US lawyers revise professional conduct rule to combat money laundering

An ABA meeting has overwhelmingly approved a resolution to make the revisions. The resolution acknowledges that 'the impetus for these proposed amendments was lawyers' unwitting involvement in or failure to pay appropriate attention to signs or warnings of danger...relating to a client's use of a lawyer's services to facilitate possible money laundering and terrorist financing activities'. An ABA press release accompanying the vote notes the rule is being revised 'because of concern that lawyers’ services can be used for money laundering and other criminal and fraudulent activity.'

The new version of the conduct rule obliges lawyers to assess the facts and circumstances of a representation at the time the lawyer is engaged and throughout the representation. It requires or permits the lawyer to withdraw their representation depending upon what is uncovered. The lawyer has a continuing obligation to inquire if the facts and circumstances change during the representation, which can include a change in historic client behaviour or the addition of a new party or entity, it says.

It specifies five factors to be taken into account, including the identity of the client and its beneficial owners, the jurisdictions involved (especially any considered high-risk for money laundering or terrorist financing) and the source and destination of client account funds. Other factors are the lawyer's experience and familiarity with the client and the nature of the requested legal services.

According to law firm Ballard Spahr, some ABA officials considered that existing guidance already made lawyers' ethical duties clear and more explicit guidance was not necessary. However, it notes that the resolution is 'part of a larger conversation by U.S. lawmakers and regulators with the legal profession on how gatekeepers can close the so-called gates of the U.S. financial system to would-be money launderers'.

Legal professionals in the US have felt mounting regulatory pressure. In a speech to delegates before the vote, ABA treasurer Kevin Shepherd warned that a failure to pass the resolution would lead the federal government 'to explore every means available in its regulatory toolkit to impose anti-money laundering regulations on the legal profession'.

In particular, the US Department of the Treasury would press congress to pass the Establishing New Authorities for Businesses Laundering and Enabling Risks to Security Act, requiring lawyers to file suspicious activity reports on their clients without telling their clients that they have done so. The 'political reality', said Shepherd, was that either the resolution had to be passed or the treasury would dismantle the existing system of state-based, judicial regulation of lawyers and institute its own.

'Passage of the resolution preserves – for now – the status quo that lawyers need not report to federal regulators or law enforcement on their clients or engage in client due diligence for every engagement, regardless of potential risk', comments Ballard Spahr.

Sources

• American Bar Association
• Ballard Spahr
• ABA (resolution)