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Avoid becoming an accessory to a client's white collar crime

22 July 2015

By John Horner

"…a barrister or solicitor is under a special responsibility to the public so to conduct himself [or herself] as to promote respect for the law and confidence in the integrity of the administration of justice…"1

The dilemma

What is a lawyer to do when a client's activities appear to be "sailing a little too close to the wind"?

The question is well understood by criminal lawyers, but commercial lawyers without experience of the criminal justice system may be unsure of their professional standards and legal obligations when a client's actions or anticipated actions amount to a criminal offence.

As commercial law moves to embrace criminal sanctions for a wider range of conduct, lawyers advising on commercial transactions need to be alert to the warning signs.

By way of a hypothetical example, take the acquisition of farm land in New Zealand by an overseas person.

The Overseas Investment Act 2005 (OIA) requires the client to obtain consent from the Overseas Investment Office (OIO) before the investment is given effect (OIA s 10) and failure to do so before giving effect to the investment amounts to an offence (OIA s42). It is also an offence to defeat, evade or circumvent the operation of the OIA (see s 43) and to resist, obstruct or deceive the OIO (OIA s 44). These offences are all punishable by a fine not exceeding $300,000 or imprisonment for a term not exceeding 12 months (OIA Subpart 5).

Upon the lawyer advising his or her client that consent under the OIA is required, the client instructs the lawyer to proceed with documenting the transaction without the usual OIO approval condition. The client does this on the basis that the likelihood of enforcement is considered to be low and the client is prepared to take the enforcement risk. So… what is the lawyer to do? Does the lawyer:

a) act on the instructions from his or her client and keep the client happy – assuming it's the client's risk; or

b) refuse to continue to act for the client because of his or her intention to commit an offence; or

c) call the Overseas Investment Office and dob the client in.

Answer (a) may lead you to prison, answer (b) may have you sacked from your firm for losing a valued client, and answer (c) may have you tarnished with "nark" and without clients for the rest of your career. And what about your professional duty to keep client information confidential?

Belgrave Finance

In the flurry of the numerous finance company collapses over the past decade, lawyers have not escaped the regulator's spotlight. In the case of Belgrave Finance Limited, a lawyer acting in his capacity as legal advisor (not as a director), was sentenced to imprisonment for four years and nine months.2 The sentence was confirmed on appeal.

In that case, two of the principal offenders had pleaded guilty, and so establishing that a crime had been committed was straightforward. The lawyer was found to have been instrumental in forming an elaborate structure to hide the ownership interests of his client in Belgrave, who then borrowed from Belgrave in breach of the Debenture Trust Deed.

The relevant legislation in the Belgrave case included s 220 (theft by person in special relationship) and s 66(1)(b) of the Crimes Act 1961 (parties to offences). The latter section provides that: "Every one is a party to and guilty of an offence who – … (b) does or omits an act for the purpose of aiding any person to commit the offence; …"

The actus reus element here is "aiding" which means "assisting, helping or giving support to". That's precisely what commercial lawyers do when providing legal services to commercial parties in a transaction.

The mens rea element is two-fold, firstly "knowledge of the essential matters that constitute the offence committed" and secondly "an intention or purpose to help or encourage the principal party to do the acts that constitute the offence".

Justice Faire found that the Belgrave lawyer had sufficient knowledge of the relevant facts, noting that willful blindness will be sufficient and that such knowledge could be inferred from the surrounding circumstances.3

He went on to confirm that intention includes both direct intention and an oblique intention, colourfully illustrated with the analogy of a contract killer's direct intention to simply make money, but with the incidental consequence of the death of their victim. That analogy was drawn out to consider the accessory aspect, in that the vendor of a gun who knew the purchaser was going to use it for murder facilitates the crime even though the consequence wanted and intended by the vendor was financial gain.

Applying that analogy to the commercial lawyer's position, where the lawyer is found to be aware of the essential elements of an offence and assists by complying with client instructions, conviction as an accessory to a criminal offence becomes a possibility. That a lawyer may be motivated by the legal fees and not proceeds of the crime is insufficient to avoid criminal responsibility.

The question is: how does a lawyer ensure his or her fiduciary obligations to the client are met without becoming an accessory to the crime?

Conduct and Client Care Rules

There are various provisions under the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (RCCC) which are relevant when a lawyer suspects a client may have criminal intent.4

These include the provisions dealing with confidential information (Chapter 8 RCCC), restrictions on rejecting or terminating a retainer (RCCC rules 4.1 and 4.2), reporting misconduct by other lawyers (RCCC rules 2.8-2.10), assisting in fraud or crime (RCCC rule 2.4) and prevention of crime or fraud (RCCC rule 11.4).

The balancing exercise between client confidentiality and the obligation to report criminal behavior is not always obvious in the commercial context where the consequence of the crime does not endanger life nor limb.

The RCCC provide that a lawyer is compelled to disclose confidential information where (among other things) the information relates to the anticipated or proposed commission of a crime that is punishable by imprisonment for three years or more (RCCC rule 8.2).

Such disclosure must only be made to an appropriate person and to the extent reasonably necessary (RCCC rule 8.3).

Where this compulsion to disclose does not apply, a lawyer may disclose confidential client information relating to the business or affairs of a client where the information relates to the anticipated commission of a crime or fraud and disclosure is required to prevent, mitigate or rectify substantial injury to the interests, property or reputation of another person that is reasonably likely to result (RCCC rule 8.4). Here, disclosure should be limited to an appropriate person and to the extent reasonably necessary for the permitted purpose (RCCC rule 8.5).

The difficulty in commercial transactions is that there is often no "bright line" where conduct will amount to an offence or where it will not.

The RCCC also make it clear that a lawyer must not assist any person with any criminal act, or concealment of a crime (RCCC rule 2.4) and that subject to protecting privileged communications, there is an obligation to report another lawyer's misconduct to the Law Society (RCCC rule 2.8).

Conclusion

As criminal sanctions become more prevalent in the commercial law statutes, commercial lawyers need to be clear of their obligations in the event a client's actions may cross the line. This means that if a client's activities are criminal, assisting those activities through the provision of legal services may not only spell the end of the lawyer's career, but jail time.

The answer to the question posed above in our OIA example is (b). The lawyer should cease to act to avoid becoming a party to an offence under s 66(1)(b) of the Crimes Act and breaching the RCCC.

A copy of the Belgrave judgment should be sufficient to satisfy colleagues that ceasing to act is not just appropriate, but necessary.

In most cases, the lawyer will not be entitled to refer the matter to the OIO (as suggested in answer (c)), because it is unlikely to result in any substantial injury to any person's interests, property or reputation, but that will be fact dependent.

In any event, referring a commercial client to authorities should not be done lightly and seeking expert advice before doing so will be prudent.5

As a final thought, in the event the Commerce (Cartels and Other Matters) Amendment Bill is enacted, it is likely to impose a potential term of imprisonment of up to seven years for certain offences, which will trigger the obligation for lawyers to report anticipated or proposed offences (RCCC rule 8.2(a)).

Lawyers involved in documenting deals or arrangements for clients which might amount to hard core cartel activity be warned!

John Horner is a corporate partner at Quigg Partners. His specialty areas include mergers and acquisitions, joint ventures, company law and competition law.

  1. R v Hustler CA162/80, 6 October 1980. This reference partly encapsulates the essence of the fundamental obligations of lawyers in s 4 of the Lawyers and Conveyancers Act 2006.
  2. R v Hamilton [2014] NZHC 1579.
  3. Ibid at Para 120.
  4. As noted in the preface to the rules, the rules are not an exhaustive statement of the conduct expected of lawyers. They set the minimum standards that lawyers must observe and are a reference point for discipline. A charge of misconduct or unsatisfactory conduct may be brought and a conviction may be obtained despite the charge not being based on a breach of any specific rule, nor on a breach of some other rule or regulation made under the Act. To the extent appropriate, these rules define the bounds within which a lawyer may practise. Within those bounds, each lawyer needs to be guided by his or her own sense of professional responsibility. The preservation of the integrity and reputation of the profession is the responsibility of every lawyer.
  5. Rule 8.4(e) of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 permits a lawyer to disclose confidential client information where it is necessary for the lawyer to seek guidance from another lawyer in respect of a proper course of professional conduct.

This article was also published in LawTalk 860, 13 March 2015, page 32.

Last updated on the 22nd July 2015