Govt plans to ask lawyers to report clients' dubious transactions

By Nikunj Ohri

NEW DELHI (Reuters) - India's government is planning to ask lawyers to keep a record of all transactions with their clients and share any suspicious activity with authorities, as New Delhi looks to strengthen its money laundering laws, two sources familiar with the plan told Reuters.

The authorities believe the plan will help in faster recognition of dubious transactions involving shell companies and money laundering.

But some lawyers are critical of the proposal, saying it would have an adverse impact on client attorney privilege. They also say laws would need to be amended to allow this to happen.

The government's plan comes ahead of an onsite review of India's regulations and supervision by the international money laundering watchdog, the Financial Action Task Force (FATF), in November.

"As jewellers, real estate agents, chartered accountants, and company service providers have been made reporting entities under PMLA, lawyers will be brought under the money laundering law next," one of the sources said.

In May, the government expanded the scope of the Prevention of Money Laundering Act (PMLA) to include chartered accountants and individuals representing companies, requiring them to record all transaction undertaken on behalf of their clients.

The plan is to implement recent recommendations of the FATF which require lawyers, notaries, other independent legal professionals and accountants to report suspicious transactions, and maintain a record of transactions undertaken for clients, said the first source.

The proposals, however, may need changes to existing legislation.

The government is holding discussions with lawyers and the Bar Council on bringing lawyers under the PMLA and how the changes can be implemented through legal amendments, the first source said.

"If lawyers are brought under the money laundering law, it will breach the trust between client and attorney and impact privilege communications," said senior lawyer Hiten Venegaonkar.

"This could go against Advocates Act (and) Bar Council rules where no lawyer can be asked to disclose communications with clients," Venegaonkar said.

He also said the government will not be able to effect these changes through a simple notification, and will require a change in law.

Other countries such as the United Kingdom and Australia have anti-money laundering requirements for law firms and lawyers, said K.V. Karthik, a partner at Deloitte Touche Tohmatsu India LLP.

However, in many other jurisdictions that have adopted FATF's recommendations, they have not been extended to legal professionals, said Karthik.

Lawyers in U.S. are not subject to the general anti-money laundering responsibilities, and are not mandated by separate law to comply with these gatekeeper requirements concerning suspicious activity reporting or recordkeeping, he said.

India is currently compliant with FATF regulations but even within the compliant category, FATF assigns scores to various countries based on strength of regulations and implementation of these.

 

(Reporting by Nikunj Ohri; Editing by Kim Coghill)