Ethics Watch
| Publication year | 2020 |
| Pages | 17 |
ETHICS WATCH
Counseling or Assisting Criminal or Fraudulent Client Conduct -The ABA Fails to Go Far Enough - But Also Too Far
By Nathan M. Crystal
In Formal Opinion #491 (April 29, 2020) ("Opinion"), the ABA ethics committee dealt with lawyers' obligations under Model Rule 1.2(d), which provides:
A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law. (emphasis added). (South Carolina Rule 1.2(d) is identical).
The Opinion focused on the application of the knowledge requirement of the rule. While the Model Rules provide that "knowledge denotes actual knowledge of the fact in question," they also state that "a person's knowledge may be inferred from circumstances." See also SCRPC 1.0(h). The ABA Committee, relying on a variety of sources, including state ethics opinions, the Model Penal Code, and case law (including a case from South Carolina) held that
a lawyer who 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 has a duty to inquire further to avoid assisting that activity under Rule 1.2(d). Failure to make a reasonable inquiry is willful blindness punishable under the actual knowledge standard of the Rule. (emphasis added).
The committee also noted that a duty of further inquiry could arise not only under Rule 1.2(d) but also under other rules, including the duty of competence under Rule 1.1 and the duty of communication under Rule 1.4 among other rules.
Scope of the duty to inquire -beyond money laundering and terrorist financing
In 2010 the ABA House of Delegates adopted Voluntary Good Practices Guidance for Lawyers to Detect and Combat Money Laundering and Terrorist Financing ("Good Practices Guidance"). The Good Practices Guidance adopts a "riskbased" rather than a "rule-based" approach to combat money laundering and terrorist financing. Under the risk-based approach a lawyer evaluates various factors, in particular the nature of the legal work and where the business is taking place, to determine if a significant risk exists that the transaction involves money laundering or terrorist financing. The risk-based approach does not require a lawyer to engage in in-depth analysis of all of the potentially applicable laws and regulations.
In Formal Opinion #463 (2013) the ABA Committee dealt with a lawyer's ethical obligations under the Model Rules to deter or combat money laundering. The committee concluded that it was inconsistent with the Model Rules for a lawyer to be a "gatekeeper" to the financial system in the sense of having an obligation to report to authorities suspicious transactions. The committee discussed that such an obligation would be inconsistent with the duty of confidentiality under rules 1.6 and 1.18. The Good Practices Guidance states that it was not intended for the Guidance to be a statement of the standard of care expected of lawyers governing their application of the risk-based approach. Instead, the Guidance is a resource for lawyers to use in developing...
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