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					CRUZ, Jennifer Anne Marie D.

     ANTI-MONEY LAUNDERING: The Need to Reassess the
       Applicability of the Privilege in Light of Bank Inquiry

With the dominance of online banking and the proliferation of international
crimes and other crimes that heavily affect not only the public’s safety but
the State’s economic stability, the need for far reaching and stricter measures
becomes more palpable and prevalent. The passing of the Anti-Money
Laundering Act and the creation of the Anti-Money Laundering Council
have given law enforcement more power to investigate scrupulous criminals
who stand to benefit from the acts of their crime by meticulously planning
to commit their crimes with impunity in order to avoid prosecution and reap
the profits from such by clandestinely keeping the money in the guise of
receiving such amounts as a result of a legal transaction. Through the Anti-
Money Laundering Act, the State is not constrained to investigate and
prosecute the crime only but also acts subsequent to the crimes that are a
result of such. Due to the large amount involved which is believed to be
used to fund other illicit activities worldwide, a coordinated and effective
fight against money laundering must be a commitment of each member of
the international community. Nevertheless, the efforts of the Anti-Money
Laundering Council are thwarted and caught in a dead lock in cases wherein
the attorney-client privilege is invoked during the examination of bank
deposits and financial transactions.



       Money-laundering is a worldwide concern with the advent of e-
commerce. Prior to the enactment of the Anti-Money Laundering Act of
2001, there were no laws that would effectively criminalize the possession of
the proceeds of the crime1. Nevertheless, despite the enactment of the said
law, difficulty arises in terms of enforcement because of the near
impossibility of obtaining a bank inquiry when the money has left the
possession of the client and gone to the possession of the lawyer-counsel.
The lawyer-counsel may oppose on the ground that inquiring into its

accounts opens the entire account for review and is violative of the
Attorney-Client Privilege: an evidentiary rule that protects
communications between a client and his or her attorney and keeps those
communications confidential. It protects both attorneys and their clients
from being compelled to disclose confidential communications between
them made for the purpose of furnishing or obtaining legal advice or
assistance. The privilege is designed to foster frank, open, and uninhibited
discourse between attorney and client so that the client's legal needs are
competently addressed by a fully prepared attorney who is cognizant of all
the relevant information the client can provide. The attorney-client privilege
may be raised during any type of legal proceeding, civil, criminal, or
administrative, and at any time during those proceedings, pre-trial, during
trial, or post-trial.

Attorney-Client Relationship: is said to exist when a lawyer voluntarily
permits or acquiesces with the consultation of a person, who in respect to a
business or trouble of any kind, consults a lawyer with a view of obtaining
professional advice or assistance. It is not essential that the client should
have employed the attorney on any previous occasion or that any retainer
should have been paid, promised or charged for, neither is it material that
the attorney consulted did not afterward undertake the case about which the
consultation was had, for as long as the advice and assistance of the attorney
is sought and received, in matters pertinent to his profession.

Bank Inquiry: the examination of the particular deposits or investments in
banking institutions or non-bank financial institutions.

Confidentiality: prohibited disclosure of information obtained through the
examination of the particular deposits or investments in banking institutions
or non-bank financial institutions.

Gatekeeper Regulation/Initiative: imposition of federal requirements on
accountants and lawyers to file suspicious activity reports (SARs) if they
learn of a known or suspected violation of federal law, especially in
connection with money laundering and financial crime.

Money Laundering: the conversion or transfer of property, knowing that
such property is derived from serious crime, for the purpose of concealing
or disguising the illicit origin of the property or of assisting any person who
is involved in committing such an offence or offences to evade the legal
consequences of his action, and the concealment or disguise of the true
nature, source, location, disposition, movement, rights with respect to, or
ownership of property, knowing that such property is derived from serious

       Issues concerning transfer of funds from the client to the lawyer’s or
firm’s bank accounts often arise when the client is suspected of violating
provisions of the Anti-Money Laundering Act. The State’s efforts in tracing
the movement, and ultimately, the source of funds are rendered inutile when
attorneys resist revealing fee arrangements. Lawyers argue that such
disclosure may provide part of the evidence needed to convict their client.
No specific ruling on the matter has been laid down by our own Supreme
Court. The study can be a useful tool in the amendment of the AMLA and
for the enactment of additional to strengthen the country’s commitment in
the fight against money laundering.

Should applications for bank inquiry in cases involving violations of the
anti-money laundering act be denied by invoking the attorney-client

       The author intends to complete this study by means of research and
interviews with experts of the Anti-Money Laundering Act and law

      To explore the role of lawyers in the fight against money-laundering:
can they be considered agents of the State for such purpose?

      To examine how the United States of America, whose anti-money
laundering laws and code of professional conduct our country has patterned,
has addressed the issue.

      To determine the approach that can be adopted in the Philippines
which does not undermine the attorney-client relationship.

      This thesis shall mainly focus on the Anti-Money Laundering Laws of
the United States of America as the Anti-Money Laundering Act of 2001 in
the Philippines was patterned after the law in the USA. The laws in other
countries will be touched upon to determine how these countries address a
similar circumstance. Only countries with a high economic status and
strong financial influence worldwide will be considered. Although other
countries may have contributions worth noting, the limit will be maintained
to be in keeping with the brevity of this paper.
      The author also chooses to limit its study of the non-applicability of
the Attorney-Client Privilege to Bank Inquiry because it is at this preliminary
stage where the accused is formally informed of the State’s initial action
against the purported crime. It is during bank inquiry that the accused is
most likely to obliterate all evidence that may link him to the crime. More
importantly, the accused continues to access and to use the money subject
of these accounts without a lawful court order enjoining him from doing so.


As a backgrounder/history:
      - Pre 9/11
           o The Gatekeeper Initiative
      - Post 9/11
           o Advent of Terrorism as funded by funds from illicit
           o America’s response: the Patriot Act
           o Response of other countries

Measures taken and debates held on attorney-client privilege in the
United States of America
     - Business and Professions Code Section 6068(e) imposes on
     California attorneys the duty “to maintain inviolate the confidence,
     and in every peril to himself or herself to preserve the secrets of his
     or her client.”
     - ABA Model Rule 1.6(a) protects all “information relating to the
     representation of a client’s “secrets,” which may or may not include
     everything learned in the course of representing a client.
     - Although the attorney client privilege, as a rule of evidence, is
     construed narrowly in judicial proceedings in which courts are
     concerned primarily with ascertaining the truth, which is codified in
     the Evidence Code followed by a list of exceptions, the duty of
     confidentiality is far-reaching to include matters that are not included
     in the former as the latter is codified in the State Bar Act and is a
     substantive duty.
     - Nevertheless, a lawyer may be required by law to disclose
     information otherwise protected under Section 6068(e). Examples
     include reporting large cash transactions and does not permit
     attorneys to violate their duty of candor to the court.
      - It is generally accepted that a lawyer cannot avoid complying with
      a final order of a court of competent jurisdiction based on Section
      6068(e). The duty of confidentiality, however, may obligate the
      attorney to seek appellate review of the order before making
      - It is important for a lawyer to explain to the client that they
      lawyer’s duty of loyalty includes loyalty to the law as well as to the
      - In California, the Crime-Fraud exception applies to the attorney-
      client privilege and is recognized as such by federal courts, among
      other jurisdictions. The exception is based on the rationale that the
      attorney-client privilege belongs to the client, and that a client who
      obtains the lawyer’s assistance in committing a crime or fraud has not
      consulted the lawyer in the lawyer’s representative capacity.
      - U.S. Supreme Court Justice Cardozo explained, “the privilege
      takes flight if the relationship is abused. A client who consults an
      attorney for advice that will serve him in the commission of a fraud
      will have no help from the law.”
      - The ABA Task Force on Corporate Responsibility has
      recommended that Model Rule 1.6 of the ABA Model Rules of
      Professional Conduct be amended to permit disclosure of client
      confidential information if the client’s conduct has resulted or is
      reasonably certain to result in substantial injury to the financial
      interests or property of another. The proposed amendment would
      also require lawyers to disclose the confidential information of clients
      to prevent felonies or other serious crimes, including violations of the
      federal securities laws, if lawyers have knowledge of this conduct.
      - Section 307 of the Sarbanes-Oxley Act of 2002 provides that the
      Securities and Exchange Commission must issue rules requiring
      private attorneys who represent public companies before the SEC to
      report evidence of violations of securities laws.

Article 209 of the Revised Penal Code
       - Betreyal of trust by an attorney or solicitor by revealing any of the
       secrets of the latter learned by him in his professional capacity.

Section 24, Rule 130 Rules of Court
- Disqualification by reason of privileged communication as to matters
learned in confidence.

The unscrupulous use of a law firm's account to transact the money
of a client under the guise of legality and for protection from scrutiny
      - Money laundering techniques evolved, techniques became more
      - Abuse of the attorney-client privilege to conceal illicit activities.

Privilege belongs to the client and is not intended to protect the
       - In United States v. United Shoe Machinery Corp., 89 F. Supp. 357
       (D. Mass. 1950) the court articulated five requirements necessary to
       establish attorney client privilege. They are first, the person asserting
       the privilege must be a client, or must have sought to become a client
       at the time of disclosure; second, the person connected to the
       communication must be acting as a lawyer; third, the communication
       must be between the lawyer and the client exclusively — no non-
       clients may be included in the communication; fourth, the
       communication must be for the purpose of securing a legal opinion,
       legal services, or assistance in some legal proceeding, and not for the
       purpose of committing a crime; fifth, the privilege may be claimed or
       waived by the client only (usually, as mentioned, through counsel).

Privilege protects the disclosure of confidential information only
       - However, even when all the requirements have been met, the
       courts can still compel disclosure of the information sought. The
       courts base exceptions to the privilege on rule 501 of the Federal
       Rules of Evidence, which states that "the recognition of a privilege
       based on a confidential relationship … should be determined on a
       case-by-case basis." In examining the privilege on a case-by-case
       basis, the courts weigh the benefits to be gained by upholding the
       privilege (preserving the confidence between attorney and client)
       against the harms that may be caused if they deny it (the loss of
       information valuable to the opposing party).

Neither can it be invoked to prevent the disclosure of the client's
name or the attorney's fees he or she has to pay

Banks are not privy to the attorney-client relationship
     - Banks are in the possession of information obtained by the
     attorney from his client
     - Record keeping requirements of banks; such records are the
     subject of a bank inquiry proceeding

State's police power v. attorney-client privilege
       - Balancing of interests between the State’s power to prosecute and
       the attorney’s duty to defend
       - Legal profession’s apprehension of impending suits and sanctions

Exceptions to the Attorney-Client Privilege in other countries
     - The legal advice exception that where there is a strong probability
     that disclosure would implicate the client in the very criminal activity
     for which legal advice was sought. This exception could apply in the
     circumstance in which a person who has engaged in illegal activity
     retains counsel prior to commencement of a criminal investigation.
     - The identification of lawyer’s clients who make substantial cash
     fee payments is not a disclosure of privileged information.
     - Constraints on disclosure are not unrestricted in Panama. There
     remained limitations where privileged information can and is turned
     over to Panamanian authorities. Panama’s main bank secrecy laws
     have provisions that allow for the disclosure of information to third
     parties if requested “within the course of criminal proceedings,” and
     this exception extends to the attorney-client privilege as well.
     - Last link exception applies when so much of the substance of the
     communication is already in the government’s possession that
     additional disclosures would yield substantially probative links in an
     existing chain of inculpatory events or transactions.

Stance of International Bodies
      - Article 9 of the 1991 European Directive states that good faith
      disclosure to anti-money laundering authorities (shall not constitute a
      breach of any restriction on disclosure of information imposed by
      contract or by any legislative, regulatory or administrative provision,
      and shall not involve the credit or financial institution, its directors or
      employees in liability of any kind” and also recognized that it “ had to
      apply to professions… whose activities were particularly likely to be
      used for money laundering purposes, such as the legal and accounting
      - Recognizes some red flags suggesting money laundering in
      nonbanking transactions such as cash payments, suspiciously named
      accounts, use of off-shore companies, large deposits and transfers of
      funds, and the involvement of persons with connections (referred to
      as “politically exposed persons”)

Philippine setting: duty of the lawyer is to the courts first, before his
       - Lawyer’s foremost duty is to make sure that justice is done
      - The attorney-client privilege should not be used as a “haven” for

    - Various laws and concepts raised may be reconciled as in the US
    where it has used the rules of evidence to balance both interests.
    - Dilution of the traditional concept of the attorney-client privilege
    is in order.
    - Suspicious transaction reporting is not feasible in the country since
    it is contrary to the rationale of full disclosure in an attorney-client

   - Information subject of a bank inquiry does not involve
   information obtained through the attorney-client relationship.
   - In the Philippine setting, enactment of a law which maps out the
   parameters of the attorney-client privilege would be to the best
   interest of both the State and the individual/s concerned.
          o This also helps eradicate the litigious nature of the
          Philippine Judicial System
   - The traditional concept of the attorney-client privilege would have
   to be transformed to keep up with the signs of the times.
   - Strict anti-money laundering regulations does not necessarily result
   in the discovery and punishment of all money laundering activities
          o As long as the exceptions to the law is iron cladly held,
          several blatant money laundering schemes will be employed
          under the defense of attorney-client privilege.
   - The key to prosecuting money laundering is simply to “follow the
   money trail” in which each action may effectively be considered as
   respecting the attorney-client privilege.

    - The passage of a law which will define the extent and boundaries
    of the attorney-client privilege.
           o Enumerate exceptions to the attorney-client privilege
           o Exempt lawyers from possible civil, administrative and
           criminal sanctions
    - Amend provisions of the AMLA to address specifically the issue
    on whether the attorney-client privilege can be rightfully invoked in
    applications for bank inquiry.
      - Require nonbanking financial institutions to disclose large cash
      transfers to them by their clients and permit possible client identity
      disclosure upon finding of a probable cause of money laundering
      activities committed.

Treaties and Conventions
      G-7 Summit, Paris 1989: The Organization of the Financial Action
Task Force
            on Money Laundering
     IBA Resolution on Money Laundering, adopted by the Council of the
            International Bar Association, Paris, France, 19 September
      The 1990 FORTY Recommendations, FATF (with 1996 Revisions)
     Universal Declaration of Human Rights, GA Res. 217 A. (III), UN
Doc A/A
            to 10, 10 December 1948
         a. Local
      1987 Philippine Constitution
      Republic Act 9160 – An Act Defining the Crime of Money
            Providing Penalties Therefor and for Other Purposes
      Republic Act 1405 – An Act Prohibiting Disclosure Of or Inquiry
            Deposits with any Banking Institution and Providing Penalty
      Republic Act 6426 – An Act Instituting a Foreign Currency Deposit
      System in
            the Philippines, and for Other Purposes
      Republic Act 8791 – General Banking Law of 2000
      Republic Act 7653 – The New Central Bank Act
      BSP Circular 2008-077
      Republic Act 8424 – The National Internal Revenue Code
      Revised Penal Code
      Revised Rules of Court

         b. Foreign
      Money Laundering Control Act of 1986
      Annunzio-Wylie Anti-Money Laundering Act, H.R. 5334
      Canadian 1997 Proceeds of Crime Bill
      United States Attorney’s Manual (1990)
      Anti-Money Laundering Act of Thailand, B.E. 2542 (1999)
      Switzerland Money Laundering Act (10 October 1997)
     Regala v. Sandiganbayan, G.R. No. 105938, 20 September 1996
     Pacana, Jr. v. Pascual-Lopez, A.C. No. 8243, 24 July 2009
         Mercado v. Vitriolo, A.C. No. 5108, 26 May 2005

John W. Brooks, Attorney Cathy’s Continuing Quandary, or, Can the Gatekeeper
         Initiative be Reconciled with the Multi-Jurisdictional Practice of Law?,
         International Lawyer (Spring, 2007)
Edward J. Krauland, James E. Roselle & Ramon Mullerat, Comments to the
ABA Task
         Force on Attorney-Client Privilege: Pertaining to the Gatekeeper Initiative,
         the Attorney-Client Privilege and Client Confidentiality, and
         InternationalPerspectives on legal Professional Privilege, 05 May 2005
Miriam Wasserman, Dirty Money, Regional Review Q1 (2002)
Sally Baghdasarian, Gatekeepers: How the Broad Application of Anti-Money
Laundering Statutes and Strategies May Open an Attorney’s Gates to              Prosecution,
Southwestern University Law Reivew (2003)
Fred C. Zacharias, Lawyers as Gatekeepers, University of San Diego School of
Law (2004)
Patricia T. Morgan, Money Laundering, the Internal Revenue Service, and
Enforcement Priorities, Florida Law Review, (December 1991)
Matthew P. Harrington & Eric A. Lustig, IRS FORM 8300: The Attorney-
         Privilege and Tax Policy Become Casualties in the War Against Money
Laundering, Hofstra Law Review (Spring 2006)
Wendy Shuck, The Impact of Anti-Money Laundering Laws on Attorney-Client
         Privilege, Suffolk Transnational Law Review (Summer 1996)
Nicole M. Healy, The Impact of September 11th on Anti-Money Laundering
Efforts,        and the European Union and Commonwealth Gatekeeper Initiative,
International Lawyer (Summer 2002)
Rebecca Gregory, The Lawyer’s Role: Will Uncle Sam Want You in the Fight
         Money Laundering and Terrorism?, UMKC Law Review (Fall 2003)
Patricia Shaughnessy, The New EU Money-Laundering Directive: Lawyers as
         Gatekeepers and Whistle-Blowers, Law and Policy in International
Pamela H. Bucy, Epilogue: The Fight Against Money Laundering: A New
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Internet Sources
Webiste    of    the   Federal     Deposit   Insurance    Corporation,     Last
Updated 06/03/2004

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