The bane of every English lawyer’s life is having to deal with the requirements of the Money Laundering Regulations. These hail from the EU, but were adopted and expanded with enthusiasm by the last government.
For every new client, we have to establish the identity of the client and, if the client is a company or trust, the identity of those who control or beneficially own the client. Original or certified copy documents showing addresses, such as utility bills, and official photographs, such as passports, are required. Failure to carry out these checks can have serious criminal consequences for the lawyer or those responsible for compliance, and so they can not be avoided. For a commercial law firm with international clients it can be very difficult to identify those companies, organisations or beneficial owners, and that is particularly so when acting for the owners or purchasers of art.
Art, particularly collections in private hands, are a form of wealth, and wealth, when substantial, tends to be managed with a view to tax regimes internationally. That is usually perfectly legitimate, but it often involves overseas trusts, trust companies, declarations, and agreements, governed by the laws of various countries. No one likes to advertise wealth and attract unwelcome attention, and so managers and intermediaries strive for anonymity and the confidentiality of their clients‘ affairs. The aim in the Regulations of “know the client” can easily become “alarm the client”, or worse still “scare off the client”, but legitimate clients are gradually getting used to the idea.
Another aspect of the Regulations is more serious, and a surprising exception to a lawyer’s duty of confidentiality. If the lawyer has reason to suspect that the transaction may involve the proceeds of crime, eg once stolen art or cash from crime (including tax-evasion), his firm has to report the matter to the police. Failure to do so is a criminal offence. The lawyer cannot tell the client that a report has been made, as that is also a criminal offence. Unless the police say otherwise within 10 days, the transaction can then proceed safely for the lawyer. Inevitably, the threshold for suspicion and reporting tends to be low, as the lawyer will not want any risk of prosecution for non-reporting. However, it is said that the police do not have the resources to consider every report, and so the process might be to no effect.