ABA endorses guidance for lawyers on fighting money laundering and terrorist financing
By David L. Hudson Jr.
Sep 1, 2013, 01:00 am CST
The governments of the United States and many other countries have beefed up their efforts in recent years to fight money laundering and financing of terrorist groups. These efforts have had an inevitable impact on lawyers.
In 1989, the world’s major industrialized nations created an intergovernmental body known as the Financial Action Task Force. In 2007, the FATF collaborated with the private banking and securities industries to develop risk-based guidance for financial institutions. Then the task force turned to certain nonfinancial businesses and professions, including lawyers, that it viewed as “gatekeepers” in the effort to combat money laundering and terrorist financing. In negotiations to develop guidance for lawyers, representatives of the profession emphasized that any approach should not undermine the attorney-client privilege or the duty of client confidentiality.
In 2008, the FATF issued its Risk-Based Approach Guidance for Legal Professionals. The guidance provides a broad framework while leaving it to lawyers in various countries to develop more detailed risk-based approaches to dealing with money laundering and terrorist financing.
Among the entities that took on the challenge was the ABA Task Force on Gatekeeper Regulation and the Profession, which also had participated in the negotiations that produced the FATF’s lawyer guidance. In conjunction with a number of other ABA entities and specialty bar associations, the task force drafted the Voluntary Good Practices Guidance for Lawyers to Detect and Combat Money Laundering and Terrorist Financing (PDF). The ABA’s policymaking House of Delegates adopted the good practices guidance in August 2010.
In a supporting report, the gatekeeper task force noted that the guidance is not intended to be a statement of the standard of care lawyers should adopt to deal with money laundering and terrorist financing. “Rather, given the vast differences in practices, firms and lawyers throughout the United States, the good practices guidance seeks only to serve as a resource that lawyers can use in developing their own voluntary risk-based approaches,” the report states.
Among the issues facing lawyers as they developed such strategies was the interplay between the good practices guidance and the ABA Model Rules of Professional Conduct. The Model Rules are the direct basis for ethics provisions that govern lawyers in every state except California.
On May 23, the ABA Standing Committee on Ethics and Professional Responsibility shed some light on that issue in its Formal Opinion 463 (PDF), titled Client Due Diligence, Money Laundering and Terrorist Financing.
The committee notes that the Model Rules and the good practices “are consistent in their ethical principles, including loyalty and confidentiality. By implementing the risk-based control measures detailed in the good practices guidance where appropriate, lawyers can avoid aiding illegal activities in a manner consistent with the Model Rules.”
The opinion concludes that the Model Rules “do not mandate that a lawyer perform a ‘gatekeeper’ role in this context,” which presumes the lawyer has the capacity to control or influence the conduct of clients or prospective clients to deter wrongdoing.
At the same time, the Model Rules prohibit a lawyer from knowingly assisting or counseling a client to commit a crime or fraud. And they permit a lawyer to withdraw from representing a client if the lawyer has reason to believe the client is engaging, or plans to engage, in criminal or fraudulent activities. “It would be prudent for lawyers to undertake client due diligence in appropriate circumstances to avoid facilitating illegal activity or being drawn unwittingly into a criminal activity,” the opinion states.
“One of the valuable aspects of the opinion is that it embraces the guidance as a useful tool to assist lawyers in detecting and combating money laundering and terrorist financing,” says Kevin L. Shepherd, a partner at the Venable law firm in Baltimore who chairs the ABA’s gatekeeper task force.
Shepherd adds that “the opinion makes clear that lawyers should read and understand the guidance, educate themselves about money laundering and terrorist financing risks, and seek to incorporate the guidance into their client intake procedures and protocols, including ongoing client monitoring activities as the matter progresses.”