Lawyers Should Be Key Reporters in Anti-Money Laundering Efforts

As attorneys who have spent substantial portions of our careers working to combat money laundering and financial crime, we understand well the threat posed by the unchecked flow of dirty money. These transactions through the US financial system often stem from corruption, drug trafficking, and other serious crimes.

It’s a discomforting, if instructive, truth that when crooks and dictators consider hiding their criminal proceeds in the US, their first stop is often, unfortunately, a lawyer.

A bipartisan bill pending in Congress will add lawyers to the list of those required to report suspicious activity to law enforcement to combat money laundering. If passed, this law will be an important tool in preventing illicit use of banks and other financial platforms

Lawyers Play Gatekeeper Role

International standards have evolved to include legal professionals among those required to help prevent and report cases of money laundering. But loopholes in US anti-money laundering laws continue to exempt many gatekeepers in the financial system. This includes certain lawyers and accountants, as well as company agents and trust providers, who help clients anonymize and hide dirty money.

America is nearly unique in this way.

The Establishing New Authorities for Businesses Laundering and Enabling Risks to Security Act—or ENABLERS Act—is an amendment to the annual National Defense Authorization Act. It would close these loopholes by authorizing the Treasury Department to require certain categories of financial service providers to adopt anti-money laundering safeguards. This would include filing a notice when they suspect that a transaction is being used to launder funds.

These are the same obligations that are imposed now on banks, casinos, insurance companies, futures commission merchants, residential mortgage lenders, and other categories of businesses that regularly handle large financial transactions.

Will Help Law Enforcement

Adding more categories of professionals to the list of service providers required to report clients’ suspicious activities would give law enforcement more tools to identify, flag, and prevent money laundering. These categories include those who form companies, arrange trusts, or manage money for a third party—whether they are lawyers or other professionals.

Law enforcement officials can access these reports via a federal database as part of their investigations, allowing them to stop serious domestic criminals, narcotics traffickers, and transnational criminal gangs in their financial tracks.

If passed, the ENABLERS Act would incorporate into federal law principles already established as official best practices by the international anti-money laundering standard setter, the Financial Action Task Force. These best practices require customer due diligence and record-keeping protocols for lawyers and other independent legal professionals and accountants who implement transactions for clients in corporate formation, money management, and similar business services.

For lawyers particularly, one key question underlying this vital discussion demands an answer.

Act Won’t Impact Privileges

This team has worked extensively on money laundering matters representing a range of parties in many, often complex, situations and environments. We have zero concern that the ENABLERS Act would threaten attorney-client privilege, client confidentiality, or any principles governing the ethical obligations of attorneys and other professionals to their clients.

Notably, the ABA’s model ethics rules already allow America’s lawyers to report criminal activity by clients to prevent a crime that would cause substantial injury to the financial interests or property of another, or to mitigate injury when the client has used the lawyer to do this. The ENABLERS Act is consistent with this framework.

Further, the act does not cover lawyers when they are engaged in civil or criminal defense activities, appropriately recognizing the need to ensure that suspicious activity reporting does not infringe on the rights of their clients or the functioning of our justice system.

But legal representation should never cross into the facilitation of criminal wrongdoing. The very small percentage of lawyers who provide those financial services covered by the act for criminal actors should not be allowed to abuse our country’s proud tradition of attorney-client privilege. That might operate as a convenient cloak of secrecy to enable crooks to hide their money. The bipartisan support for this measure attests to its critical importance to national security.

Lawyers are among the first defenders of our freedoms. They should be enlisted to help protect our financial system from being a conduit for criminal and kleptocratic funds. Congress has a crucial opportunity right now to bring lawyers in as partners in fighting financial crime.

That is why we support the ENABLERS Act. It would help stem the complicity of certain individuals, including some in our own legal profession, in the commission of many of the world’s most serious crimes.

These reforms are not only essential—they are also overdue. It is time to make the ENABLERS Act law.

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

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Author Information

Justyna Gudzowska is director of illicit finance policy at the Sentry, and was formerly the executive director in global financial crimes at Morgan Stanley.

Jonathan M. Winer is a former deputy US assistant secretary of state for international law enforcement.