August 2022 in Brief: Legal Opinions & Ethics

Ethics and Professional Responsibility

Second Draft of AML-Related Amendments to Model Rules Under Consideration

By Keith R. Fisher

In anticipation of the ABA Annual Meeting recently held in Chicago, two Standing Committees — on Professional Responsibility and on Professional Regulation — prepared a second discussion draft of potential amendments to the Model Rules of Professional Conduct to enhance lawyers’ due diligence with respect to clients potentially engaged in money laundering and related activities. The first draft from December 2021, as previously reported, had been limited to consideration of amendments to the comments accompanying Model Rule 1.2; the current draft considers amendments to both the blackletter and the comments.

The impetus for this initiative, as noted in the prior MIB on this topic, is a resurgence of concerns about the future of self-regulation in the wake of the Corporate Transparency Act and increased pressure from the Treasury Department about combating money laundering. That pressure has increased as a result of publication in recent years of the Panama Papers, the Paradise Papers, and the Pandora Papers, to say nothing of the 60 Minutes – Global Witness exposé televised a few years ago.

While the Standing Committees assert that they have not yet decided whether to present any Model Rule amendments on this topic to the House of Delegates, a more-or-less continuing campaign of pressure has for many years been mounted to yield precisely that result. Some of that history is recounted in the Committees’ second discussion draft. The Section of International Law is one of the principal proponents of AML-related changes to the Model Rules.

Specifically, the current draft would amend the blackletter text of Model Rule 1.2(d) as follows:

(d) A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent. To avoid counseling or assisting a client in conduct the lawyer knows is criminal or fraudulent, a lawyer who reasonably believes a client seeks to use the lawyer’s services to engage or assist in such conduct shall make a reasonable inquiry into the facts and circumstances of the representation. but a A lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.

In addition, the Standing Committees are considering the following amendments to Comment [13] to Model Rule 1.2:

[13] If a lawyer comes to know or reasonably should know that a client expects assistance not permitted by the Rules of Professional Conduct or other law or if the lawyer intends to act contrary to the client’s instructions, the lawyer must consult with the client regarding the limitations on the lawyer’s conduct. See Rule 1.4(a)(5). Factors that may give rise to a reasonable belief warranting further inquiry under paragraph (d) regarding whether a client is seeking the lawyer’s assistance in criminal or fraudulent activity such as money-laundering, terrorism financing, human rights violations, human trafficking, or tax crimes, 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 (for example, whether a jurisdiction is considered at high risk for fraudulent or other criminal activity). For further information, see ABA Voluntary Good Practices Guidance for Lawyers to Detect and Combat Money Laundering and Terrorist Financing. If after inquiry into the facts and circumstances of the representation a lawyer learns the client expects assistance not permitted by the Rules of Professional Conduct or other law, consultation with the client regarding the limitations on the lawyer’s conduct is required under Rule 1.4(a)(5). If continuing the representation will result in violation of the Rules of Professional Conduct or other law, the lawyer is required to withdraw from the representation under Rule 1.16(a). A lawyer should also be mindful of the lawyer’s obligations to both the court and client under Rules 3.3 and 1.6.

At the Business Law Section annual meeting in September, the Professional Responsibility Committee will discuss this topic.