Ethics and Professional Responsibility
Third Draft of AML-Related Amendments to Model Rules Under Consideration
By Keith R. Fisher
On January 23, the ABA Standing Committee on Ethics & Professional Responsibility (the “Ethics Committee”) and Standing Committee on Professional Discipline (collectively, the “Committees”) jointly issued a third discussion draft of possible changes to the Model Rules of Professional Conduct relating to anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”). This initiative, like those previously discussed in BLT last August and last January, arises from concerns about the future of self-regulation in the wake of the Corporate Transparency Act (the “CTA”) and increased AML/CFT pressure from the Treasury Department.
The impetus for this initiative has a long history too lengthy to recount in detail in a Month-in-Brief entry. Suffice it to say that advocacy for changes to the Model Rules has been ongoing over the past 15–20 years.
Treasury’s interest stems from receipt of less than perfect “report cards” in decennial, “mutual evaluations” in 2006 and 2016 by the OECD’s Financial Action Task Force (FATF) of compliance with its recommendations. Specifically, although the United States has the oldest and one of the most—if not the most—extensive and robust AML/CFT regimes in the world, FATF was critical of failure by the United States to implement all of FATF’s recommendations, including one to mandate beneficial ownership reporting requirements for certain “designated non-financial businesses and professionals” (“DNFBP”), a category that includes the legal profession.
Application of FATF’s DNFBP regime to the U.S. legal profession misapprehends the differences between lawyers in civil law systems and lawyers in the common-law-based U.S. system. As a general proposition, lawyers in civilian systems are often regarded as facilitators of the operation of the legal process and lack the independence of lawyers in our system. Moreover, the broad sweep of FATF’s approach tends, for AML and CFT regulatory purposes, to treat lawyers in much the same way as dealers in used cars, precious metals, securities, commodities, check cashers, predatory lenders, and other diverse businesses—including casinos!—are treated.
The Ethics Committee repeatedly rejected those overtures to amend the Model Rules based on the view that the rules should be general in nature and not specific to any particular area of practice. Instead, the ABA’s policy has been to articulate principles and some practical advice in the Voluntary Good Practices Guidance for Lawyers to Detect and Combat Money Laundering and Terrorist Financing (last revised in 2010), authored by the ABA Task Force on Gatekeeper Regulation and the Profession and endorsed three years later by the Ethics Committee in Formal Op. 463 (May 23, 2013).
Periodic pressure from FATF and the Treasury Department to amend the Model Rules increased as a result of publication in recent years of the Panama Papers, the Paradise Papers, and the Pandora Papers. On top of that, the American public was treated to the “60 Minutes” model of “gotcha” journalism that used mystery shoppers to embarrass a number of prominent lawyers, including a former ABA President, in the 60 Minutes – Global Witness exposé televised in 2016.