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ABA Says Lawyers Have to Ask Clients If They Think There’s Fraud

April 29, 2020, 2:02 PM

Attorneys must make a reasonable attempt to get more information if facts show a “high probability” that a prospective client wants to use their services to further illegal conduct, an American Bar Association opinion said.

The legal profession has become “increasingly alert” to the possibility that clients might try to hire a lawyer for a matter that on its face appears legitimate but that “further inquiry would reveal to be criminal or fraudulent,” the opinion by the ABA’s ethics committee said.

“Obligations Under Rule 1.2(d) to Avoid Counseling or Assisting in a Crime or Fraud in Non-Litigation Settings” aims to illustrate when an attorney might have to delve deeper into a client’s situation before accepting or proceeding farther with representation.

Suspected money laundering or terrorism are examples of what might trigger such inquiry.

ABA Model Rule 1.2(d) prohibits a lawyer from advising or assisting a client in conduct the lawyer “knows” is criminal or fraudulent. The opinion specifically examines what attorneys have to do to satisfy the “knowing” standard.

The standard requiring further inquiry singles out a “high probability” of potential illegal conduct. And the failure to take further steps to get more information amounts to “willful blindness” that is sanctionable under the actual knowledge standard of the rule, the opinion said.

The ABA cited a 2018 New York City Bar Association ethics opinion holding that lawyers have to inquire further if retained for a transaction “that appears to the lawyer to be suspicious.” And the circumstances dictate what is suspicious, it said.

The opinion provided hypothetical circumstances when further inquiry may be necessary. In one, a potential client tells a lawyer he is an agent for an anonymous government official from a “high risk” jurisdiction who wants to buy an expensive property in the U.S. that would be owned through corporations but is vague about the source of the funds.

In this scenario, “the combination of risk factors known to the lawyer creates a high probability that the client is engaged in criminal or fraudulent activity,” and requires additional inquiries, the opinion said.

Criminal cases treat deliberate ignorance or willful blindness as equivalent to actual knowledge, the ABA opinion noted. Lawyers can face criminal charges or civil liability for avoiding knowledge that a client is using the lawyer’s services to further a fraud, it said. Furthermore, Rule 8.4 prohibits committing a criminal act and engaging in fraud.

Even if an initial inquiry doesn’t establish “knowledge,” other professional conduct rules may require the lawyer to dig deeper, the opinion said. For example, the duties of competence, diligence, and communication might require a lawyer to delve more into the identity of the client or the nature of the matter, especially if “such matters are frequently associated with criminal or fraudulent activity,” it said.

It might even be necessary under the rules to then persuade the client not to pursue conduct that could lead to criminal liability or liability for fraud, the opinion said.

And when a client refuses to provide additional information, the lawyer has to explain that it’s necessary for the representation and must withdraw if the client doesn’t agree, it said.

Lawyers also can’t agree to an unreasonable limitation on the representation such as excluding an inquiry into the legality of a transaction, the opinion noted. Scope limitations to keep costs in check, for example, are allowed with informed consent, it said.

“Ascertaining whether a client seeks to use the lawyer’s services for prohibited ends can be delicate” but it must be done, the opinion said.

The opinion is is ABA Standing Comm. on Ethics & Prof’l Responsibility, Formal Op. 491, 4/29/20.

To contact the reporter on this story: Melissa Heelan Stanzione in Washington at mstanzione@bloomberglaw.com

To contact the editors responsible for this story: Rebekah Mintzer at rmintzer@bloomberglaw.com; Tom P. Taylor at ttaylor@bloomberglaw.com; John Crawley at jcrawley@bloomberglaw.com

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