ABA scores wins on attorney-client privilege and independence of the legal profession
The ABA achieved some significant victories during the past year by advocating for revisions to key federal regulations that will protect the independence of the legal profession and preserve the confidential lawyer-client relationship.
“The ABA has always and will continue to protect the attorney-client privilege, client confidentiality and state regulation of the legal profession,” said ABA President Linda A. Klein of Atlanta in a recent statement. “These are the pillars of our legal system and a bulwark that protects clients, not lawyers.”
The ABA focused its efforts during 2016 on regulations being finalized by three federal entities:
FEDERAL DEPOSIT INSURANCE CORP.
When the FDIC published its final rule on record-keeping for timely deposit insurance determination in December, it included language proposed by the association that exempts client trust accounts maintained by lawyers from the rule’s record-keeping and disclosure requirements. The rule requires all account holders at the nation’s largest banks to collect and maintain extensive information regarding their depositors’ accounts to allow the FDIC to provide the depositors with prompt access to their insured funds in the event the bank fails.
As originally proposed, the rule would have required lawyers with client trust accounts at covered banks to disclose extensive confidential information, including the identity of all clients with funds in those accounts and the amounts held for each. In comments submitted to the FDIC last June, the ABA argued that these requirements “would impose unreasonable and excessive burdens on many law firms” and “undermine both the confidential lawyer-client relationship and traditional state court regulation of lawyers.”
The final rule, which goes into effect on April 1, clarifies that, while lawyers must continue to maintain complete and detailed records regarding their client trust accounts held at large banks, confidential client information regarding those accounts need not be disclosed to the bank or the FDIC, unless the bank fails.
DEPARTMENT OF THE TREASURY
The ABA convinced the Treasury Department’s Financial Crimes Enforcement Network, known as FinCEN, to modify its final Rule on Customer Due Diligence Requirements for Financial Institutions to protect the confidentiality of law firm clients.
The new rule, issued in May 2016 to combat money laundering, clarifies that, when law firms open escrow or trust accounts at financial institutions on behalf of their clients, those accounts will be deemed “intermediated accounts,” and the law firms only will have to disclose their own beneficial ownership information, not the identity or beneficial ownership of the clients.
FinCEN decided to include the ABA’s proposed language in the final rule on the basis of two comment letters that the association submitted in 2012 and 2014. In those comments, the ABA warned that requiring lawyers to disclose their clients’ identities—and to collect and report detailed beneficial ownership information regarding those clients—would be costly, burdensome and inconsistent with ethics rules that prohibit lawyers from revealing client information.
FinCEN acknowledged both the professional obligation to maintain client confidentiality and the significant operational challenges that would face lawyers if they were required to collect, report and continuously update beneficial ownership information for each client with funds in a law firm client trust account.
DEPARTMENT OF LABOR
The ABA’s strong opposition helped defeat the Labor Department’s new “persuader rule” that was issued in March 2016 but never implemented after it was successfully challenged in federal court.
In November, a federal district judge in Texas granted a permanent injunction to plaintiffs challenging the rule. The ABA objected to the rule because it would have required lawyers representing employers in unionization disputes to report confidential client information to the government.
When he issued a preliminary injunction in June, Senior U.S. District Judge Sam Cummings of Lubbock, Texas, quoted extensively from the ABA’s 2011 comment letter to the department and a statement submitted to Congress in 2016. Cummings issued the permanent injunction, as well.
This report is written by the ABA Governmental Affairs Office and discusses advocacy efforts by the ABA relating to issues being addressed by Congress and the executive branch of the federal government. Rhonda McMillion is editor of ABA Washington Letter, a Governmental Affairs Office publication.
This article originally appeared in the March 2017 issue of the ABA Journal with this headline: "Winning Streak: The ABA scored some victories during 2016 in opposing federal regulations that might force lawyers to compromise client confidentiality."