Friday, January 13, 2012

On Why Lawyers Should Never be Required to Report Their Own Clients

It's been a month since the last time I wrote in this blog. I guess vacation time is really over. Anyway, yesterday I read a interesting news from Kompas. Apparently, one of the former chiefs of the Commission of Corruption Eradication (KPK) had an idea that lawyers of corruption case suspects must report the payment for their service that they received from their client to the anti money laundering authorities. The reason for this policy? Because they believe that there is a good indication that the money is coming from corruption and therefore the lawyers must report it.

Although I am always sympathetic with anti corruption movement and would love to hear new innovations, I can't believe that a former lawyer could actually voice this perverse idea. Sure, having this kind of mandatory reporting could be a good screening mechanism. Those who report would probably have no case at all, while for those who refuse to report, we can expect that there is something fishy is going around. Would not that produce an efficient way of legal enforcement?

The answer is no. There is a good reason why lawyers are sworn not to provide any information to third parties that might jeopardize the interest of their clients. A good analogy to this issue is the market for health insurance. One of the main problems of health insurance industry is the fact that there is a huge information asymmetry between the insurance companies and the policy holders. Insurance companies get money from this business by pooling the money from their clients and hoping that the amount of the pooled money will exceed the total money that they will pay for the claimants. Of course, the pooled money are just a fraction of the total expected health costs of the policy holders depending on the probability of paying the insurance claims in the future.

As you can see, there is a huge incentive for people with high health risks to buy insurance policy while people who know that they are quite healthy will most likely refuse to purchase an insurance policy (unless they are risk averse or the price is acceptable to them). In case the numbers of high risk people beat the numbers of low risk people significantly, a market of lemon will soon be created where insurance companies will be flooded with high risk policy holders and the insurance premium will be increased to cover the higher probability of insurance claims payment. In one instance, the premium can reach a level where those who actually really need the insurance cannot afford the price and those who are previously interested to buy the insurance policy refuse to do so. A solution for this problem is to require all people to buy mandatory health insurance policy in order to reduce the premium amount (see as an example, automatic insurance for employees).

Similar thing would also happen once lawyers have the obligation to report anything fishy related to their clients (I mean, if you do this for corruption cases, we should also do the same for all criminal cases, from thievery to murder and rape crimes, why bother making the differentiation?). Being a lawyer myself, I could assure you that lawyers are the master of covering their own liabilities. Rather than being a victim, the lawyers will eventually report the client to the related authorities. There would be no incentives for lawyers to protect the interest of their client. Once they know that their clients are most probably guilty, they will stop representing their client since they are being required to report things that may jeopardize their clients' interest. Why bother having state attorneys if that's the practice?

And clients are not stupid, some will refuse to use lawyers services because of fear of being betrayed, in which we can assume that they are indeed guilty. But that is a very dangerous assumption. One of the basic principles in criminal law is that we cannot punish someone based only on assumptions. That's why we have the "beyond the reasonable doubt" rule. Punishing the wrong people or giving a punishment which is not in accordance with the severity of the criminal activities is not efficient since it lowers the costs of doing criminal activities (the lower the probability of getting punished, the lower the costs of crime). Thus, we invest in creating a rule that can produce the most correct result (or at least we hope to).

Creating a system where lawyers can turn out to be their clients own enemy once they deem that the clients are most likely guilty is not helpful at all. Those who are really in need of legal assistance will be excluded from the legal service. We need to understand that law is not an easy subject for most of the common people and they might not always understand whether they have done something wrong or not. That's why we create a system where lawyers act as their assistant in understanding the legal issues that they will face in the court and that the lawyers will protect the confidentiality of any information that they receive from the client. This is the essence of presumption of innocence. To ensure that the system will work, there must be a relationship of trust between the lawyers and the clients.

This bring us to the second reason. If people don't use the service of lawyers if they don't believe their own lawyers, the number of clients will decrease. Depending on the situation, there can be two possibilities. One, the end of lawyers business. Second, an increase in the fee of lawyers and a new business focusing on the clients who solely conduct validly legal activities. I am certain that this is not the intention of having lawyers in our legal system. It might be hard to accept, but the only way for the whole system to work is to let lawyers represent all the people regardless of the fact whether they are really guilty or not.   

In any way, I am happy that the idea has been rejected by the legislators. At least now I can find something that I could agree with them after all these years.

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