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money laundering for terrorist organizations

New Authority

Proposed Amendments to Model Rules of Professional Conduct

By Dr. Michael H. Hoeflich

On December 15, 2021, the American Bar Association published a discussion draft of possible amendments to Model Rules of Professional Conduct. These proposed amendments were issued in response to concerns that that the Model Rules, specifically Model Rules 1.0, 1.1, and 1.2, as they are currently written do not adequately provide for lawyer due diligence in dealing with clients possibly engaged in money laundering or terrorist financing activities.

The proposed amendment to Rule 1.0 would add a comment, which would read:

[11] A lawyer’s knowledge may be derived from the lawyer’s direct observation, credible information provided by others, reasonable factual inferences, or other circumstances. For purposes of these Rules, a lawyer who ignores or consciously avoids obvious relevant facts may be found to have knowledge of those facts.

The proposed amendment to Rules 1.1 would add the following language to Comment 5 to Rule 1.1:

The duty of competence requires that a lawyer make a reasonable inquiry into the facts and decline or terminate the representation when the lawyer has reason to believe that the client seeks the lawyer’s services in criminal or fraudulent activity. A lawyer may not knowingly assist in criminal or fraudulent activity and should discourage a client from engaging in such activity, but the lawyer may offer to assist in achieving the client’s lawful objectives by lawful means. In some circumstances, competent representation may require verifying, or inquiring into, facts provided by the client. Ignoring or consciously avoiding obvious relevant facts, or failure to inquire when warranted, may violate the duty of competence. See Rules 1.0(f) and 1.2(d), Comment [10].

The proposed amendment to Rule 1.2 would add the following language to the Comments to Rule 1.2:

Rule 1.2(d) prohibits a lawyer from assisting a client in conduct the lawyer knows is criminal or fraudulent. Rule 1.16(a) creates a duty to decline or withdraw from representation if the representation will result in violation of the rules of professional conduct or other law.

When a lawyer has reason to believe that the client seeks the lawyer’s assistance in criminal or fraudulent activity, the lawyer should conduct a reasonable inquiry to avoid assisting in that activity by the client. See Rule 1.1, Comment [5]. A lawyer’s duty to undertake a reasonable inquiry may exist at the formation of, or arise during, the course of the representation.

To determine whether further inquiry is warranted regarding whether a client is seeking the lawyer’s assistance in criminal or fraudulent activity, including money-laundering or terrorist financing, relevant considerations include: (i) the identity of the client, (ii) the lawyer’s familiarity with the client, (iii) the nature of the requested legal services, and (iv) the relevant jurisdictions involved in the representation (when a jurisdiction is classified by credible sources as high risk for criminal or fraudulent activity). For further information, see ABA Voluntary Good Practices Guidance for Lawyers to Detect and Combat Money Laundering and Terrorist Financing.

Since the September 11, 2001, terrorist attacks, the problem of stopping terrorist financing and money laundering has become a major priority for American law enforcement. A number of new laws have been enacted, including the Patriot Act, to give law enforcement and the intelligence community the legal ability to stop these activities. Unfortunately, terrorist sympathizers and supporters in the U.S. and abroad continue to find ways to launder money and funnel it to terrorist organizations.

The American Bar Association has been and continues to be concerned that lawyers may be used by terrorists and their financial supporters to effectuate money laundering and financing schemes. The ABA Committee on Ethics and Professional Responsibility issued Formal Opinion 463 in 2013 and Formal Opinion 491 in 2020 to clarify lawyers’ “gatekeeping” role in preventing clients from using them to further illegal money laundering and terrorist financing schemes. The December 15, 2021, publication of proposed amendments to the Model Rules follows up on these two earlier Formal Opinions and create “an enforceable client due diligence obligation in the Model Rules.”

It is important to notice that the committees making the proposals did not recommend amending the “black letter rules,” but, rather, amending and supplementing the Comments to existing Rules:

ABA Formal Ethics Opinions 463 and 491 concluded the Model Rules, as currently written, create an enforceable duty to inquire of a client when risk factors are present like those discussed in the Voluntary Good Practices. Based on the Opinions, the Ethics and Regulation Committees determined the black letter of the Model Rules of Professional Conduct did not need amending. Instead, the Committees focused on explaining the existing duties subject to disciplinary enforcement by proposing additional guidance in the Comments to Model Rules 1.0, 1.1, and 1.2.

The proposed amendments will undoubtedly elicit many comments from lawyers throughout the U.S. In deciding whether to support or oppose these proposals, lawyers must balance out the increased burden they place on lawyers versus the extent to which these amendments may, in fact, reduce national security threats to the United States. See the full text of the proposals. This text includes specific questions to be answered by lawyers who wish to comment. The deadline for comments is February 15, 2022.

This article is featured in the Legal Ethics & Malpractice Reporter, vol. 3, no. 1.

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