MONEY LAUNDERING, THE GATEKEEPER INITIATIVE, AND THE ATTORNEY-CLIENT RELATIONSHIP

1
MONEY LAUNDERING, THE GATEKEEPER INITIATIVE, AND
THE ATTORNEY-CLIENT RELATIONSHIP

• Edward J. Krauland
• STEPTOE JOHNSON LLP
• February 2003

2
INTERNATIONAL EFFORTS TO COMBAT MONEY LAUNDERING

• Money Laundering Moving ill-gotten assets into
  legitimate business to hide proceeds
• Estimate of 600 billion a year
• FATF Intergovernmental entity created in 1989
  by G-7 (29 member countries 2 international
  organizations)
• 40 Non-binding recommendations to address money
  laundering reviews money laundering trends and
  techniques

3
THE GATEKEEPER INITIATIVE

• October 1999 Moscow G-8 Finance Ministers
• Identified Professions as Gatekeepers Lawyers,
  Accountants, Auditors
• FATF Consultation Paper (May 2002)
• Due Diligence Re Clients
• Internal AML Compliance Programs
• Recordkeeping Requirements
• Suspicious Transaction Reporting Requirement
• No Tipping Off
• Exception For Privileged Information Unclear

4
U. S. GOVERNMENT RESPONSE

• National Money Laundering Strategy Report CY
  2002/CY2001
• Interagency Working Group (DOJ, Treasury, SEC,
  FinCEN)
• USA Patriot Act
• USG Position On Gatekeeper Still Under Review

5
OTHER RESPONSES RE GATEKEEPER

• United Kingdom Limited Gatekeeper Regime
  Requiring Solicitor Reports on Clients
• Switzerland Gatekeeper Regime for Lawyers as
  Financial Intermediaries, Reporting to SRO
• European Union Directive 2001/97/EC Passed in
  Late 2001 Requiring Gatekeeper Laws by June 2003
• Canada Gatekeeper Legislation Enjoined By Legal
  Challenge From Bar Despite Exception For
  Solicitor-Client Privilege

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COMPONENTS OF CONFIDENTIALITY
7
FOUNDATIONS OF THE PRIVILEGE

• Part Of U.S. Common Law Dates To 16th Century
  Reign Of Queen Elizabeth in England
• Public Policy Basis Full And Frank
  Communications Promotes Broader Public Interests
  In Observance Of Law and Administration Of
  Justice Upjohn (1981)
• U.S. Constitution 6th Amendment Right to Counsel
  10th Amendment States Rights

8
EXCEPTIONS TO THE PRIVILEGE

• The Privilege Has Been Waived By The Client
• Attorney Must Disclose In Order To Prevent Fraud
  On The Tribunal
• The Communication Is Not For The Purpose Of
  Committing A Crime Or Fraud

9
MODEL RULES OF PROFESSIONAL CONDUCTRule 1.6(a)

• A lawyer shall not reveal information relating to
  the representation of a client unless the client
  gives informed consent, the disclosure is
  impliedly authorized in order to carry out the
  representation, or the disclosure is permitted by
  paragraph (b).

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RULE 1.6(b) EXCEPTIONS

• A Lawyer May Reveal Client Confidential
  Information
• To Prevent Reasonably Certain Death Or
  Substantial Bodily Harm
• To Secure Legal Advice About The Lawyers
  Compliance With These Rules
• To Establish A Claim Or Defense On Behalf Of The
  Lawyer In A Civil Or Criminal Case Against The
  The Lawyer
• To Comply With Other Law Or Court Order

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TRENDS IN STATE ETHICS RULES PERMISSIVE
DISCLOSURE

• Prevent An Act Likely To Lead To Death,
  Substantial Bodily Harm (17 States)
• A Criminal Or Fraudulent Act Likely To Result In
  Substantial Financial Injury (10 States)
• Prevent Or Reveal The Intention Of A Client To
  Commit A Criminal Act Or Harm (34 States)

12
TRENDS IN STATE RULESMANDATORY DISCLOSURE

• 7 States To Prevent Client From Committing A
  Criminal Act Likely To Lead To Death Or
  Substantial Bodily Harm
• 3 States To Prevent Fraudulent Acts Likely To
  Lead To Death Or Substantial Bodily Harm
• 2 States To Prevent A Crime
• 1 State To Prevent Crime or Fraud Likely To
  Result In Substantial Financial Harm

13
PRESSURES ON THE PRIVILEGE

• USA Patriot Act Obligation Of Attorneys To File
  Suspicious Activity Reports?
• Sarbanes - Oxley Obligation Of Attorneys To
  Report Violations Of Security Law Up The Chain Of
  Command In The Corporation
• ABA Task Force On Corporate Accountability
  Greater Permissive Disclosure

14
ABA TASK FORCE ACTIVITIES

• Establish Contacts With USG Officials Re
  Gatekeeper Initiative
• Liase With Legal Professionals Outside United
  States JFBA, CCBE, CBA
• Promote Education And Awareness Within The Bar
• Submit Comments On The FATF Consultation Paper
  August 2002
• Develop ABA Policy On Gatekeeper Initiative

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ABA TASK FORCE COMMENTS TO FATF

• Oppose The Suspicious Transaction Reporting
  Requirement
• Oppose The No Tipping Off Rule
• Client Due Diligence And Record Keeping For
  Lawyers Acting As Financial Intermediaries
• Collaboration And Consultation With Bar
  Associations

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ABA POLICY ON GATEKEEPER INITIATIVE

• Task Force Resolution Approved At ABA Mid Year
  Meeting In Seattle, Washington February 2003
• Recognizes USG Fight Against Money Laundering And
  Terrorist Financing
• Reaffirms Critical Role Of Lawyers In
  Administration Of Justice, Independence Of Bar,
  And Importance Of Client Confidentiality

17
ABA POLICY ON GATEKEEPER INITIATIVE

• Opposes Mandatory STR That Compromises
  Independence Of Bar And Client Confidentiality
• Review Of Model Rules Re Permissive Disclosure
• Urges Further Education Of Lawyers And Law
  Students Re Money Laundering Risks And Laws

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CONCLUSION

• Independence Of Bar And Client Confidentiality
  Critical To Rule Of Law And Administration Of
  Justice
• Efforts To Stop Money Laundering And Terrorist
  Financing Are Clearly Warranted
• Gatekeeper Initiative Must Accommodate The Role
  Of Lawyers In Society
• Bar Association Must Be Proactive In Education,
  Ethics And Engagement With Government Officials