The JFBA's Basic Stance on the FATF Mutual Evaluation
Ⅰ. Basic Stance
- At its Extraordinary General Meeting held on March 1, the Japan Federation of Bar Associations (JFBA) adopted a set of Rules on Identification of Clients and Record-Keeping, which set out measures to be taken by lawyers to prevent the transfer of proceeds from crimes. Lawyers will properly perform their professional duties in accordance with these rules by identifying clients, keeping records, and taking other steps to prevent the transfer of proceeds from crimes.
The Financial Action Task Force on Money Laundering (FATF) is slated to perform a Mutual Evaluation of Japan as early as the spring of 2008. During the Evaluation, the JFBA will adequately explain and argue that although the above rules do not require lawyers to report suspicious transactions, they are necessary and sufficient to prevent the transfer of proceeds from crimes; that, given the key role that lawyers play in the justice system, requiring lawyers to inform on their clients would result in grave harm disproportionate to the goal of preventing the transfer of proceeds from crimes, and would upset the balance of the system; and that the world's lawyers are strongly opposed to any such thing.
- In league with other bar associations across the globe, the JFBA will patiently explain to the FATF that requiring lawyers to report suspicious transactions is incompatible with their fundamental duties. It will also insist that the FATF recommendations themselves be reconsidered.
Ⅱ. Reasons for the Stance
1. The requirement to inform on clients: What is it?
The requirement to inform on clients would obligate lawyers and other legal experts to report "suspicious transactions" on the part of their clients to the financial intelligence unit in their country (in Japan, a branch of the National Police Agency), where those transactions fell into certain specific categories, such as buying and selling of real estate and management of assets. It would further obligate them to keep the fact that they have reported the transaction secret from the client.
Such a system would make lawyers report on activities suspected of being illegal while prohibiting them from telling their clients that they have done so. For that reason we call it what it is: "a system requiring lawyers to inform on clients to police (gatekeeper system)."
2. International Background to Adoption of the System
The Financial Action Task Force on Money Laundering (FATF) is an intergovernmental body made up of thirty-one countries and regions - most of them OECD member states - and two international agencies. In June 2003, the FATF recommended that lawyers, accountants, and certain other professionals be required to identify clients and keep records. It also recommended that they be required to report certain types of transactions, such as buying and selling of real estate or management of assets, to financial intelligence units to be established in each country, if they suspected those transactions could be linked to money laundering or terrorist financing. That means a duty to inform on clients. Such a system is designed to monitor and restrict the illegal transfer of funds by in effect conscripting lawyers and other professionals to act as gatekeepers keeping watch over financial transactions.
3. How the system would undermine the independence of lawyers and bar associations and damage the trust of citizens
Any system requiring lawyers to inform on clients to police would imperil the independence of lawyers and bar associations from the power of the state - the very cornerstone of their existence. It would also damage the trust of citizens in lawyers and bar associations. It would thus shake the foundations of the legal system of justice and threaten the very rule of law itself.
The essence of the lawyer's calling lies in protecting the client's rights and legitimate legal interests as an expert in the law. To fulfill that responsibility, lawyers must formulate and implement the best strategy for each client upon being informed of all the facts, including anything confidential - and that requires the complete trust of the client. The lawyer's duty of confidentiality exists so that clients can reveal everything to him or her, whether or not it is to their advantage, in the assurance that it will stay secret. It is thus indispensable to the proper performance of a lawyer's responsibilities.
Lawyers, moreover, must sometimes confront the power of the state in order to protect the rights of their clients. In Japan, the practice of law is recognized as a profession independent of the organs of government and not subject to their oversight. Bar associations, too, are granted a high degree of autonomy.
The police, on the other hand, constitute the arm of the state responsible for investigating crime. Institutionally, they thus stand in an adversarial relationship with lawyers and bar associations in so far as the latter are involved in defending criminal cases. Needless to say, bar associations must particularly maintain their independence from the police of all government agencies.
Yet say that lawyers were to go to the police with information that they had obtained in a consultation with their clients - information, moreover, that was merely ""suspicious"" - and thereby cooperated directly in police investigations, or were perceived for that reason as being under the supervision of the police. How would such a state of affairs look to the ordinary citizens who are our clients? Inevitably, it would be seen as an institutional arrangement whereby lawyers secretly passed on information to the police. In consequence, people would think twice before telling the whole truth when consulting with a lawyer. They would therefore cease to be able to obtain the appropriate legal advice they needed in order to conduct themselves in accordance with the law, and they could well end up committing an illegal act as a result. There is thus a considerable risk that forcing through the regulations in question will have the opposite outcome to what is intended.
As long as the principle of protecting human rights is not infringed, the JFBA recognizes the need for the countries of the world to work together in preventing money laundering and the transfer of terrorist funding, and to put in place the necessary domestic legislation to that end. But whatever law-enforcement benefits could be gained from a system that obligates lawyers to inform on their clients are far outweighed by what would be sacrificed and the adverse consequences that would ensue; for the very foundations of Japan's legal system of justice, and by extension of its democratic judicial system, would be undermined.
The JFBA will thus under no circumstances condone a system that requires lawyers to inform on their clients to police.
4. The duty of confidentialityExempting lawyers from their duty of confidentiality with respect to matters they are required to report would not make the system any more acceptable.
The FATF recommendations state that lawyers are not required to report information that "was obtained in circumstances where they are subject to professional secrecy."
The very fact of requiring lawyers to pass on information to the police, however, would completely shatter the relationship of trust between lawyers and their clients, and by extension effectively destroy Japan's legal system of justice.
Furthermore, whether or not a particular matter is covered by a duty confidentiality is not something that can be decided once and for all for all cases, as past experience demonstrates: the government and the JFBA have had frequent disagreements of interpretation on this very issue. A fortiori, ordinary citizens seeking legal advice will be completely unable to determine whether or not a particular matter is protected by the duty of confidentiality, and pick and choose what to consult about accordingly.
Nor is it beyond the realm of possibility that the government might one day attempt to adopt an interpretation of the law that further restricts the scope of the duty of confidentiality.
Even if information protected by the duty of confidentiality is exempt, then, the JFBA is still unable to condone any system that imposes the obligation to inform on clients to police.
5. Development abroad
Let us turn now to developments abroad.
Of particular interest is what is happening in the United States. The American Bar Association (ABA) remains stubbornly opposed to gatekeeper regulations, and the U.S. government has yet to propose specific legislation.
Canada has passed legislation imposing a reporting requirement on lawyers; but courts in every province have ruled that the application of the gatekeeper system to the legal profession is unconstitutional, and enforcement has been suspended. No subsequent legislation containing a reporting requirement for lawyers has been enacted.
In the United Kingdom, solicitors have been subject to regulations on money laundering since 1994. There is a maximum sentence of five years' imprisonment for failing to report required information. For that reason solicitors now report even trivial facts. In 2004, well over 10,000 reports were filed. The upshot is that the faith of ordinary citizens in the law profession has been seriously shaken.
In Belgium and Poland, lawyers aver that the gatekeeper system is unconstitutional and have taken the matter before the administrative and constitutional courts. Verdicts are expected this year.
Thus most lawyers across the globe remain strongly opposed to the system, and the world is not yet committed to a single course on the issue.
6. Action by the Japanese government and the JFBA's response
In December 2004, the Japanese government's Headquarters for Promotion of Measures Against Transnational Organized Crime and Other Relative Issues and International Terrorism adopted the Action Plan for Prevention of Terrorism. This declared the government's intention to implement in full the FATF recommendations with respect to professionals. In November 2005, the government decided that it would table legislation implementing the FATF recommendations before a regular session of the Diet (parliament) during 2007.
The JFBA made the case before the public at large that the policy of the government would undermine lawyers' independence from the power of the state and shatter public trust in the legal profession. It won overwhelming support in the process. As a result, the government abandoned its plan to require lawyers to report suspicious transactions. It also decided to leave it up to the JFBA to formulate its own regulations governing identification of clients and keeping of records. In March the Law on the Prevention of Transfer of Proceeds from Crimes was enacted with those changes. The exemption of lawyers from the obligation to report suspicious transactions, despite the FATF recommendations, came about owing to widespread public recognition of the justice of the JFBA's position. And the decision to leave it up to the JFBA to draw up its own regulations on identification of clients and keeping of records means that the autonomy of the legal profession has been upheld. Prior to the legislation's enactment, the JFBA adopted a set of Rules on Identification of Clients and Record-Keeping with the goal of ensuring that lawyers properly perform their professional duties, including preventing the transfer of proceeds from crimes.
7. The future direction of the JFBA's activities
The JFBA commends the government for exempting lawyers from the obligation to report suspicious transactions despite the FATF recommendations, and for deciding that provisions governing identification of clients and keeping of records should be enshrined not in law but in JFBA rules and regulations. This approach to regulating the legal profession is an excellent one, even by international standards, in that it strives to prevent the transfer of proceeds from crimes while guaranteeing the independence of lawyers from state power and the relationship of trust between lawyer and client. Regardless of how the legislation is to be rated as a whole, the exemption of lawyers from the designated professions has elicited praise from bar associations in a number of countries.
But as long as the FATF recommends that governments require lawyers to report suspicious transactions, there is always a danger that the campaign to impose such a requirement on the legal profession in Japan will be revived. While abiding by the Rules on Identification of Clients and Record-Keeping, and guarding against wrongful interference by the state, we must also do everything in our power to prevent any system requiring lawyers to inform on clients to police from ever being enshrined in legislation.
The JFBA is convinced that the true source of the problem lies in the FATF recommendation urging governments to adopt a system requiring lawyers to inform on clients to police. A campaign must therefore be launched to get the FATF recommendations revised. We need to spread the news across the globe that despite the FATF recommendations, the Japanese government has chosen to adopt a system exempting lawyers from the obligation to report suspicious transactions. We need to hold up that system as a model to governments in other countries. We need to join hands with lawyers and ordinary citizens in countries across the globe in mobilizing world opinion, and make the case to the FATF and governments in every country that requiring lawyers to report suspicious transactions would accomplish virtually nothing; far from it, it would fundamentally warp the judicial system. And we need to keep up those efforts until the idea of establishing any such system is abandoned in perpetuity.
The JFBA hereby resolves that when the FATF conducts its Mutual Evaluation scheduled for as early as the spring, it will firmly oppose any system requiring lawyers to inform on clients to police, and that it will press the FATF to revise its recommendations. This then is our course of action for the future.
Outline of Resolution of the Board of Governors, Japan Federation of Bar Associations
June 14, 2007