his client is engaged in money laundering activities, thereby making Recommendation 16 applicable if the submission of the STR would not violate legal professional privilege. This issue – what information constitutes privilege communication under similar circumstances – will have to be threshed out by very clear implementing rules and guidelines to guide lawyers.

25 Lim, ibid.

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The second set of questions in this situation seems to be clear insofar as the issue of privilege communication is concerned. When Mr. Cruz approached Atty. Reyes asking for legal advice and in the process revealing some information, it is clearly a protected privilege communication. In that case, Atty. Reyes is not required to submit STR. Having heard Mr. Cruz about his confession, can Atty. Reyes still submit STR to report the activities of the Chinese businessmen? Is that not covered by the privilege communication rule? On the other hand, since the Chinese businessmen are about to engage in a criminal activity (i.e. money laundering), does it not fall under the exemption to the lawyer-client privileged communication rule? Situation No. 3 This hypothetical scenario brings to fore the issue of balancing the sanctity of lawyer/client privilege versus the protection of society from terrorists and/or organized crimes who are helped, wittingly or unwittingly, by lawyers. If in the above example the information that the lawyer acquired is a protected privilege communication, is there a way to bring the attention of the authorities to important leads that can help them in their investigation without violating the lawyer-client relationship? VIII. CONCLUSION The important and indispensable role that professional advisers play in complex financial transactions have made them a logical partner in the fight against money laundering and terrorist financing. These professionals who, wittingly or unwittingly, assist money launderers conceal and/or move proceeds of illegal activities across international boundaries through the financial system are in a unique position to observe transactions and possibly identify potential suspicious activities that may indicate

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money laundering, terrorist financing or other unlawful conduct. However, since these gatekeeper professionals are often subject to confidentiality commitments or legal privileges which underlie the professional relationships that allow them to perform these necessary gatekeeping roles,26 the incorporation of gatekeeper initiative in the legal system of many countries proved to be cumbersome and difficult. Among the professionals, it is the legal profession that has raised the loudest opposition to the initiative because of its unprecedented impact on client confidentiality, the attorney-client relationship, the independence of the bar, and the compliance-counseling role of lawyers in the society.27 The trend, however, seems to indicate that more and more countries are incorporation legislation in their legal system. 85 of the 135 countries studied by the International Bar Association already have gatekeeping laws for lawyers. Other countries like Indonesia, although do not have specific gatekeeping legislation for the legal professionals, already impose reporting function to lawyers in certain transactions. The Philippines has yet to adopt its own gatekeeper legislation. Very soon, however, it can be anticipated that the government will attempt to incorporate the gatekeeper initiative into its legal system in order to effectively combat money laundering and terrorist funding. In that eventuality, our court will have to balance the sanctity of lawyer/client privilege versus the protection of society from the dangers of money laundering and terrorist financing. But as has been shown in this paper, this will not be easy. Just like in the US, our extensive ethics rules that apply to the

26 Krauland, et. al, ibid. 27 ABA Position Paper on Gatekeeper Initiative.

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profession and govern confidentiality obligations and the critical role of the attorney-client privilege and duty of confidentiality in ensuring clients obtain accurate and complete legal advice and assistance” will be a major obstacle to the adoption of gatekeeper initiative in the Philippines.

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