Carpe Pecuniam: Criminal forfeiture of tainted legal fees

1 Introduction

Nowadays, money laundering is a prominent feature of the international criminal justice landscape, including South Africa’s, and most states are keen to arrest, prosecute and punish money launderers. Needless to say, those accused of money laundering have as much right to legal representation as do all other accused. Indeed, such accused persons likely can afford to pay for legal representation of their choice - more so than many accused charged with non-economic crimes - because they have access to the proceeds of their crimes.

Of course, lawyers all over the world are entitled to defend persons accused of money laundering and to be paid for the services rendered in the course of such defence. If the legal fees are paid with clean money, untainted by criminality, then there is no cause for apprehension, at least as far as the lawyer is concerned. However, if the fees are settled with money which derives from the criminal conduct of his\her client, then the lawyer may be in an unenviable position. Here a number of questions arise. Is a lawyer entitled to accept dirty money as legal fees? Is the client entitled to use part of his\her criminal proceeds to defray his\her legal costs? Is the lawyer who is paid with dirty money vulnerable to criminal prosecution? Can the state seek to confiscate such legal fees because they are proceeds of crime?

This paper focuses on the last question and makes an attempt to unpack its ramifications with a view to understanding the legal status of tainted fees paid to a lawyer by a client accused of money laundering. Should such moneys be forfeitable and, if so, what does forfeiture mean for the client’s right to legal representation and the lawyer’s right to practise his\her profession? This is an issue of international range, given that money laundering schemes often cross national borders, and much is to be learnt from the experiences of foreign jurisdictions. Against this backdrop, the paper studies the approaches taken by South Africa, the USA and Canada to the forfeiture of tainted legal fees.

2 The South African approach

In South Africa, economic crimes in general and money laundering in particular are regulated primarily by the Prevention of Organised Crimes Act 121 of 1998 (POCA) and by the Financial Intelligence Centre Act 38 of 2001 (FICA). Both these statutes criminalise the acceptance by lawyers of fees with a criminal provenance. The criminalisation provisions of POCA and FICA operate as a primary prohibition against a South African lawyer receiving tainted fees for services rendered.1 The lawyer who flouts this prohibition risks criminal prosecution and punishment. 2

In addition to the threat of personal criminal liability for the lawyer who is paid with dirty money, South African law allows for the forfeiture of the dirty money itself. Criminal forfeiture, which is in personam and conviction based, is possible in terms of the various sections of Chapter 5 of POCA.3 It is structured formally in terms of restraint orders and confiscation orders. Restraint orders operate to prohibit temporarily any transactions with the property or asset to which they pertain, in order that said property or asset may be preserved for eventual forfeiture. Confiscation orders concern the permanent appropriation by the state of criminal assets held by their targets. Once confiscated, these are deposited into the Criminal Assets Recovery Account, which is subsumed within South Africa’s National Revenue Fund.4 The disposition of funds in the Criminal Assets Recovery Account is decided by the Cabinet on the recommendation of the Criminal Assets Recovery Committee. 5

The criminal forfeiture provisions of POCA are of general application and hence could be deployed by the state to confiscate fees paid to a lawyer by a client who has been charged with or convicted of money laundering, provided that the fees have a criminal derivation. This form of forfeiture hinges upon a criminal prosecution and conviction of the lawyer, probably for receipt of criminal proceeds as fees. The forfeiture process normally would commence with a restraint order and conclude with a confiscation order. The former usually is a pre-conviction step, issued with a view to preventing dispersal or concealment of the tainted fees; the latter occurs post-conviction, at the sentencing stage of the criminal trial.

The key provision in respect of the restraint order in conviction based forfeiture proceedings is section 25(1) of POCA, which reads:

“A High Court may exercise the powers conferred on it by section 26(1)-

a. when -

(i) a prosecution for an offence has been instituted against the defendant concerned;

(ii) either a confiscation order has been made against that defendant or it appears to the court that there are reasonable grounds for believing that a confiscation order may be made against that defendant; and

(iii) the proceedings against that defendant have not been concluded; or

b. when -

(i) that court is satisfied that a person is to be charged with an offence; and

(ii) it appears to the court that there are reasonable grounds for believing that a confiscation order may be made against such person.”

Section 25(1) thus allows a South African High Court,6 to grant a restraint order against a lawyer in two instances. The first is during an ongoing prosecution, when a confiscation order already has been made against the defendant-lawyer or when there is a reasonable expectation that such an order will be made. The second is prior to the institution a prosecution, when the court is satisfied that prosecution will ensue and that there are reasonable grounds to expect that a confiscation order will be made against the defendant-lawyer.

The restraint takes place in terms of section 26(1) of POCA, which empowers the High Court to issue the restraint order by way of an ex parte application by the state. If the restraint order is granted, the defendant-lawyer and any other person are prohibited from “dealing in any manner with any property to which the order relates”. The idea is to ensure that the property, in this case the tainted legal fees, is preserved for possible forfeiture under a future confiscation order. Further, section 26(2) of POCA provides, essentially, that the restraint order applies to all realisable property.7 The notion of realisable property is capacious, and would encompass not only the actual tainted fees but also any other assets into which part or all of the tainted fees have been converted, whether in the hands of the lawyer-defendant or in those of a third party to which they have been gifted - presumably in an effort to place them beyond the reach of the law.

The restraint order is primarily a mechanism of preservation. Its core purpose is to secure the tainted legal fees or their commuted equivalent. However, it is a temporary measure, designed to prevent dissipation of the restrained property pending the outcome of the criminal proceedings. The actual forfeiture of the tainted fees (or their converted reciprocal) to the state is accomplished by way of a confiscation order. Confiscation in conviction based forfeiture is governed by section 18(1) of POCA, which stipulates that:

“Whenever a defendant is convicted of an offence the court convicting the defendant may, on the application of the public prosecutor, enquire into any benefit which the defendant may have derived from -

a. that offence;

b. any other offence of which the defendant has been convicted at the same trial; and

c. any criminal activity which the court finds to be sufficiently related to those offences,

and, if the court finds that the defendant has so benefited, the court may, in addition to any punishment which it may impose in respect of the offence, make an order against the defendant for the payment to the State of any amount it considers appropriate and the court may make any further orders as it may deem fit to ensure the effectiveness and fairness of that order.”

A confiscation order follows conviction of the defendant and upon application by the state to the convicting court. The granting of a confiscation order does not appear to be dependent upon the existence of a restraint order issued prior to conviction. Indeed, it is possible that a restraint order could be applied for after the granting of the confiscation order. Assume, for example, that a court issues a confiscation order against a convicted lawyer in respect of tainted fees and/or the asset(s) into which said fees have been converted, in whole or in part. The aim of the confiscation order is to deprive the lawyer of access to and enjoyment of his\her-debased currency. According to section 18(1), the confiscation order constitutes a judgment which sounds in money,8 and if the state is concerned that the convicted lawyer’s assets have to be preserved in order for the confiscation order to be realised, it well may apply for a restraint order after the confiscation order already has been made. This possibility is envisaged, somewhat counter-intuitively, by section 25(1)(a)(ii) of POCA as cited above. As a rule, though, the restraint order would precede the confiscation order.

The crimes for which the court may issue a confiscation order against the convicted lawyer include any and all offences of which the lawyer has been convicted during the same criminal proceedings.9 In addition, the confiscation order may encompass any other criminal conduct considered by the court to be “sufficiently related” to these offences.10 As a money judgment, the confiscation order seeks to divest the convicted lawyer of the proceeds of his\her crime(s) and any related criminal behaviour. The quantum of the confiscation order may be any amount which the court considers appropriate, provided it does not exceed the value of the proceeds gained from the criminal conduct in question.11 For example, the confiscation order could require the lawyer to pay to the state the full amount which he\she has received as fees from his\her client. This is the fee forfeiture. Further, the court may supplement the primary confiscation order with any secondary order which it considers necessary to implement the confiscation order fairly. The confiscation order and any cognate order do not constitute criminal sanctions, and stand separate from any punishment imposed by the court for the offence(s) committed by the lawyer.

Interestingly, whereas a restraint order may be made only by a High Court, a confiscation order may be granted by the court which has tried and convicted the defendant, be it a High Court or a lower court. This jurisdictional difference likely derives from the fact that the restraint order application is ex parte and is granted without reference to the defendant, whereas the confiscation order forms part of a trial in which all the conventional notice requirements would have been met. This means that the tainted legal fees or their proprietary counterpart may be restrained by one (high) court while another (lower) court - which has tried and convicted the errant lawyer - may order their forfeiture, as money, to the state.

Hitherto, South African law has seen only one case in which the state sought the criminal forfeiture of dirty money paid as legal fees.12 It concerns an abalone poaching syndicate and involves some 30 accused and close to 600 charges. The case has been running in the Western Cape High Court for several years already, but information about it is sparse and has had to be gleaned from newspaper reports and online sources. One of the accused was Anthony Broadway, an attorney, who had been defence counsel for a number of his co-accused before he himself was charged under POCA with the receipt of tainted fees and became an object of forfeiture proceedings by the state. As one report had it:

“Bellville attorney Anthony Broadway ... who represented several syndicate members since 2001, was also a defendant in the restraint proceedings. His assets, listed on an annexure to the order, include properties in Kenridge and Bellville, a Mercedes-Benz, a Hyundai i20, a trailer, two motorcycles and the contents of nine bank accounts in his name”.13

Mr Broadway now has been saddled with the dubious distinction of being the first South African lawyer ever to become embroiled as a target in the forfeiture regime of POCA. Although the case has not been finalised yet,14 it has been reported in the media that Anthony Broadway himself is no longer an accused and has been cleared of all charges.15 It would appear, then, that South Africa’s first and only attempt to deploy the provisions of POCA against an attorney in criminal proceedings relating to tainted legal fees has come to nought. However, the attempt does confirm that South African lawyers have to appreciate not only that the receipt of tainted legal fees is an offence but also that such fees are forfeitable to the state.

However, there is a silver lining to the POCA cloud engulfing tainted legal fees in that allowance is made for a lawyer’s fees to be paid by a client (accused of money laundering) from funds which well may be proceeds of crime. It is a concession which applies to assets which are subject to a restraint order. In such a case, it is possible for a court to order that the reasonable legal expenses of the accused be settled from the frozen assets. This possibility stands as an exception to the rule that lawyers cannot be paid with dirty money and that said money is subject to confiscation.

This is the so-called legal expenses exception. It is governed by section 26(6)(b) of POCA, which specifies that:

“Without derogating from the generality of the powers conferred by subsection (1), a restraint order may make such provision as the High Court may think fit -

for the reasonable legal expenses of ... a person [against whom the restraint order is being made] in connection with any proceedings instituted against him or her in terms of this Chapter or any criminal proceedings to which such proceedings may relate, if the court is satisfied that the person whose expenses must be provided for has disclosed under oath all his or her interests in property subject to a restraint order and that the person cannot meet the expenses concerned out of his or her unrestrained property.”

It must be emphasised here that this section constitutes an exemption from the general tenor of South African law that tainted legal fees are forfeitable, first and foremost. Criminal proceeds or otherwise dodgy funds may be used to defray legal expenses only if they are subject to formal restraint and the court authorises that they may be defrayed. The point is that South African law tolerates the payment of legal fees from criminal funds grudgingly, and then only with the imprimatur of the court. The granting of that imprimatur depends upon the court’s being convinced that the subject of the restraint order has declared his\her full interest in the restrained property under oath and that he\she does not own sufficient unrestrained property with which to settle his\her lawyer’s account. Honesty and impecuniosity on the part of the client, then, are perquisites for persuading the court to authorise payment of his\her lawyer’s fees from restrained funds. The lawyer, who accepts tainted fees outside of the statutory legal expenses exception, breaks the law and stands to be prosecuted and to have the fees confiscated by the state.

3 The USA approach

The forfeiture of tainted legal fees long has been allowed in the USA. The main forfeiture statute is to be found in Title 21 of the United States Code, specifically 21 USC §853(a)-(q), known otherwise as the Comprehensive Forfeiture Act (CFA) of 1984. The CFA was preceded by the Racketeer Influenced and Corrupt Organisations Act (RICO),16 and the Continuing Criminal Enterprise Act (CCE Act),17 both of 1970. None of these statutes contains any express provisions that exempt attorneys’ fees from forfeiture.18

Significantly, the US Money Laundering Control Act (MLCA) of 1986,19 contains a so-called safe harbour provision which effectively decriminalises the receipt by an attorney of tainted fees, provided such fees relate to upholding the Sixth Amendment right of accused persons

to legal representation.20 However, it appears that this provision does not indemnify tainted legal fees against forfeiture. Whereas the lawyer who is paid with dirty money in terms of the safe harbour clause does not risk criminal prosecution, the dirty money in question remains fair game for court-ordered confiscation. In other words, the safe harbour clause of the MLCA does not operate to protect tainted legal fees against the reach of the CFA, RICO and the CCE Act.21

In 1989, the vulnerability of tainted legal fees to criminal forfeiture was considered in two cases, which have become paradigmatic in this area, namely, United States v Monsanto,22 and Caplin & Drysdale v United States.23 They are discussed below.

4 The Canadian approach

The position of the Canadian lawyer who acts as defence counsel for a money launderer and who accepts tainted funds as a fee payment is regulated by the definition of money laundering in section 462.31(1) of the Canadian Criminal Code. It reads:

“Everyone commits an offence who uses, transfers the possession of, sends or delivers to any person or place, transports, transmits, alters, disposes of or otherwise deals with, in any manner and by any means, any property or any proceeds of any property with intent to conceal or convert that property or those proceeds, knowing or believing that all or a part of that property or of those proceeds was obtained or derived directly or indirectly as a result of

a. the commission in Canada of a designated offence; or

b. an act or omission anywhere that, if it had occurred in Canada, would have constituted a designated offence.”54

According to this section, then, a person commits money laundering if he\she transacts, in any way and by any means, with criminal property or proceeds, and does so with the intention of concealing or converting said property or proceeds, whilst knowing or suspecting its provenance.55

Furthermore, the person convicted of money laundering stands to be subjected to the Canadian assets forfeiture regime. In this connection, section 462.37(1) of the Criminal Code provides that if the trial court:

“is satisfied, on a balance of probabilities, that any property is proceeds of crime obtained through the commission of the designated offence, the court shall order that the property be forfeited to Her Majesty to be disposed of as the Attorney General directs or otherwise dealt with in accordance with the law”.56

The forfeiture order made by the court under section 462.37(1) is a post-conviction order. Prior to conviction, the court may grant, on application of the Attorney General, an order or orders aimed at protecting and preserving the criminal proceeds in question. Thus, under section 462.32 the court is empowered, on reasonable grounds, to issue a warrant to a competent person to search for and seize the forfeitable property. And in terms of section 462.33 the court could make a restraint order, ex parte and on reasonable grounds, forbidding all and sundry from transacting in any way with the forfeitable property. An application by the Attorney General for a search warrant under section 462.32 usually is accompanied by a request for a restraint order under section 462.33.57

Interestingly, the Canadian forfeiture regime reaches beyond the designated crime, to criminal proceeds of any other crime. Thus, section 462.37(2) provides that:

“If the evidence does not establish to the satisfaction of the court that property in respect of which an order of forfeiture would otherwise be made under subsection (1) was obtained through the commission of the designated offence of which the offender is convicted or discharged, but the court is satisfied, beyond a reasonable doubt, that the property is proceeds of crime, the court may make an order of forfeiture under subsection (1) in relation to that property.”58

All in all, Canadian law not only criminalises any and all dealings with criminal proceeds, but also requires their forfeiture to the state if they derive from the designated offence and allows their forfeiture if they derive from any other offence.59

The discussion thus far suggests that the Canadian lawyer who receives dirty money as legal fees well may see himself condemned as a money launderer and have his\her fees confiscated by the state. This is the worst-case scenario, but it is unlikely to be the norm in cases involving tainted fees. The position of the lawyer in such cases is mitigated significantly by the fact that knowledge and intention are key elements of the definition of money laundering provided in section 462.31(1) of the Criminal Code. In order to fall foul of the relevant criminalisation and forfeiture provisions, the lawyer who accepts tainted funds from a client for professional services rendered must do so, firstly, “knowing or believing” that they are tainted and, secondly, “with intent to conceal or convert” them. In other words, he\she must know or suspect that the funds are criminal proceeds and he\she must accept them with an intention to launder them. The lawyer who accepts the funds “innocently”, without the required mens rea, will escape the reach of these provisions, even if he\she was aware or surmised that the funds were proceeds of crime. It is only really the lawyer who is conspiring with his\her launderer-client - say, to use the lawyer’s trust account as a money laundering conduit - who stands to be convicted and to forfeit his\her fees. The rest, those who are not animated by the money-laundering zeitgeist, may accept tainted legal fees; it appears, with impunity and without fear of forfeiture. There currently is no indication that Canada is pursuing or intends to pursue the prosecution of lawyers who are paid with dirty money for bona fide professional services. For all intents and practical purposes, then, tainted legal fees have not been criminalised and are not forfeitable from the perspective of the conscientious and scrupulous Canadian lawyer.

What is more, there are times when the court, in effect, may order that a lawyer be paid with dirty money or, at least, with money which is suspected to be dirty. This is possible in terms of section 462.34 of the Canadian Criminal Code.60 To begin with, section 462(1)(a) entitles:

“Any person who has an interest in property that was seized under a warrant issued pursuant to section 462.32 or in respect of which a restraint order was made under subsection 462.33(3) may, at any time, apply to a judge for an order under subsection (4).”

Section 462.34(4)(c)(ii) then on goes on to stipulate that:

“On an application made to a judge under paragraph (1)(a) in respect of any property and after hearing the applicant and the Attorney General and any other person to whom notice was given ... the judge may order that the property or a part thereof be returned to the applicant or, in the case of a restraint order made under subsection 462.33(3), revoke the order, vary the order to exclude the property or any interest in the property or part thereof from the application of the order or make the order subject to such reasonable conditions as the judge thinks fit, for the purpose of meeting the reasonable ... legal expenses of a person referred to in subparagraph (i).”61

In the context of this paper, section 462.34(4)(c)(ii) constitutes a legal fees exemption from the Canadian forfeiture regime. It allows for the release of seized or restrained money to defray reasonable legal expenses before forfeiture is granted.62 It appears, then, that Canadian law places more store by having the lawyer who defends an alleged money launderer paid rather than by prosecuting the lawyer for accepting dirty money in settlement of his\her fees. The accused person’s right to legal representation seems to trump the state’s interest in confiscating criminal proceeds, which have been transferred to his\her lawyer as legal fees.63

In sum, the Canadian definition of money laundering implies that the receipt of dirty money as legal fees by a lawyer is not a crime, except in the rare case when the lawyer himself\herself is a money launderer of sorts. Further, it does not seek to forfeit such fees accepted by a lawyer, except where the lawyer has been convicted as a money launderer. The protection of the lawyer’s right gainfully to practise his\her profession and the client’s right to engage defence counsel seems to enjoy priority over the state’s right to prosecute money launderers and deprive them of the nefarious assets. It is an approach which is expressed, somewhat ironically, in a conspicuous dearth of Canadian case law on lawyers as launderers and on criminal forfeiture of tainted legal fees.

5 Conclusion

In comparing the South African approach to the forfeiture of tainted legal fees with that of the USA and Canada, a number of trends may be observed. The USA, Canada and South Africa all allow for the criminal forfeiture of tainted legal fees. In other words, all three jurisdictions have enacted statutes designed to deprive of his\her criminal profits a lawyer who has been convicted of money laundering. However, this commonality tends to fracture in the face of rather significant differences across the three countries.

South Africa and Canada both criminalise the acceptance of tainted legal fees by lawyers. However, the USA has the safe harbour clause allowing a lawyer to be paid with dirty money in order to uphold the client’s Sixth Amendment right to legal representation. Further, Canada has defined money laundering in such a way as to exclude the receipt by a lawyer of dirty money in payment of bona fide legal services rendered, even if the lawyer knows or suspects the money to be dirty. It appears, then, that it is South African lawyers who stand most in hazard of being prosecuted and convicted for accepting tainted legal fees.

All three countries allow for the pre-conviction restraint and post-conviction forfeiture of tainted legal fees. In this regard, it is important to note that the safe harbour clause in the USA does not shield the tainted fees themselves from forfeiture.64 Unlike the USA, both South Africa and Canada have legal fees exemption clauses, in terms of which a court may order that a lawyer be paid from a client’s assets which are under restraint. The Canadian exemption provision tallies with that country’s overall hospitable approach to tainted legal fees. A determinate South African policy approach to tainted legal fees is not discernible yet, so the country’s exemption clause has to be comprehended in exceptional terms, as a court-sanctioned departure from its generally inhospitable criminal forfeiture regime.

A lawyer’s right to practise law gainfully hardly is contentious. What is more, this right entails the freedom to provide legal services to whosoever is in need of them. In other words, the repute (or otherwise) of his\her clientele ought not to count as a prohibitory factor in relation to a lawyer’s right to practise his\her profession. The lawyer who is a scoundrel deserves to be at the receiving end of legal constraints and sanctions. The conscionable lawyer who has a scoundrel for a client does not.

It seems that the USA and Canada have factored the lawyer’s right to earn a living into their approaches to and interpretation of the law pertaining to tainted legal fees. By contrast, South Africa’s anti-money laundering legislation appears to ride roughshod over the right of a lawyer to practise his\her profession (as well as the client’s right to counsel) and may not survive constitutional scrutiny.65 The fact that the South African forfeiture regime includes a legal fees exemption is cold comfort to the criminal defence lawyer who, per definitionem, will have many a scoundrel for clients. Such a lawyer has to contend with the proverbial “double whammy”, that is, he\she faces not only the prospect of prosecution, conviction and punishment simply for accepting tainted fees, but also the prospect of losing those fees to the coffers of the state. He\she would be protected and his\her fees would be unassailable only under the legal fee exemption. However, the idea of a criminal defence lawyer having to invoke the exemption and all its procedural accoutrements in order to avoid prosecution and secure his\her fees ought to be a cause for serious concern - if not to the South African legislature then, at least, to the organised legal profession, as represented by the South African Legal Practice Council.