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ABA Amends Rule on Client Due Diligence

Posted on August 10, 2023August 9, 2023 by Doug Cornelius
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The American Bar Association House of Delegates adopted a resolution that strengthens a lawyer’s obligation to decide before accepting or maintaining representation whether a client seeks to use the lawyer’s services to further a crime or fraud. This is part of an effort to alleviate concerns about the use of lawyers to facilitate money laundering and other financial crimes.

Kevin Shepherd, the ABA’s Treasurer, said that the U.S. Treasury Department had informed him that a failure to pass the resolution would cause the agency to take immediate regulatory action and to lobby for legislation imposing additional obligations on lawyers.

A few months ago Robert Wise, a New York lawyer, plead guilty to criminal charges stemming from payments he made for Russian oligarch Viktor Vekselberg, to maintain six properties in New York and Florida owned by the Russian billionaire in violation of sanctions.

The resolution adds a new inquiry requirement for lawyers under the ABA Model Rule of Professional Conduct:

(a) A lawyer shall inquire into and assess the facts and circumstances of each representation to determine whether the lawyer may accept or continue the representation. Except as stated in paragraph (c), a lawyer shall not represent a client or, where representation has commenced, shall withdraw from the representation of a client if:

…. (4) the client or prospective client seeks to use or persists in using the lawyer’s services to commit or further a crime or fraud, despite the lawyer’s discussion pursuant to Rules 1.2(d) and 1.4(a)(5) regarding the limitations on the lawyer assisting with the proposed conduct.

The commentary is very direct

[1] Paragraph (a) imposes an obligation on a lawyer to inquire into and assess the facts and circumstances of the representation before accepting it. The obligation imposed by Paragraph (a) continues throughout the representation. A change in the facts and circumstances relating to the representation may trigger a lawyer’s need to make further inquiry and assessment. For example, a client traditionally uses a lawyer to acquire local real estate through the use of domestic limited liability companies, with financing from a local bank. The same client then asks the lawyer to create a multi-tier corporate structure, formed in another state to acquire property in a third jurisdiction, and requests to route the transaction’s funding through the lawyer’s trust account. Another example is when, during the course of a representation, a new party is named or a new entity becomes involved.

We’ve seen the actions FinCEN have taken against title insurance companies under the Real Estate Geographical Targeting Orders.

Sources:

  • ABA House of Delegates Resolution 100
  • Video of adoption
  • American Bar Association Votes to Amend Rule on Client Due Diligence By Dylan Tokar
  • Real Estate Geographical Targeting Orders

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