Climate change on secrecy

I remember when Sony Pictures was hacked in 2014, allegedly by North Korea in response to a film portraying a comedy assassination of their leader. Sony tried to stop publication of the material on the grounds that it was furthering a criminal offence. But no one paid any attention and the media continued to publish the highly damaging material.

There has been an echo of this in the Panama Papers. The law firm whose confidential material has been leaked, Mossack Fonseca, has protested that it is the victim of a crime. But no one cares. Indeed, the material is presumably all or mostly subject to confidentiality, but no one says anything about that either.

I cannot comment on the legality of the leaked transactions but we know the general legal position. Under UK doctrine, the ‘iniquity exception’ prevents abuse of legal professional privilege by removing it from communications made in furtherance of a criminal purpose. But apart from that, legal professional privilege strictly applies. It is common ground that at least some of the transactions were perfectly lawful (for instance, the one involving David Cameron’s father). Yet no one has protested about the breach of lawyer-client confidentiality.

But that is not what I consider the main fallout of the Panama Papers from the point of view of lawyers. There is no dispute that the law firm, and numerous other firms with links to Mossack Fonseca, were aiding rich clients lawfully to avoid taxation at a time when governments are desperate for cash for basic public services such as health and legal aid. Personally, I deplore the avoidance and that sentiment is widespread. There is no public sympathy for the avoiders or their enablers, and the unfortunate consequence is that lawyers will probably suffer policy consequences down the line.

I will give an example. Last October, the OECD published its recommendations on mandatory disclosure rules in the case of aggressive tax planning. There was a debate beforehand about the impact of professional secrecy. The OECD said there were two possible models for adoption by countries thinking of legislating for mandatory disclosure: either to have both the promoter (which includes lawyers) and the taxpayer under a duty to disclose the tax avoidance scheme; or to have either the promoter or the taxpayer under such a duty. The OECD ended by recommending that where the primary obligation for disclosure falls on the promoter, it should switch to the taxpayer where the promoter asserts legal professional privilege. This is to be welcomed, particularly since this is the same OECD which did not sufficiently recognise legal professional privilege when – with another hat on – it recommended that lawyers make reports on suspicious transactions from a money laundering perspective.

The question is: will there continue to be allowances made for professional secrecy if the global public sentiment is that lawyers are hiding illegal, or even just morally dubious, transactions behind the cover of this secrecy? That is the real damage of the Mossack Fonseca leak. It has become easier for legislators and policy-makers to insist that there should be more transparency in lawyers’ activities. The defence of professional secrecy has been made a good deal more difficult, not only in tax avoidance policy, but in continuing to resist the spread of money laundering reporting – and in new areas where policy-makers want to use lawyers to get at their clients’ information or behaviour.

The really tough confidentiality cases are always those where public sentiment deplores the transaction in which the lawyer is acting. The most common one to arise is the defence of those accused of heinous crimes. But lawyers have become used to answering that one. This is another side of the same coin.

I note that the Solicitors Regulation Authority has been quick to announce that it is contacting the law firms mentioned in the Panama Papers, asking them to show they acted within the rules. But should not the regulator also be deploring the breach of confidentiality, and pointing out the importance of lawyer-client confidentiality regardless of the popularity of the transaction (provided, of course, that the ‘iniquity exception’ does not apply)?

Who else but lawyers will defend this principle in circumstances of understandable popular outrage? It may seem trendy and responsive to write to the lawyers caught up in the leak, but the braver and more significant act – the one with most importance for protecting lawyer-client confidentiality – would be to stand up and insist on the importance of the principle for the rule of law and fair administration of justice. This needs to be done now, even in this unfriendly climate – indeed, particularly now.

Jonathan Goldsmith is a consultant and former secretary-general at the Council of Bars and Law Societies of Europe, which represents around a million European lawyers through its member bars and law societies. He blogs weekly for the Gazette on European affairs