Row over lawyers' rights hinders clampdown on terrorist funds

EU moves to crack down on money laundering has run into trouble in Brussels over lawyers’ rights to maintain complete professional secrecy over their clients’ financial dealings.

Ambassadors from member countries meeting in Brussels yesterday rejected a call from MEPs to preserve full client confidentiality for the legal profession, while obliging other sectors auditors, tax advisers, investment firms, bureaux de change, insurance companies and credit houses to inform the authorities if they merely suspect a client of dealing in ‘‘dirty money’’.

The MEPs said lawyers should only have to break confidence if they ‘‘know’’ their clients are laundering money.

EU governments want the wording of the proposed money laundering rules to state that lawyers should be expected to break their obligation of professional secrecy ‘‘if the lawyer knows, or has reason to believe, that a client is seeking his legal advice for money laundering purposes.’’

The MEPs had removed the phrase ‘‘or has reason to believe’’ but last night the ambassadors reinstated it and sent the issue back to the European Parliament to find a new compromise form of words.

Some MEPs argue that the word ‘‘believe’’ has no force in law and commits lawyers to nothing, but the EU ambassadors made clear yesterday that they are insisting on some phrase which puts the onus on lawyers to tip off the authorities on the basis of less than full knowledge of the client’s links to money laundering.

The wrangle risks an embarrassing hold-up in a crucial plank of the campaign to squeeze terrorism of its financial lifeline - an embarrassment EU officials are desperately trying to avoid.

Another wrangle was looming over Commission plans to freeze the assets of a list of 27 organisations and individuals named by the United States as suspected of supporting and financing terrorist activities.

Some EU governments say the Commission has no legal powers to act in such financial matters, and that introducing the freeze in such a way would take weeks of bureaucratic procedures.

They hope instead that a meeting of the United Nations Sanctions Committee in New York tomorrow will approve the list, making the freeze virtually automatic throughout the EU.

Whichever legal device is used, the list will not initially include European terror groups like ETA and the IRA just 27 Muslim-based groups and people including Osama bin Laden and his Al-Quaida terror network.

Yesterday during talks in Strasbourg, Spanish centre-right MEPs objected to the lack of ETA’s name on the list, while UK Liberal-Democrat Graham Watson said he hoped he IRA would be added soon.

Mr Watson warned: ‘‘The important thing is to have this freeze on assets in place soon and not allow a political tussle between the Commission and EU governments to delay things.’’

The Commission says it can act quickly to block terrorist accounts and to effectively curb financing of terrorism. The aim is a ‘‘rapid and more coherent’’ approach to combating the financing of terrorism.

The list of groups and organisations is described as preliminary and includes ‘‘organisations and individuals potentially involved in the September 11 attacks in the US’’.

But the Commission agrees that list could be extended later to other groups and individuals ‘‘as the EU develops its campaign against terrorism.’’