United States of America
Last updated: 03/05/2012
CENTRAL AUTHORITY FOR REPORTING
OTHER ANTI-MONEY LAUNDERING REGULATOR(S)
ARE LAWYERS COVERED BY ANTI- MONEY LAUNDERING LEGISLATION?
Lawyers do not fall under the Bank Secrecy Act ("BSA", codified in 31 U.S.C. §§ 5311), which applies to “financial institutions” and requires such institutions to have anti-money laundering and customer identification programmes. The term financial institution is broadly defined to include traditional financial institutions (banks, securities brokers, insurance companies offering covered products) and other non-traditional entities (money transmitters, dealers in precious metals, jewels and stones; casinos; operators of credit card systems; and loan or finance companies). Title III of the USA PATRIOT Act, also known as the International Money Laundering Abatement and Financial Terrorism Act of 2001, made a number of amendments to the anti-money laundering provisions of the BSA.
Although the scope of the major money-laundering laws excludes lawyers, criminal laws prohibiting the laundering of money or terrorist financing apply to all individuals, including lawyers. Lawyers involved in money laundering, terrorist financing or facilitating either by their clients are subject to existing criminal and civil laws regarding money laundering and terrorist financing.
Lawyers are also subject to the prohibitions set forth in the regulations issued by the Office of Foreign Assets Control (“OFAC”). These regulations prohibit all U.S. persons (individuals and entities) from engaging in transactions with certain specified persons (terrorists, drug traffickers and certain former foreign leaders) and countries (Cuba, Syria, Iran).
LIST THE LAWS REGARDING ANTI-MONEY LAUNDERING, INDICATING WHICH LAWS ARE APPLICABLE TO LAWYERS.
Bank Secrecy Act, as amended and strengthened by the USA PATRIOT ACT, codified at 31 U.S.C §§ 5311
Bank Secrecy Act Rules (Treasury rules implementing the BSA)
U.S.C. Title 18, Part I, Chapter 95 (Criminal Penalties for federal crime of Money Laundering and operating an unlicensed or unregistered money transmitting business)
OFAC’s Regulations, codified at 31 C.F.R. Part 500 to End (Treasury’s rules and regulations prohibiting U.S. persons from engaging in transactions with prohibited persons and countries).
States also have anti-money laundering laws.
ARE VISITING LAWYERS SUBJECT TO LOCAL LAWS REGARDING ANTI-MONEY LAUNDERING, AND, IF SO, TO WHAT EXTENT?
Any Person located in the United States, even temporarily, is subject to OFAC’s regulations. Activities involving U.S. Persons, U.S. origin goods, services or technology, or that occur within the United States also implicate U.S. jurisdiction.
LIST ANY MONEY LAUNDERING GUIDANCE FOR LAWYERS (FOR EXAMPLE, LAW SOCIETY OR BAR ASSOCIATION GUIDELINES) CURRENTLY IN PLACE.
In the absence of any specific anti-money laundering legislation applicable to lawyers, the American Bar Association (“ABA”) and other bar and specialty law associations developed and adopted the Voluntary Good Practices Guidance for Lawyers to Detect and Combat Money Laundering and Terrorist Financing (“Good Practices Guidance”) in 2010, which lays out a risk-based approach based on FATF’s 40+9 Recommendations. The ABA believes that the Good Practices Guidance would encourage lawyers to be more vigilant about combating money laundering; and therefore make gatekeeper legislation regulating the legal profession unnecessary.
Lawyers may also be subject to ethical considerations contained in the ABA’s Model Rules of Professional Conduct (“Model Rules”).
IS THE LAW SOCIETY/BAR ASSOCIATION INVOLVED IN SUPERVISING OR ENFORCING COMPLIANCE WITH ANTI-MONEY LAUNDERING REGULATIONS?
DESCRIBE CLIENT DUE DILIGENCE REQUIREMENTS, INCLUDING WHEN IT MUST BE UNDERTAKEN BY LAWYERS.
The BSA and the USA PATRIOT Act require financial institutions to report large payments of cash or currency made by clients, including those transactions totalling US$10,000 or more, or where they receive one or more related cash payments totaling US$5,000. Records of such transactions must be kept for 5 years.The USA PATRIOT Act requires that all financial institutions that establish, maintain, administer, or manage private banking accounts or correspondent accounts in the United States for non-United States persons or their representatives have appropriate, specific and, where necessary, enhanced due diligence policies, procedures and controls that are reasonably designed to detect and report instances of money laundering through those accounts (31 U.S.C. § 5318(i); 31 C.F.R. Part X).
Under the Model Rules, lawyers may withdraw from representation and/or disclose confidential information when a client uses the lawyer’s advice in furtherance of a crime, including a financial crime.
Under the Good Practices Guidance lawyers should first perform a standard level of client due diligence including an identity check and verification. The identity check should include a scan of the Office of Foreign Assets Control’s Specially Designated Nationals and Blocked Persons list. The lawyer should then identify the beneficial owner, taking any reasonable measures to do so, such that the lawyer is satisfied that he or she knows who the beneficial owner is. Next, the lawyer should obtain information on the purpose and intended nature of the business relationship. Finally, the lawyer should continually conduct on-going due diligence on the business relationship and scrutiny of transactions undertaken periodically throughout the course of that relationship to ensure that the transaction are consistent with the lawyer’s knowledge of the client.
DOES YOUR COUNTRY FOLLOW A RISK-BASED APPROACH TO CLIENT DUE DILIGENCE BY LAWYERS?
The Good Practices Guidance adopted by the ABA, as well as resolutions adopted by the ABA House of Delegates, advocates a risk-based approach.
ARE THERE ENHANCED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, POLITICALLY EXPOSED PERSONS?
The USA PATRIOT Act specifies that additional due diligence may be required when a United States financial institution maintains correspondent accounts or private banking accounts for foreign banks, if three circumstances are met:
When the foreign bank operates under an offshore banking license;
When the foreign bank operates under licenses issued by countries that have been designated by intergovernmental groups as non-cooperative with international counter-money laundering principles; or
When the foreign bank operates in a jurisdiction designated by Treasury as warranting special measures because of money laundering concerns.
The additional due diligence measures require United States financial institutions to:
Identify each of the owners of the foreign bank and the nature and extent of each owner’s interest, if the foreign bank is not publicly traded;
Take reasonable steps to conduct enhanced scrutiny of the correspondent account and to report suspicious transactions; and
Take reasonable steps to ascertain whether the foreign bank provides correspondent accounts to other foreign banks.
Although the Good Practices Guidance does not require due diligence measures, they recommend that lawyers first perform a standard level of due diligence on all clients. The first step of the standard level is an identity check and verification of the client, including a check against the Office of Foreign Assets Control’s Specially Designated Nationals and Blocked Persons list. The list includes people with whom the U.S. may not engage in the exchange of most goods, services or technology. The second step is to identify the beneficial owner and take reasonable measures to verify the identity of the beneficial owner. Third, lawyers should obtain information on the purpose and intended nature of the business relationship. Finally, the lawyer should conduct on-going due diligence on the business relationship and scrutiny of transactions to ensure that the transactions being conducted are consistent with the lawyers knowledge of the client, its business and risk profile, including the source of funds.
ARE THERE SIMPLIFIED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, LISTED COMPANIES?
The USA PATRIOT Act and BSA do not specify any simplified due diligence procedures. Under the Good Practices Guidance, lawyers may apply reduced client due diligence measures in certain scenarios, such as 1) publicly listed companies, 2) financial institutions subject to an AML/CFT regime consistent with the FATF Recommendations.
ARE LAWYERS PERMITTED TO RELY ON THIRD PARTY DUE DILIGENCE? IF YES, PLEASE DESCRIBE.
The Good Practices Guidance, the USA PATRIOT Act and the BSA do not make this clear. In general, financial institutions may use third-parties for some compliance functions but liability for lapses in the BSA or OFAC’s regulations remains with the financial institution.
WHEN IS A LAWYER UNDER AN OBLIGATION TO REPORT SUSPICIOUS TRANSACTIONS?
The BSA and USA PATRIOT Act do not specifically impose reporting requirements on lawyers since they only cover financial institutions. The Good Practices Guidance does not require lawyers to report suspicious transactions, but note that “when faced with a situation where the lawyer is compelled to decline or terminate the relationship, the lawyer should comply with the requirements of the applicable rules of professional conduct.”  Under the Model Rules, this may include withdrawing from representation or disclosing confidential information.
DOES ATTORNEY/CLIENT PRIVILEGE AND/OR DUTIES OF CONFIDENTIALITY PROVIDE A DEFENCE OR PARTIAL/TOTAL EXCEPTION TO THE REQUIREMENT TO REPORT SUSPICIOUS TRANSACTIONS?
No. According to the Model Rule 1.6, attorneys may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another. Attorneys may also reveal confidential information to prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client's commission of a crime or fraud in furtherance of which the client has used the lawyer's services.
DOES LOCAL LAW PROVIDE ANY CRIMINAL AND/OR CIVIL INDEMNITY TO A LAWYER WHO HAS REPORTED A SUSPICIOUS TRANSACTION?
The aforementioned laws and guidelines do not make this clear. It does not appear that the safe harbor provision within the BSA would apply, however.
ONCE A SUSPICIOUS TRANSACTION REPORT HAS BEEN FILED, IS A LAWYER ALLOWED TO PROCEED WITH THE LEGAL ADVICE/TRANSACTION, AND, IF SO, MUST CONSENT FROM AUTHORITIES BE OBTAINED FIRST?
The Model Rules state that once a client has used the lawyer’s services in furtherance of a crime, the lawyer must withdraw completely from representation. This is consistent with the recommendations of the Good Practices Guidance.
IS THERE A TIPPING-OFF PROHIBITION? IF YES, PLEASE DESCRIBE.
Financial institutions (not lawyers) that file a SAR are not permitted to notify the target of the SAR that a SAR has been filed.
DESCRIBE ANY RESTRICTIONS ON ACCEPTING A NEW CLIENT.
According to the Good Practices Guidance, lawyers should conduct a standard level of due diligence before accepting a new client.
ARE THERE ONGOING MONITORING REQUIREMENTS FOR EXISTING CLIENTS? IF YES, PLEASE DESCRIBE.
Yes. The Good Practices Guidance recommends that as part of the standard due diligence protocol, lawyers should maintain on-going due diligence to ensure that the transactions being conducted are consistent with their knowledge of the client, its business and risk profile and the source of its funds.
DESCRIBE ANY OTHER WAYS IN WHICH LAWYERS ARE AFFECTED BY ANTI-MONEY LAUNDERING LEGISLATION.
Efforts are underway in the U.S. Congress to enact legislation that would impose AML obligations on “company formation agents,” which may include lawyers and law firms.
HAVE LAWYERS IN YOUR JURISDICTION BEEN IMPLICATED IN MONEY LAUNDERING, INCLUDING ANY TYPE OF COMPLAINT, ARREST OR PROSECUTION?
Lawyers are subject to state and local bar ethical requirements and may also be penalized for a role in illegal transactions through criminal penalties. Lawyers who engage in illegal or unethical conduct, including money laundering, or are wilfully blind to its occurrence, have been disbarred, criminally prosecuted, or both. It is important to note that state bar disciplinary proceedings may be brought even where an attorney has not been criminally prosecuted. The following are cases in which lawyers have had penalties imposed as a result of money laundering crimes: In re Lee, 75 A.2d 1034 (D.C. 2000); In re Calhoun, 492 S.E. 2d 514 (Ga. 1997); In re Berman, 769 P.2d 984 (Cal. 1989); In re Belgrad, 1999 Ill. Atty. Reg. Disc. LEXIS 96 (1999); US v Flores, 454F.3d149 (Ct.App. 3rd Cir, 2006).
HAS THE FINANCIAL ACTION TASK FORCE (FATF) OR A FATF-STYLE REGIONAL BODY CONDUCTED A MUTUAL EVALUATION OF THIS COUNTRY, AND, IF SO, WHAT WERE THE FINDINGS CONCERNING LAWYERS’ COMPLIANCE WITH THE FATF 40+9 RECOMMENDATIONS?
The Financial Action Task Force (“FATF”) conducted a mutual evaluation report concerning the USA’s compliance with the FATF 40+9 Recommendations (now the Forty Recommendations) on 23 June 2006. In the report, the FATF noted that although there had been some compliance with Recommendations 5 and 10 (recommendations for client due diligence checks and record keeping respectively) in relation to lawyers, the application was still very limited as it was only in relation to their obligations under Form 8300.
The recommendations of the report were as follows (summarised):
for the U.S to extend customer identification, record keeping and account monitoring obligations so that they are consistent with FATF Recommendations as soon as possible;
that lawyers should be obligated to report transactions suspected of being linked to money laundering activities, and should receive protection from liability subsequently incurred;
that lawyers should be subjected to a “tipping off” offence;
that lawyers should set up internal AML/CFT programs; and
that there be a regulatory insight for AML/CFT compliance by lawyers.
The report is available here.
 Good Practices Guidance, Section 6.
Information provided by:
Kevin L. Shepherd, Esq.
750 E. Pratt Street
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