American Lawyers Can Cater to the Corrupt. The ABA Should Act

An international law enforcement task force created in the wake of Russia’s invasion of Ukraine recently announced an alarming accomplishment: A guilty plea from an “enabler” of international money laundering and sanctions evasion. The accused had admitted to helping an associate of a known Russian oligarch dodge rules adopted in response to an “extraordinary threat to the national security and foreign policy of the United States.”

Who was this mastermind, who’d helped move millions in dirty money across the world? Was it a Russian operative, covertly channeling illicit transactions from a bunker in Belgorod?

No. It was a New York City lawyer, sitting at his desk. And if the US’s largest association of lawyers, the American Bar Association, continues to have it its way, every lawyer in America will remain exempt from the US’s most important anti-money laundering law.

American lawyers are often the go-to middlemen for criminals looking to move and hide their dirty money in the US. And for good reason—neither federal law nor the model ethics rules put out by the ABA require lawyers to know who their clients are, to conduct due diligence on those clients, or to stop working with them if they suspect they’re using their services to commit a crime.

Unlike every bank in America, American lawyers are not subject to the US’s most important anti-money laundering law, the Bank Secrecy Act. This is true even when they’re providing services that are financial in nature, such as incorporating a company for a client, setting up a trust for a client, or managing a client’s money—none of which require a law license. Adding insult to injury, the ABA’s Model Rules of Professional Conduct do not require American lawyers to have any BSA-grade anti-money laundering safeguards.

Taken together, this means that if a Russian oligarch, a Mexican drug cartel, a corrupt foreign official, a human trafficking operation—pick your global poison—sought to take the proceeds of their crimes and hide them in the US economy, American lawyers are a uniquely attractive option. They don’t have to ask, and their clients don’t have to tell.

All of this nearly changed late last year, when the US Congress, buoyed by an endorsement from the US National Security Council, came within a single key vote of including a measure known as the Enablers Act in the annual, must-pass defense spending bill.

After the release of the Pandora Papers and other reports illustrating how American professional service providers like lawyers had worked with corrupt foreign officials and other criminals to move and hide their money in the US, the Enablers Act would have paved the way for the US Treasury Department to require those who provide certain financial services to their clients to adopt the same anti-money laundering safeguards that banks have.

Unfortunately, although the bill wouldn’t have regulated a single inherently legal service—these services can be, and routinely are, provided by non-lawyers—the ABA was the bill’s leading opponent.

Given the razor-thin margin that kept the Enablers Act from becoming law, and perhaps needing to mitigate the reputational damage wrought by its controversial lobbying campaign to block the reform, the ABA recently proposed some changes to its Model Rules. But as with so much legal fine print, the devil is in the details.

Consider the ABA’s proposed change to “clarify” an “already include[d]” obligation that American lawyers conduct due diligence on their clients. The proposal would add the following to the Model Rules: “A lawyer shall assess the facts and circumstances of each representation to determine whether the lawyer may accept or continue the representation.”

If, from that assessment, the lawyer “learns” that the client or potential client seeks to use the lawyer’s services to commit a crime, and the client essentially cannot be persuaded otherwise, the lawyer must decline or terminate the representation.

Note first how this language (and associated comment) do not actually use the words “due diligence” or even “client.” There is intention in this choice. The term “due diligence” carries with it known industry usage and standards, particularly in the context of the BSA.

Note also how the proposal doesn’t require that lawyers have any specific due diligence policies or procedures. Instead, it simply alludes to lengthy guidance documents (the “ABA Voluntary Good Practices Guidance for Lawyers to Detect and Combat Money Laundering and Terrorist Financing”), which have significant differences across them, thus leaving completely open the question of which, if any, due diligence safeguards lawyers would have to employ.

Perhaps most cosmetic, though, is the proposed rule that a lawyer refuse or cut off a client if the lawyer, from their “assessment of the representation” (note, not of “the client”) “learns” that the client seeks to use their services to commit a crime. As every compliance officer at every bank in America knows, it is highly unlikely that any “assessment”—let alone one that does not assess the client themself—could ever uncover conclusive proof of a customer’s criminal intentions.

Instead, a serious proposal would have been informed by a standard used by banks: “If…the lawyer reasonably believes or suspects the client seeks to use the lawyer’s services to commit or further a crime[.]”

Altogether, the American Bar Association is essentially saying, “Hey, we already have ethics rules that address the use of lawyers to launder money. But here’s some more guidance to show how they work.”

But as we all know by now, these rules have failed. Instead, the ABA’s latest proposal serves only as another reminder that what’s needed is action from Washington.

In its announcement of the guilty plea, the Department of Justice said the New York City lawyer had betrayed their ethical codes. By refusing to stop American lawyers from catering to the corrupt, the ABA reveals the hollowness of its own.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Scott Greytak is the Director of Advocacy for Transparency International US.

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