October 19, 2020 Ethics

A Lawyer’s Obligations to Avoid Assisting in a Crime or Fraud

Peter A. Joy and Kevin C. McMunigal

The ABA Standing Committee on Ethics and Professional Responsibility recently issued an advisory ethics opinion addressing the ethical obligations of a lawyer when a client or prospective client tries to retain a lawyer for a matter that could be legitimate but which further inquiry would reveal to be criminal or fraudulent. In Formal Opinion 491 (2020), the Committee primarily focused on a lawyer’s obligations under Model Rule 1.2(d) to avoid counseling or assisting a client in crime or fraud in nonlitigation settings. The committee also considered other duties, such as competence, diligence, communication, honesty, and withdrawal, which the Committee concluded were additional sources of a duty to inquire.

In this column, we evaluate the committee’s analysis and its conclusion that there is a duty to inquire.

Why the Opinion?

The Committee began by referring to media reports, disciplinary proceedings, and criminal prosecutions of lawyers involved in client money laundering and other criminal activities. The Committee emphasized that lawyers must be alert to the possibility that certain clients or potential clients may be requesting legal assistance for money laundering, terrorist, or other illegal activities. For example, a client requesting legal assistance for transactions such as arranging a series of purchases and sales of properties may be involved in money laundering. Or a prospective client proposing all-cash deals involving large sums of money to be deposited in banks in a jurisdiction where these types of transactions are commonly used to conceal terrorist financing or other illegal activities may be seeking to employ a lawyer to facilitate a crime. In such situations, the Committee stated that further inquiry may dispel the lawyer’s concerns or lead the lawyer to conclude that assisting the client or prospective client would be providing legal assistance to further criminal or fraudulent activity.

The Committee acknowledged that clients “are generally entitled to be believed rather than doubted,” but “[a] lawyer’s obligation to inquire when faced with circumstances addressed in this opinion is well-grounded in authority interpreting Rule 1.2(d) and in the rules on competence, diligence, communication, honesty, and withdrawal.” The Committee stated that the duty to inquire is triggered when “a lawyer . . . has knowledge of facts that create a high probability that a client is seeking the lawyer’s services in a transaction to further criminal or fraudulent activity” so that the lawyer may “avoid assisting that activity under Rule 1.2(d).” According to the committee, failure to inquire under such circumstances “is willful blindness punishable under the actual knowledge standard of the Rule.”

What triggers this duty to inquire? And how would disciplinary authorities determine that a lawyer engaged in willful blindness that establishes actual knowledge? We examine these questions and other unresolved issues in the following sections of this column.

A Close Look at the Committee’s Opinion

A close look at the Committee’s opinion reveals several troubling issues. In this section we address both the opinion’s lack of clarity about what it requires and weaknesses in the analysis offered to support its conclusions.

Lack of Clarity

A duty to investigate is grounded, according to the Committee, in six different Model Rules, but the Committee stated that it is primarily found in Model Rule 1.2(d). The Committee appeared somehow to find the duty to investigate in the knowledge element of Model Rule 1.2(d) by invoking the criminal law doctrine of willful blindness. One hallmark of confused and confusing mental state analysis is failure to distinguish between mental state elements and conduct elements. In this opinion, the Committee does precisely this, failing to distinguish between and thus conflating issues involving mental states, such as knowledge and willful blindness, and issues involving conduct, such as inquiring and refraining from assistance.

The Committee did not give lawyers much guidance about when the duty to inquire arises. The Committee stated that the duty is triggered when there is a “high probability” that the client is seeking services to further criminal or fraudulent activity. What level of probability of illegality qualifies as “high”? In other words, what level of risk of illegality is required to trigger the duty? How does a lawyer’s past interactions with a client or lack of interactions with a new potential client figure into this risk calculation? For example, what is the significance of the client being a new client about whom the lawyer knows little or a client with whom the lawyer has had a long-term relationship involving legitimate business transactions?

The Committee stated that a lawyer must make “reasonable inquiry.” How much inquiry “reasonableness” requires is not clear. Just as there is lack of clarity about what level of probability of illegality triggers the duty to inquire, it is also unclear what level of probability of legality is required to satisfy the duty to inquire. Must the lawyer be completely certain a project is legal (i.e., a 100 percent probability of legality) in order to proceed with the project? Or does some lower level of certainty satisfy the duty to inquire, such as “more likely legal than not”?

The Committee concluded that Model Rule 1.2(d) is violated if a lawyer assists a client when the lawyer is willfully blind about or consciously disregards a project’s illegality. The Committee did not define either of these two phrases and treated them as synonymous. The Committee acknowledged adopting the willful blindness doctrine that is widely accepted in criminal law. While willful blindness is widely accepted in criminal law, it is also unfortunately true that there are jurisdictional variations in how willful blindness is defined, and in many jurisdictions it is not well defined. The Committee neither acknowledged this problem nor provided a definition for use in connection with Model Rule 1.2(d).

Another uncertainty attends the use of willful blindness. Is willful blindness a type of knowledge? Or is it an alternative mental state to knowledge that the Committee views as equally blameworthy, one that involves a combination of (1) lack of actual knowledge (i.e. the “blindness” or “disregard”), (2) purpose to avoid knowledge (i.e., being “willful” or “conscious”), and (3) awareness of some probability less than certainty (i.e., less than knowledge) of the fact at issue. The Committee neither addressed nor resolved this issue. The Committee merely stated in a footnote that “the standard of actual knowledge set out in the text of Model Rules 1.2(d) and 1.0(f) is met by appropriate evidence of willful blindness,” thereby equating “willful blindness” with “actual knowledge.”

In adopting a duty to inquire, the Committee rejected the position of the Restatement of the Law Governing Lawyers that “[u]nder the actual knowledge standard [in the Model Rules] . . . a lawyer is not required to make a particular kind of investigation in order to ascertain more clearly what the facts are, although it will often be prudent for the lawyer to do so.” Accordingly, there is now a conflict between the Committee’s ethics opinion and the Restatement that is likely to create confusion among both lawyers and regulators as to which position should be followed.

Analysis

One aspect of the opinion is obvious. The Committee took what looks like a “kitchen sink” approach in finding a duty to inquire. The Committee cited six different Model Rules as supporting its imposition of a duty to inquire but did not clearly or fully explain how each rule supposedly supports its conclusion. As appellate judges considering a myriad of arguments on appeal for reversal in criminal cases have noted, the kitchen sink approach usually results, as it did in the Committee’s opinion, in lack of thorough analysis of any of the arguments. The kitchen sink approach may also suggest that Committee members were not confident that the duty to inquire is firmly grounded in any one rule.

The Committee focused primarily on Model Rule 1.2(d)’s provision that a lawyer “shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent.” The language of the rule, though, speaks only of a prohibition on assisting. It says nothing about a mandate to inquire or investigate. The Committee’s analysis somehow derives a duty to investigate from the knowledge element in Rule 1.2(d) and the definition of knowledge in Model Rule 1.0(f), which states that “‘knows’ denotes actual knowledge of the fact in question.”

To support its conclusion, the Committee quoted the concluding phrase in Rule 1.0(f), which states that “knowledge may be inferred from circumstances.” This portion of Rule 1.0(f) states nothing more than the obvious evidentiary reality that an internal mental state, such as knowledge, purpose, or premeditation to name just a few, can be and often is proven through the use of circumstantial evidence, evidence that requires the drawing of an inference from an item of evidence to the fact at issue. It thus is not relevant to what knowledge means, but rather how it may be proven. It certainly does not support either use of the willful blindness doctrine or the imposition of a duty to inquire. Here, the Committee’s analysis confuses what must be proven (the mental state of knowledge) with how it may be proven, which includes circumstantial (as well as direct) evidence.

The Committee stated that “[s]ubstantial authority confirms that a lawyer may not ignore the obvious.” While this may well be true, it does not explain how that idea arises from Model Rule 1.2. The Committee’s interpretation of Model Rule 1.2(d) and the Committee’s view of knowledge rely largely on earlier ABA ethics opinions alluding to such a duty and a handful of discipline cases.

Conclusion: Should There Be a Duty to Inquire?

We are not necessarily opposed to lawyers having a duty to inquire into the legality of client transactions they assist, but we believe that the Committee’s attempt to create such a duty through an ethics opinion leaves too much unclear. The Committee stated that it was addressing the duty to inquire in nonlitigation settings. But nothing in the Model Rules cited would limit such a duty to nonlitigation settings. Accordingly, what is to stop disciplinary authorities from applying such a duty in litigation settings as well? For example, if an unemployed client who is charged with possession of a controlled substance with intent to distribute paid his lawyer a large fee in cash, is the defense lawyer required to inquire into the source of the fees before accepting them? If so, would that inquiry undermine a client’s Sixth Amendment right to loyal counsel free from conflicts?

We believe that if a duty to inquire is to be recognized, it should be created through the regular Model Rule amendment process rather than by the ABA Standing Committee interpreting rules that do not say anything about such a duty. The amendment process would allow full consideration of (1) the pros and cons of imposing such a duty, (2) when and how such a duty is triggered, and (3) when and how such a duty is satisfied. That process would also hopefully do a better job than the Committee did of addressing the other aspects of the opinion that are unclear.

We are aware of at least one other time the Committee issued an ethics opinion that read into a Model Rule language that was not stated explicitly. In Formal Opinion 95-396 (1995), the Committee decided that Model Rule 4.2 should be read to prohibit an attorney, in representing a client, from communicating about the subject matter of the representation with a “person” the lawyer knows to be represented by another lawyer in the matter even though, at the time, Model Rule 4.2 prohibited communicating about the subject matter of the representation with a “party” represented by another lawyer in the matter. In that ethics opinion, the Committee stated that it had proposed an amendment to Rule 4.2 to the House of Delegates “to substitute ‘person’ for ‘party’ in the text of the Rule” to make it explicit how Rule 4.2 should be applied. Subsequent to issuing its opinion, the House of Delegates acted on the Committee’s recommendation and amended Rule 4.2 to substitute “person” for “party.” We believe the Committee should similarly petition the House of Delegates to consider whether and how the Model Rules should be amended to create a duty to inquire into the legality of client transactions they assist. We believe a change to the Model Rules would clarify such a duty.

Entity:
Topic:

Peter A. Joy is the Henry Hitchcock Professor of Law and director of the Criminal Justice Clinic at Washington University School of Law in St. Louis, Missouri.

Kevin C. McMunigal is the Krupansky and Vargo Professor of Law at Case Western Reserve University School of Law in Cleveland, Ohio.