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August 07, 2022

Tougher anti-money laundering rules for lawyers on horizon

Two American Bar Association standing committees took another step Aug. 7 to upgrade the ABA Model Rules of Professional Conduct to clarify a lawyer's client due diligence obligations, particularly as they relate to new clients.

The issue is not only one of the most hot-button topics in legal ethics but has a new sense of urgency.

In July, the U.S. House of Representatives took a major step to inject governmental regulation in the area of lawyer responsibilities by approving a provision in the pending defense authorization act called the Establishing New Authorities for Businesses Laundering and Enabling Risks to Security Act. The provision would require certain professional service providers, including affected lawyers, to adopt anti-money laundering procedures that can help detect, flag and prevent the laundering of corrupt and other criminal funds into the United States.

The two ABA entities leading the effort are the ABA Standing Committee on Ethics and Professional Responsibility and the ABA Standing Committee on Professional Regulation, both of which fall under the Center for Professional Responsibility. The roundtable, in conjunction with the 2022 ABA Annual Meeting, focused on a Second Discussion Draft, of proposed changes to Model Rule 1.2, related to concerns about lawyers facilitating money laundering and terrorism financing. A discussion on the first draft occurred in February at the ABA Midyear Meeting. Model Rule 1.2 addresses representation and allocation of authority between a client and a lawyer.

A second roundtable discussion on the latest draft will be held via Zoom on Aug. 31 from noon to 2 CDT. To present comments or attend as an audience member, contact Natalia Vera, ABA Center for Professional Responsibility, by Aug. 25. All written comments should be submitted via Vera as well by Aug. 31 and may be posted online.

A 2018 report by the U.S. Department of Treasury estimated that $300 billion is laundered every year in the U.S. alone. As noted in the drafts, the application of anti-money laundering and counter terrorism financing laws and regulations to lawyers is a complex subject which the committees believe can generally be divided into three overarching topics:

  • A lawyer’s responsibility to know the client -- essentially to conduct client due diligence -- to ensure that the lawyer is not being used to assist a client in a crime or fraud.
  • When and how a lawyer might be required to disclose to the government information about the beneficial ownership of an entity the lawyer forms on behalf of a client or otherwise represents.
  • When and how a lawyer might be required to report to the government “suspicious activity” of a client.

While only three attorneys offered critiques and suggestions at the roundtable on the second draft, there was a sense of urgency given the U.S. House action in July. Kevin Shepherd, a Maryland attorney and long a leader these issues, urged the association to make this a top priority given that Congress is perched to enact legislation potentially regulating lawyers in this area.

“That train is here,” Shepherd said. “I just hope this not too little, too late.”

He added that he has worked with U.S. Department of Treasury officials and others and told them the ABA was working on strengthening its model rules “I believe the patience has worn thin on the part of the Congress, administration that we are not doing enough,” he observed.

The message was echoed by John Regis Coogan of the ABA International Law Section. “I don’t think we have a choice,” Coogan said, explaining that the choice was “to move to something that looks persuasive to the outside world or wait until we see what the outside world does to us.”