Overview

The ABA supports reasonable and necessary domestic and international measures designed to combat money laundering and terrorist financing. However, the Association opposes legislation and regulations that would impose burdensome and intrusive gatekeeper requirements on lawyers, including bills that would subject the legal profession to key anti-money laundering compliance provisions of the Bank Secrecy Act. If adopted, these measures would undermine the attorney-client privilege, the confidential lawyer-client relationship, and traditional state court regulation of the legal profession, while also imposing excessive new federal regulations on lawyers engaged in the practice of law.

Status

Congress currently is considering several gatekeeper bills, including the "TITLE Act" (S. 1454, sponsored by Senator Sheldon Whitehouse, D-RI) and the similiar "Corporate Transparency Act" (S. 1717, sponsored by Senator Ron Wyden, D-OR, and H.R. 3089, sponsored by Representative Carolyn Maloney, D-NY). Each of these measures contain provisions that would regulate many lawyers and law firms as “formation agents” (and hence, “financial institutions”) under the Bank Secrecy Act and subject them to the Act’s anti-money laundering (AML) and suspicious activity reporting (SAR) requirements when they help clients establish corporations or limited liability companies. The bills would also require states, small businesses, and those businesses' lawyers to gather and maintain extensive “beneficial ownership” information on the new companies they help create and make the information available to federal law enforcement authorities.

S. 1454 was referred to the Senate Judiciary Committee, S. 1717 was referred to the Senate Banking, Housing, and Urban Affairs Committee, and H.R. 3089 was referred to the House Financial Services Committee.

During the 114^th Congress, several similar bills were introduced but failed to advance including S. 2489 (sponsored by Senator Whitehouse) and H.R. 4450 (sponsored by Representative Maloney). On May 24, 2016, ABA sent a letter to a House Financial Services task force expressing the Association’s strong opposition to these and other similar bills and outlining some of the other more effective actions the ABA, financial institutions, and the federal government are taking to fight money laundering in ways that avoid the negative consequences of the legislation.

In addition to opposing these legislative proposals, the ABA has also expressed concerns over an earlier proposal by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to establish new customer due diligence requirements for financial institutions. In its initial May 4, 2012 comment letter to FinCEN, the ABA objected to language in the agency’s Advance Notice of Proposed Rulemaking that would have required law firms to disclose confidential information about their clients’ identities and beneficial ownership whenever they receive advance legal fees from their clients and deposit those funds in the firms’ trust accounts or if they establish new bank accounts on behalf of clients. The ABA comments also expressed concerns that the FinCEN proposal could have imposed unreasonable and excessive burdens on many lawyers and law firms with client trust accounts and could have undermined both the confidential lawyer-client relationship and traditional state court regulation of lawyers.

On October 3, 2014, the ABA submitted a second comment letter to FinCEN in response to the agency’s updated customer due diligence proposal. In those comments, the ABA urged FinCEN to include language in its final rule clarifying that when lawyers or law firms open escrow or client trust accounts on behalf of their clients, they need only disclose their own beneficial ownership information, not the identity or beneficial ownership of their clients for whom the accounts were established. Susequently, FinCEN issued its final rule on May 11, 2016 that includes the ABA-proposed language designed to protect client confidentiality.

On December 1, 2016, the intergovernmental regulatory body known as the Financial Action Task Force (FATF) released its Mutual Evaluation Report on the United States’ AML and combatting the financing of terrorism (CFT) measures. The FATF report took the position that although the AML and CFT regulatory framework in the U.S. is “well developed and robust,” the framework has some significant gaps, including the lack of strict federal AML and SAR regulations on lawyers, accountants, and other non-financial businesses and professions. The recent FATF report—combined with recent media stories alleging that certain law firm client trust accounts have been used to launder money and criticizing the concept of lawyer-client confidentiality—could lead to renewed efforts to advance gatekeeper legislation in the 115^th Congress.

Key Points

The ABA opposes gatekeeper legislation like S. 1452, S. 1717, and H.R. 3089 and urges Congress not to enact such measures into law because:

• The bills would undermine the attorney-client privilege, the confidential lawyer-client relationship, and traditional state court regulation of the legal profession. Under the legislation, lawyers and law firms that help small business clients to form companies would be considered “formation agents” (and hence a new category of “financial institution”) under the Bank Secrecy Act and thus would be subject to the strict AML and SAR requirements of the Act. These SAR requirements could compel lawyers to disclose certain confidential client information to government officials, a result plainly inconsistent with their ethical duties and obligations established by the state supreme courts that license, regulate and discipline lawyers. Requiring lawyers to report such information—under penalty of harsh criminal sanctions—would also seriously undermine the attorney-client privilege and the confidential lawyer-client relationship by discouraging full and candid communications between clients and their lawyers.

• The bills would also impose burdensome, costly, and unworkable beneficial ownership reporting requirements on small buisnesses, their lawyers, and states. S. 1454, S. 1717, and H.R. 3089 would require or pressure states to obtain extensive beneficial ownership information on millions of legitimate small businesses throughout the nation, keep that information current, and make it available to law enforcement authorities and financial institutions. Many lawyers and law firms that help clients to form companies would be deemed to be “formation agents” under the bills and hence could also be subject to these reporting requirements. This new federal regulatory regime would be very costly and cannot be justified, particularly in today's fragile economy. The legislation’s vague and unworkable definition of “beneficial ownership” would also sow confusion into the company formation process and would not be effective in fighting money laundering and terrorist financing.

• The burdensome and intrusive new reporting requirements in the legislation are unnecessary because the federal government, financial institutions, and the legal profession have developed other more effective tools. The Internal Revenue Service (IRS) and financial institutions already collect entity-related information needed to fight money laundering and terrorist financing—through IRS Form SS-4 and the Treasury Department’s new Customer Due Diligence Rule, respectively—and that information is available to law enforcement authorities. In addition, the ABA developed and is actively promoting the “Voluntary Good Practices Guidance for Lawyers to Detect and Combat Money Laundering and Terrorist Financing,” which is designed to help lawyers fight these problems by taking prudent, proportional, risk-based steps tailored to the individual situation rather than the burdensome and costly rules-based approach of the proposed legislation. 

ABA Policy

Although the ABA supports reasonable and balanced initiatives to combat money laundering and terrorist financing, the ABA opposes any law or regulation that would compel lawyers to disclose confidential client information to government officials or otherwise compromise the attorney-client privilege, the lawyer-client relationship, traditional state court regulation of lawyers, or the independence of the bar. This policy, crafted by the Task Force on Gatekeeper Regulation and the Profession, was first adopted by the ABA in 2003 and later reinforced and expanded in 2008 and 2010.

Updated October 2017