Hazardous Activity, Pitfalls for Attorneys

RA Dr. Thomas Marx
Marx Rechtsanwälte, Hamburg
eMail: marx@marx.de

posted sept 2002

The field of legal services is strewn with a variety of traps – some set by others, some set by attorneys themselves.

The legal profession can be counted as a hazardous activity, to use a term from labor law. We need a license, in the first place, to present ourselves in the marketplace at all as providers of legal services. Then we must make sure that this license is not compromised by ethical misconduct or business failure – whether for some inadequacy in our own skills or through competition from colleagues or other providers of legal services, such as tax advisors, credit institutions or insurance companies.
The traps set by others do not include the canons of the profession, which for years – exalted beyond all doubt – have furnished internal management and a degree of economic security for the profession. The courts have whittled away guild-like archaisms, and will continue to do so at the instigation of our colleagues, especially those from large law firms. But currently the attorney's conduct of his or her profession is suffering an intervention by German legislators, in part under prompting from standards set by the European Union.

A conduit function in money laundering

Credit institutions and insurance companies, as well as financial intermediaries deemed equivalent to them, are required to record and report cases of suspected money laundering. The amended EU Directive on Money Laundering, and its implementation in the German Money Laundering Act, extends this reporting obligation to auditors of annual accounts, outside auditors, tax advisors and, in fact, notaries and attorneys – for example in matters of real-estate transactions, asset management, opening accounts, and founding and financing new companies. The principal argument in favor of this change is that notaries and attorneys have often provided an important function as a conduit in these areas when funds obtained by criminal activity are transferred into the legal economy. For that reason, they will be legally obligated to report their suspicions if sufficient indication exists that the client might be involved in money laundering.
The Money Laundering Act does not permit an attorney to inform the client of the report. If the report of suspected activity causes loss to a client, an attorney is not liable for damages if he and his staff have acted "in good faith." So the attorney is required to act as a "stool pigeon" against the client – which entails a radical restraint on the conduct of the profession. The exceptions are defined narrowly to begin with (legal proceedings in progress or consultations) and narrowed still further by way of exceptions to the exceptions (suspicion of complicity).
When accepting a client, attorneys must furthermore ask whether the client's financial means are stigmatized. The offense of money laundering under § 261 II of the Penal Code includes all cases in which the attorney, as payment for services, accepts assets deriving from a predicate offense of which the client is accused (according to the Federal Supreme Court's decision of July 4, 2001/2 StR 513/00, cited in NJW 2001, 2891). Most recently, the predicate offenses for money laundering have also come to include tax evasion as a commercial business or organized criminal activity, as defined under § 370 a of the Tax Code.

A distorted attorney-client relationship

Thus the Supreme Court's presumption that the attorney is culpable will have far-reaching adverse effects for both attorneys and their clients. In the future, whenever an attorney must presume his fee will be paid out of tainted funds, he will refuse or resign from the case. But if the client is aware of this circumstance, he will avoid as far as possible giving any indication that might provoke the attorney to take such a step. It will be impossible from the outset for a relationship of open communication to develop between the attorney and the client, unless the attorney wishes to jeopardize himself – and his (potential) client. The attorney is virtually forced to ask his client as few questions as possible, because he must remain protractedly in a state of the greatest ignorance so as not to regard the honorarium he accepts as potentially stigmatized. Otherwise, he would be acting with dolus eventualis – contingent intent.
If the attorney has a suspicion and reports it to the authorities, the latter will gain access to information exchanged between the client and his defense counsel. If an investigation is also initiated against the attorney on suspicion of money laundering – because the attorney accepted fees from a client who, for example, has persistently evaded taxes in his business operations – then the public prosecutor's office will also gain access to data on the accused in the proceedings already pending on the predicate offense, because the attorney's brief has lately become an open book to the investigative authority.

Eroding the system to the point of collapse

Motivated by fiscal or security policy, the need to combat organized crime has more and more commonly served as a dubious excuse to restrict rights and freedoms – including an attorney's right to conduct his profession however he wishes. What assessment of the law can justify that an attorney must secretly report a suspicion of money laundering, yet not report a suspicion or even the actual existence of such violent crimes as murder, or arson resulting in loss of life? Even now, the criminal-procedure consequences of the suspicion of money laundering have already led to a cascading flood of phone tapping, and thus to hitherto inconceivable encumbrances of confidential conversations. The procedural complications of the battle against money laundering in particular are eroding the system to the point of collapse, and make the exercise of the legal profession indeed a hazardous activity.

Other countries, other customs

We may now wonder where all this comes from. There is no single answer. But in the process of European integration, one cannot overlook that other value systems are also becoming established here. The notary is already a villain in Molière's comedies. The British are less troubled by reporting suspicions under the EU money laundering directive than, for example, are attorneys from the Netherlands, Austria or Germany. Solicitors in the United Kingdom must use a hot line to notify the investigative authorities on their own initiative. However, it should be noted that Britain can look back on a different, freer legal history than Germany can.

Capitalist structures

Finally, the creeping spread of treating attorneys as equivalent to other providers of commercial services is partly home-brewed. Many law firms are already structured in such a capitalist way that the question of commercialism does arise, because providing legal counsel in their core field is no longer based on the personal labor of the professional himself (according to the Federal Tax Court, decision of 12 December 2001/XI R 56/00 in ZIP 2002, p. 359, regarding receivers in bankruptcy). Michael Streck, President of the German Bar Association, laments the devaluation of attorney confidentiality by attorneys themselves, because in particular the big players in our profession have openly used their clients in advertising (NJW 2001, p. 3605). They blithely boast about the clients they work for, dropping names without restraint (in "tombstone" ads). Yet, he points out, statutorily protected client confidentiality is a cornerstone of the profession.
We must agree with Streck. Those who do not comply with the imperative to say nothing about the client, either to public prosecutors or to the press or in client-acquisition meetings, themselves erect further tombstones for the profession of the independent advocate. Who then can be surprised if European or German decision-makers treat us attorneys the same as moneychangers and other operators of commercial enterprises, when we behave like them ourselves?


This article has been published in "Anwalt, das Magazin" (05/2002), Verlag C.H. Beck, Munich under the title: Gefahrgeneigte Tätigkeit, Stolperfallen für Anwälte.


RA Dr. Thomas Marx,
Marx Rechtsanwälte, Auguststrasse 14 , D-22085 Hamburg, Germany
marx@marx.de