NY State Bar: Don’t Help Foreign Clients Dodge Currency Controls

Sept. 6, 2019, 6:21 PM

Attorneys can’t help their foreign clients make “sham investments” to avoid the foreign country’s currency control laws, the New York State Bar Association’s ethics committee recently advised.

A New York attorney working with clients looking to invest funds from China in the U.S. had asked the committee whether it was acceptable to use the attorney’s escrow account to avoid direct payment from the investing client to a U.S. company.

“In our view, the inquiry proposes sham conduct that would involve dishonesty, fraud, deceit or misrepresentation,” the opinion said.

Four companies—two U.S. corporations and two Chinese corporations—sought to invest funds located in China in a project in the U.S. but the amount they wanted to invest exceeded what was allowable under Chinese currency controls, the committee said.

The end result would be that by using the attorney’s escrow account to move money around, a U.S.-owned and U.S.–based company would be financing a Chinese-owned and Chinese–based Company’s investment in a Chinese-owned but U.S.-based company, according to the commitee.

These acts implicate Rule 8.4(c) of the New York Rules of Professional Conduct, prohibiting lawyers from engaging in conduct involving dishonesty, fraud, deceit, or misrepresentation, the opinion said.

The committee concluded the goal of the proposed transaction using the escrow account “would be to disguise the true nature of the money transfers and deceive government authorities and counter-parties” , in violation of the ethics rule.

The committee decided not to weigh in on whether the act would violate Rule 1.2(b), which deals with helping clients engage in fraudulent conduct, or Rule 8.4(b), which deals with acts reflecting adversely on a lawyer’s fitness. The opinion said it declined because it’s not clear whether these rules extend to conduct illegal in another country.

The opinion is N.Y.S. Bar Ass’n Comm. on Prof’l Ethics, Op. 1171, 8/26/19.

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

To contact the editors responsible for this story: Jessie Kokrda Kamens at jkamens@bloomberglaw.com; Rebekah Mintzer at rmintzer@bloomberglaw.com

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