Changes to ABA anti-money laundering rules considered for lawyers

Two American Bar Association standing committees have begun the process of upgrading ABA Model Rules of Professional Conduct to clarify the due diligence of lawyers before they handle large sums of money for clients, particularly from those who are new to the attorney.

The issue is one of the most hot-button topics in legal ethics. The efforts by the entities, both of which fall under the ABA Center for Professional Responsibility, comes as members of Congress and U.S. Treasury officials, nonprofit watchdogs and international groups have been critical that the U.S. legal profession has not done enough to police itself by enacting effective anti-money laundering rules.

On February 11, about a dozen individuals critiqued a “discussion draft” circulated in December 2021 by the ABA Standing Committee on Ethics and Professional
Responsibility and the ABA Standing Committee on Professional Regulation in a two-hour roundtable at the ABA 2022 Virtual Midyear Meeting. The draft offered for input possible new comments to ABA model rules that deal with such areas as competence and diligence.

Speakers at the roundtable unanimously praised the effort to improve the anti-money laundering and terrorism finance regulation. But most said the proposed additions did not go far enough, suggesting the changes would be more effective if they were made blackletter rules, or better established in the rules themselves, rather than part of a rule by a
comment, which serves as an interpretation of the rule.

Kevin Shepherd, a Baltimore, Maryland, attorney who has been involved in ABA efforts in this area for more than a decade, noted that the ABA since 2013 “has stitched together” guidelines through various model rules, formal comments and ethics rules to hold off outside regulators. “We have successfully rebuffed those efforts over the years,” he explained, adding that “the trend growing in Congress” is for tougher treatment of lawyers and an explicit rule would help out the ambiguity.

That was a message repeated often by presenters. Steve Richman, a New Jersey lawyer representing the ABA International Law Section, said lawyers “are under scrutiny” as enablers of illegal activities and “if we fail to promulgate [stronger rules] then regulations will be imposed on us either by statue or regulation.”

He also said the comments don’t go far enough, in part because state jurisdictions sometimes look at the blackletter rule of the ABA Model Rules of Professional Conduct and don’t adopt the comments.

With the ABA at the forefront, lawyers have argued that their obligations under the model rules as well as attorney-client privilege prevent the attorney from divulging information about clients to law enforcement and other regulators. But critics say lawyers, in some cases, have not done enough due diligence and enable criminals to hide the proceeds of unlawful activity, or dirty money, using “laundering” transactions so that the money appears to be the “clean” proceeds of legal activity.

Money laundering is also often used to facilitate financing of terrorism. A 2018 report by the U.S. Department of Treasury estimated that $300 billion is laundered every year in the United States alone.

For discussion purposes, the two committees asked for responses on whether the proposed Comment to Model Rule 1.2 dealing with the level of lawyer inquiry into a client provides adequate guidance, and whether the recommendation of no changes to the blackletter model rules is the correct approach.

Laurel Terry, a law professor, appeared to sum up the consensus response that comments alone don’t go far enough. “The legal profession needs to have unambiguous language it can point to,” she said.

That message appeared to be well taken by discussion sponsors. Lynda Shely, chair of the Standing Committee on Ethics and Professional Responsibility, responded at the end of the roundtable. “It has given us a lot of food for thought on how we can improve this,” she said.

Presenters and others had until February 15 to file written comments. Those which are filed can be found at https://bit.ly/34SFL2p.