Getting our affairs in order

There is more trouble on the horizon over the Panama Papers scandal, which – if you have forgotten – showed money being hidden in tax havens with the help of (among others) lawyers. The European Parliament is holding a series of meetings to discuss our role, and the views expressed by lawmakers about the legal profession are not always pretty.

The parliament set up a committee (PANA) in the aftermath of the scandal, with the aim of investigating alleged contraventions and maladministration in the application of EU law regarding money laundering, tax avoidance and tax evasion.

Two hearings have already taken place on the role of lawyers, accountants and bankers, with a third scheduled. An English solicitor appeared at one of them on behalf of the Council of Bars and Law Societies of Europe – Richard Frimston of Russell-Cooke in London – to give an insight into trusts.

The highly suspicious questions posed by MEPs to lawyers at the first hearing highlighted some of the dilemmas faced by our profession in trying to stave off unwanted change brought about by the role of colleagues in the Panama Papers scandal and similar high-profile cases. But the issues are worthy of reflection.

• Are lawyers hiding behind legal professional privilege to allow clients to get away with dodgy acts?
• Are lawyers following the letter of the law, exploiting gaps and oversights, without bothering with the law’s spirit?
• Are lawyers taking responsibility for their role in the funding of terrorism, arms trafficking, mass drug addiction and other ills financed by the transfer of illicit funds?
• Are lawyers hiding behind the ‘few bad apples’ excuse, without looking at the overall regulatory structure of the profession?
• Does the regulation of lawyers work in the public interest if it allows the circumstances giving rise to the first four questions to arise?

These are very awkward questions. There are technically correct answers to all of them which (in our own minds) absolve us. But they will probably not remove suspicion in the minds of those trying to grapple with solutions to serious problems.

There were other unhelpful circumstances worth reflecting on which may eventually lead to the PANA committee drawing conclusions which we will not like. First, the European legal profession is organised nationally, not at European level, and so questions from the MEPs about what sanctions European lawyers have faced for money laundering, or what percentage of Panama Papers work was illegal, could not easily be answered.

Even more unhelpfully, one of the other panellists on the day referred to a report produced by the NGO Global Witness, which fights against corruption. It produced a hidden-camera investigation to reveal how suspect money can enter the US, which was shown a year ago on the CBS TV network and reported in The New York Times. It made an impact on US lawyers I’ve met and the MEPs were also impressed by its story.

Global Witness went undercover to 13 New York law firms, posing as a party with a profile that should raise red flags for money laundering. Its representative said that they were advising an African minister who had accumulated millions of dollars and wanted to buy a Gulfstream Jet, a brownstone and a yacht. The minister needed to get the money into the US without detection.

All but one of the lawyers had suggestions on how to move the funds. Lawyers from 12 firms suggested using anonymous companies or trusts to hide the minister’s assets. It was not all bad for the lawyers: none of them broke the law; a number indicated they would need to carry out more checks before taking on the investigator as a client; one indicated that he had to make sure no crimes had been committed, because he would have to report them. But you can see that this is not an investigation from which lawyers as a whole emerge with glory.

Our regulatory structure might survive the Panama Papers scandal intact. But with a new radical populist spirit abroad both here and in the US, the next similar scandal will surely bring about big changes, which we may not like. As usual with such matters, it is best to reflect on them in advance, and to bring about change ourselves, rather than wait for change to be imposed in adverse circumstances.

One of the panellists spoke about a new deal between regulators and intermediaries, which would involve the intermediaries accepting responsibility for what they do. This is not easy – but should it be done?

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