Legal privilege – accountants need protection too

But the ICAEW believes it is time this precedent was changed and will recommend to the government that legal privilege be extended to professional advisers, such as accountants and tax advisers, where they compete directly with lawyers.

According to the ICAEW, this would put advisers and lawyers on an equal footing to attract clients requiring confidential technical help, specifically in the areas of tax and Companies Act advice, where the two professions often overlap.

Legal privilege means that exchanges between lawyers and their clients are protected, unless they further a criminal purpose. Accountants have no such protection.

The Proceeds of Crime Act – likely to come into force early next year – continues to provide lawyers with protection, while strengthening the disadvantages hindering accountants.

The money laundering provisions in the Act will see professional advisers risk prosecution if they do not report suspicious activities by their clients, which may be related to money laundering. This will leave professional advisers with no protection, even overriding contractual obligations.

This, says the ICAEW, will result in ‘serious competitive distortions’ and raises ‘serious anti-competitive issues’, which could be challenged under the 1998 Human Rights Act.

In addition, the ICAEW believes that clients expect professional advisers to have the same privileges as lawyers, often asking advisers to provide them with advice on legal matters, in the belief that confidentiality will be maintained.

Felicity Banks, head of the ICAEW’s business law committee, says that the lack of similar protection for accountants will ‘limit choice by steering consumers seeking confidential advice to a legal adviser in cases where they might otherwise have chosen a chartered accountant’.

‘If the objective of government is to a establish a consistent regulatory framework that promotes competition, then professional privilege either needs to be extended to all those qualified and practising in fields that have the potential to become contentious, or be removed altogether.’

The ICAEW’s ethics department currently provides confidential advice to members, including money-laundering issues. The institute worries that tax teams within accounting firms could leave and join a law firm to take advantage of professional privilege.

John Whiting, tax partner at PricewaterhouseCoopers and past president of the Chartered Institute of Taxation, says both bodies believe this area of the law needs to be reviewed. ‘In the case of a tax practice operating in a legal environment it seems odd that there are cases where legal privilege can apply and cases where it cannot.’

One such anomaly is last year’s dispute between Morgan Grenfell and the Inland Revenue in relation to tax avoidance schemes marketed by the asset management group to clients.

The Revenue asked to see documents containing advice given to Morgan Grenfell by leading counsel and solicitors.

But the House of Lords ruled in favour of Morgan Grenfell with one of the reasons given that legal professional privilege protected the documents.

In his ruling, Lord Hoffman said a tax accountant, as defined by law, could include anyone who assists in the preparation of his accounts or tax returns, and included this important line, ‘and so possibly including a lawyer’.

Whiting believes that this case, among others, shows that legal privilege should, in the case of professional advisers, be ‘all or nothing’.

He fully backs the ICAEW’s recommendations and says there should be a review of privilege status. ‘The result of this review should be that professional privilege should apply to the professional adviser/client situation.’

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