eBusiness Weekly
Central Bank pushes for lawyers’ involvement in money laundering fight …but lawyers say RBZ overstepping mandate
Business Writers
Zimbabwe law firms are now subject to financial Know Your Customer (KYC) monitoring and reporting by the Reserve Bank, as the apex bank moves to throttle money laundering and illicit financial flows that go outside the country.
The RBZ’s financial intelligence directorate, a department dedicated to investigating and prosecuting perpetrators of financial crimes, has proposed a memorandum of understanding with legal practitioners, which will subject the latter to comply with a tighter money laundering regulatory framework.
The MoU will among other things demand inspections and whistle blowing on suspected case.
Sources said the central bank is in the process of drafting a stringent template giving guidelines on how law firms were expected to put more emphasis and scrutiny on all high value, high risk client financial transactions. The central bank is supposedly making these agreements binding. While it does acknowledge that legal practitioners fall under the professional code and conduct of the Law Society of Zimbabwe, the central bank is looking to extend its enforcement to legal practitioners that fail to abide by the KYC laws.
Money laundering and other forms of illicit financial flows have become rampant as transaction volumes across borders and financial systems have increased. Besides financing criminal activities, non-compliant financial transactions defraud and cheat monetary systems posing a systemic threat to entire financial sectors. These are matters the RBZ is committing to eradicate.
According to RBZ sources, legal practitioners are a critical element in the financial transfer chain process with clients maneuvering under the advice and consent of their legal representation; hence, the central bank’s recent impetus on the legal profession’s compliance.
The numbers behind money laundering and illicit flows are staggering!
Global reports, while acknowledging the complex and surreptitious nature of money laundering and criminal financing, it is estimated that illicit transactions account for 2-5 percent of global gross domestic product annually. This is equivalent to between $800 billion and $2,5 trillion. These are often predicate offenses that perpetrators take time to plan with intent to deceive regulatory enforcement agencies.
A notably assertive RBZ Governor, Dr John Mangudya, declared “Its (just) emphasis that lawyers being non-financial institutions, they are supposed to exercise Know Your Customer regulations in line with Financial Action Task Force (FATF) framework, which governs money laundering and counter-financing of terrorism,” the central bank governor said.
Dr Mangudya said that the framework on anti-money laundering and counter terrorism financing was not a phenomenon unique to Zimbabwe, but this is worldwide best practice in terms of vigilance and enforcement.
“These are not new rules, what has been added is only emphasis. When we put policy measures, it is not an indication that there is a practice, which is rampant. Policy measures are there to mitigate the chance of it happening. The policy measure is there to make sure we guard the financial integrity of the country and that is our role as a central bank”.
Expounding the role legal practitioners had to play in the financial transacting of clients, Dr Mangudya further explained: “The lawyers need to know the source of funds and source of wealth of their clients, If someone goes to the lawyers to buy a house and wants to transfer the money, they need to know the client’s source of fund, otherwise they become conduits for money laundering.”
Certain legal practitioners are accepting of the RBZ policy stance, referencing global best practices that take place in both developing and emerging economies. Other central banks have been prescriptive such as the RBZ, while others have left legal practitioners and financial sector participants to suggest their own KYC requirements. Accordingly, KYC practices in regards to money laundering and illicit financial flows are a global occurrence, but they lack uniformity represented by clearly outlined global standards. Moreover, they remain vague in regards to the compliance enforcement of the legal profession.
An exception even held by consenting legal practitioners, however, is the matter of legal practitioner’s obligation to retain their clients’ confidentiality. Clients may insist on their financial privacy rights, and through their legal representatives may be constitutionally protected as to their anonymity. In this regard, the RBZ’s initiative comes at an auspicious time, as the Law Society of Zimbabwe has just won a court case against the Zimbabwe Revenue Authority that supports the confidentiality of certain proprietary financial assets and their transaction flows.
Venturas and Samkange senior lawyer Jonathan Samukange said: “Lawyers are protected in terms of confidentiality between client and attorney. The fact that it is called a trust account, no one even RBZ or Zimra can overstep its mandate into one’s trust account as it contains confidential information which no one should know except the two.
“If the RBZ continues with its proposed development, the trust account will be subjected to control so it will no longer qualify as a trust account as the third party is now interfering with the client and a lawyer.
“In my view I don’t think RBZ will succeed on this one.
“The only way it may succeed is when there is a suspected case of externalisation where the central bank probes an individual lawyer about the subject. In that case I don’t think anyone, even myself will argue about the issue.”
Harare lawyer, Tendai Biti, refuted the RBZ policy stance. He insisted that “RBZ cannot overstep into an area covered by another law, the Legal Practitioners Act. The Law Society of Zimbabwe should ensure lawyers’ rights to self regulation and oversight are protected!” He further went on to emphasize on the matter of confidentiality. “Trust funds, for example, are special funds that are audited. You cannot practice law if your funds are not audited. So there is in-house regulation by the Law Society of Zimbabwe itself. There is a mandatory audit once a year every June and you cannot get a practicing certificate unless those funds have been audited. All the bank is doing is to invite a huge fight from the lawyers and the LSZ.”
Suggesting an antagonist perspective potential to be taken by legal practitioners, Biti warned “Anything that seeks to criminalize lawyers, lawyers will resist and I am sure the LSZ will issue a strong statement. And I have no doubt they will call an urgent meeting.”
Advocate Thabani Mpofu said the contents of the proposed MoU would be difficult to follow. “It’s difficult for me that when a client steps into my office, I am mandated to ask whether the client could have been involved in an illegality.”
Other lawyers supported the move saying that the move by RBZ is consistent with global best practices. “Lawyers play an advisory role in financial strategy and decision making thus we are inclined to be informed on the exposure and threats to money laundering and illicit flows,” said a lawyer who requested anonymity.
The lawyer added that the Law Society of Zimbabwe is the only body that regulates the law profession but lawyers are also expected to adhere to the laws of the land especially Exchange Control regulations.”
