As part of international efforts to stop money laundering by criminal organizations and money transfers by terrorist groups, the government is preparing a new bill that it hopes to submit to a regular Diet session next year.
The bill to prevent distribution of criminal proceeds is likely to distress lawyers because it will require that they report to police any information acquired during their examination of clients’ financial and real-estate transactions that smacks of money laundering. The bill strikes at the lifeline of the legal profession — the mutual trust between lawyers and clients. The government must rack its brain to find ways acceptable to both lawyers and the people who hire them.
Drafting of the bill was prompted by recommendations made in 2003 by the Financial Action Task Force on Money Laundering, an intergovernmental body. FATF, comprising member countries of the Organization for Economic Cooperation and Development, was established by the 1989 G7 summit in Paris. The recommendations said that not only financial institutions but also “lawyers, notaries, other independent legal professionals and accountants should be required to report suspicious transactions” such as repeat deposits and withdrawals of large amounts of money in a short time “to the financial intelligence unit (FIU).”
The bill has been drafted by the government’s headquarters for countering organized crimes and international terrorism.
At present, under the Organized Crimes Punishment Law, banks and securities companies are required to report suspicious transactions to the Financial Services Agency’s Financial Intelligence Office (FIO), Japan’s version of an FIU. The office then is supposed to provide relevant information to law enforcement authorities for criminal investigations. Under another law, financial institutions are required to confirm the identity of people engaged in financial transactions and keep transaction records. In November 2005, the government decided to move FIO personnel and functions from the Financial Services Agency to the National Police Agency (NPA).
So, under the new bill, lawyers, certified public accountants, licensed tax accountants, judicial scriveners, real-estate agents, precious metal dealers and jewelers as well as financial institutions would be required to report suspicious transactions to the NPA. By requiring lawyers and other professionals to report to police, the government has deviated from FATF recommendations, which only mention reporting to the FIU.
Lawyers and other professionals would face punishment if they did not obey instructions from authorities to fulfill the reporting duty. The bill thus clearly compromises lawyers’ duty of confidentiality. Doctors and certified public accountants also have similar professional obligations. If lawyers as well as these professionals fail to honor this confidentiality, they are subject to punishment separately under criminal law.
Because lawyers’ professional confidentiality is protected in this way, clients may disclose even what is disadvantageous to themselves to their lawyers. If the bill in question is enacted into law, clients will have to deal with lawyers under constant fear that confidential information may be passed on to police. In fact, the Japan Federation of Bar Associations regards the bill as institutionalizing a system that would force lawyers into becoming informers. If the bill becomes a law, lawyers will lose trustworthiness and people will have second thoughts about hiring them. This could leave many legal troubles unresolved, causing great difficulties not only to the people directly concerned but for society as a whole.
Another problem with the bill is that it will introduce a system in which clients are to be kept uninformed even if their lawyers have reported suspicious financial transactions to police. If clients happen to find out that their lawyers have reported their transactions to police, it is certain that conflicts and disputes will arise between clients and their lawyers.
The Japan Federation of Bar Associations once proposed that lawyers first report suspicious transactions to the local bar association to which they belong, and that the association then examine the reports and report necessary information to the Financial Services Agency. Now that it has become clear that lawyers will be expected to report suspicious transactions to the NPA, instead of the Financial Services Agency, the federation has come out strongly against the bill, saying it will undermine the very foundation of the legal profession.
According to the federation, the supreme court in Canada has ruled similar legislation as unconstitutional, and the execution of the law has been put on hold. The government should seek ways to fulfill the original purpose of the bill without compromising the duty of confidentiality.
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