Lawyers have raised concerns that the reforms threaten legal professional privilege and in so doing may erode client confidence in their lawyers, as well as adding significant cost to legal practices.

The reforms will see lawyers required to inform on clients if they suspect money laundering is taking place. The new provisions are based on the Financial Action Task Force’s (FATF’s) 40 recommendations on money laundering. Other regions that are ahead of Australia in their AML reforms have failed to fully include the legal profession, which objects to the potential loss of professional privilege brought on by the reforms.

In Canada, for example, a legal challenge resulted in lawyers being exempted from the Canadian reforms and so consequently, privilege remained protected. However, according to Senator Ellison, Canada is a case study in how not to bring in AML reforms. Canada’s provisions included every impacted industry at the same time, whereas after lengthy delays, the Australian Government decided to roll out its reforms in two stages, with legal professionals to be covered by the second tranche.

“Canada is an example of where we were headed initially,” Ellison told a luncheon last week. “Canada took in everyone at once, and there was a court case which challenged the process and as a result, lawyers have been excluded from the process. Canada is a lesson that including everyone initially can slow you down and confuse things.”

Lawyers have, however, privately expressed serious concerns over any bid to limit professional privilege. The Law Council of Australia (LCA), meanwhile, has said it will do everything in its power to protect privilege.

“What we cannot achieve is any consensus at this stage that the legal profession, due to the importance of client confidentiality, should be outside the ambit of the proposed legislation,” John North, LCA president, said last year. “Further, it has the potential to seriously erode the confidence of clients in their lawyers and will add considerable cost to legal practices.”

North’s position on the bill is unchanged and he will be seeking a meeting with Senator Ellison to explain the position of the legal profession, an LCA spokesperson said.

So serious is the issue, North said, that the LCA will go as far as it can to defend professional privilege. “In a small town where a lawyer was obliged to secretly report a client’s suspicious transaction, if it all turned out to be legitimate, then that client’s faith in the lawyer would probably be shattered,” he said.

“For the whole of society to work, it is absolutely vital that our clients have confidence in us because they tell us things that enable justice to prevail. That is something so crucial, so vital, that we want the Government to recognise that and FATF to recognise that. The Law Council feels so strongly about this that we would be prepared to test it on a constitutional law basis.”

Despite reports to the contrary in The Australian Financial Review last week, no transition time for the bill has been decided. Reports claimed a 12-month transition period would be in place. However, Senator Ellison’s office and senior AML experts close to the legislative reform process said the report was incorrect.

Meanwhile, in the UK, accountants have had professional privilege protected by a change in AML laws. Until the law was changed in February, accountants, auditors and tax advisers providing directly comparable services to professional legal advisers would have to report suspicions to the National Criminal Intelligence Service (NCIS) while a lawyer would not. The change in the law marks the latest shift in the UK’s troubled AML reforms, but accountants said the move was a victory for clients’ rights.