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On August 8, 2023, the American Bar Association (“ABA”) House of Delegates voted overwhelmingly (216–102) to pass Revised Resolution 100 (the “Resolution”), which in turn revised ABA Model Rule of Professional Conduct 1.16 and its Comments (the “Rule”) to explicitly recognize a lawyer’s duty to assess the facts and circumstances of a representation at the time the lawyer is engaged and throughout the representation to ensure that the lawyer’s services are not used to “commit or further a crime or fraud.”

The Comments to the Rule clearly illustrate that the ABA is concerned with the use of a lawyer’s services to—wittingly or unwittingly—assist clients in laundering money.  The Resolution itself acknowledges this, stating “the impetus for these proposed amendments was lawyers’ unwitting involvement in or failure to pay appropriate attention to signs or warnings of danger . . . relating to a client’s use of a lawyer’s services to facilitate possible money laundering and terrorist financing activities.”  And the ABA’s press release echoes this concern, noting the Rule was revised “because of concern that lawyers’ services can be used for money laundering and other criminal and fraudulent activity.”…

Continue Reading  American Bar Association Revises Model Rule of Professional Conduct to Combat Money Laundering

I am pleased to have been a guest on FTI‘s Fraud Eats Strategy podcast series, hosted by Scott Moritz.  In an episode entitled How Transparent is the Corporate Transparency Act, we explore the cornerstone of the newly-passed Anti-Money Laundering Act of 2020, the Corporate Transparency Act (“CTA”).

The CTA requires covered legal…

Is Art an “Ideal Playing Ground” for Money Laundering?

Last week, the Permanent Subcommittee on Investigations for the U.S. Senate released a detailed, 147-page report titled “The Art Industry and U.S. Policies That Undermine Sanctions” (“the Report”). Although the Report ostensibly addresses the evasion of U.S. sanctions law, much of the Report actually focuses on the connection between high-end art and potential money laundering schemes and anti-money laundering (“AML”) risks. Among other proposals, the Report recommends that the Bank Secrecy Act (“BSA”) be amended to include art dealers as “financial institutions” subject to AML obligations under the BSA.

The Report focuses on an elaborate case study documenting how certain Russian oligarchs allegedly used transactions involving high-end art and shell companies to evade U.S. sanctions, imposed on them on March 20, 2014 in response to Russia’s invasion of Ukraine and the annexation of Crimea. We will not focus on the detailed allegations in the Report regarding the particular facts of this alleged scheme, or the alleged involvement of certain major art auction houses. Rather, we will focus on the more general sections in the Report relating to systemic concerns about the potential role of high-end art in money laundering schemes, and the more general findings of fact and recommendations generated by these concerns.

The Report was not issued in a vacuum; rather, it clearly was written in part to spur legislative action. Proposed legislation on BSA/AML reform is pending before the U.S. Congress and Senate, including a proposal – currently nestled within a lengthy proposed amendment to a defense spending bill – to (i) add to the list of “financial institutions” covered by the BSA “a person trading or acting as an intermediary in the trade of antiquities, including an advisor, consultant or any other person who engages as a business in the solicitation of the sale of antiquities;” and (ii) require a study by the Secretary of the Treasury “on the facilitation of money laundering and terror finance through the trade of works of art or antiquities,” including an evaluation of whether certain art industry markets (“by size, entity type, domestic or international geographic locations, or otherwise”) should be regulated under the BSA. And, this general issue has been percolating for some time. Last year, we blogged in detail about the potential role of high-end art and antiquities in money laundering schemes, and the voluntary AML programs which art dealers might adopt to combat such schemes.
Continue Reading  Using Art to Evade Sanctions and Launder Money:  The Senate Report

Proposed Legislation Creates Rewards Program for Whistleblowers of Foreign Government Corruption

Third Post in a Three-Post Series

Newly proposed legislation, if passed, will authorize a whistleblower program for individuals providing law enforcement with information leading to the seizure, forfeiture, and/or repatriation of foreign stolen assets that come within the possession or control of any United States person.

In early March, the House Financial Services Committee released three proposed bills to codify many of the suggested reforms discussed during ongoing conversation among financial agencies, law enforcement, financial institutions, and commentators regarding the Bank Secretary Act (“BSA”) and Anti-Money-Laundering (“AML”) and Combating the Financing of Terrorism (“CFT”) laws. The first two proposed bills are discussed here and here.

In this post, we summarize the last of the three proposed bills, The Kleptocracy Asset Recovery Rewards Act (the “Bill”). The Bill allows the Department of Treasury to provide whistleblowers not only with monetary incentives but also protective measures, including asylum for the whistleblower and his or her immediate family. As we will discuss, the Bill proposes a unique whistleblower program focused on foreign corruption, and which differs in important ways from other, established government whistleblower programs.
Continue Reading  Proposed Kleptocracy Asset Recovery Rewards Act Adds Whistleblower Incentives and Protections

Proposed Legislation Would Require Beneficial Ownership Disclosure at Entity Formation

Second Post in a Three-Post Series

In early March, the House Financial Services Committee released three proposed bills to codify many of the suggested reforms discussed during ongoing conversation among financial agencies, law enforcement, financial institutions, and commentators regarding the Bank Secretary Act (“BSA”) and…

I am honored to be part of a panel on March 1, 2018 at the Florida Tax Institute in Tampa, Florida regarding potential money laundering risks, reporting obligations and related ethical issues facing U.S. tax professionals with foreign clients bringing money and assets into the United States.  The panel, entitled Working with Inbound Investors & …

PANA Issues Recommendations to European Parliament: Tougher Enforcement, Greater Transparency, Improved Information Sharing and Prohibitions Against Outsourcing of Customer Due Diligence

In the wake of the Panama Papers, the European Parliament (“EP”) formed PANA, a Committee of Inquiry into Money Laundering, Tax Avoidance, and Tax Evasion. We previously wrote about PANA in May when it was examining the role of lawyers in money laundering and tax evasion schemes. After opening their October 19 meeting with a moment of silence to honor the life of Maltese investigative journalist Daphne Coruana Galizia, who recently was killed by a car bomb, PANA approved a draft report and recommendations for review by the EP. The findings and recommendations range from reporting standardization to outsourcing to illicit real estate transactions to attorney-client privilege.

European parliament in Brussels, Belgium.

A few themes emerged from the PANA report:

  • the European Union (“EU”) has strong law, but lacks vigorous enforcement;
  • the EU’s many regulators are stymied by a severe lack of communication, both within nations and between countries;
  • beneficial owners (“BOs”) are mostly unknown because regulated entities are not fulfilling their reporting obligations and the BO register is not robust, accessible, or standardized;
  • intermediaries, like banks, lawyers, accountants, wealth managers, and other financial institutions, are not living up to their obligations because they are engaging in “creative compliance” and leaving compliance responsibility to third parties.

Based on these findings, PANA recommends:

  • uniform definitions and punishments for money laundering and tax-related infractions,
  • “automatic exchange of information,” reciprocity, and “Common Reporting Standards” between regulators to facilitate better information sharing,
  • the creation of a “publically accessible,” standardized BO register that includes the ultimate beneficial owner (“UBO”),
  • the EP pass legislation to “make it illegal to outsource [customer due diligence (“CDD”)] procedures to third parties,”
  • adoption of stronger forfeiture laws that allow cross-border confiscation of illegally obtained assets,
  • stronger sanctions against banks and other intermediaries that “are knowingly, willfully, and systematically implicated in illegal tax schemes,”
  • lawyers should no longer be able to hide behind the attorney-client privilege to escape reporting requirements, like suspicious transaction reports (“STRs”),
  • countries devote more resources to fighting money laundering and tax evasion,
  • the EP vest more oversight powers in PANA.

…
Continue Reading  Money Laundering Watchdog Criticizes Lax AML Enforcement and “Creative Compliance” in Wake of Panama Papers

Second of a Two-Part Blog: Anti-Money Laundering Programs Coming to the Legal Profession?

Yesterday, we began our discussion of the proposed Corporate Transparency Act of 2017 (the “Act”), and observed that, if passed, the Act would represent another chapter in the domestic and global campaign to increase transparency in financial transactions through information gathering by private parties and expanded requirements for Anti-Money Laundering (“AML”) reporting. Today, we summarize the details of this complex legislation, focusing in particular on two significant ways in which the Act would amend the Bank Secrecy Act (“BSA”):

  • Requiring regulations to establish minimum standards for State procedures regarding the formation of legal entities such as corporations and limited liability companies (“LLCs”) and the identification of the beneficial owners of such entities when they are formed.
  • Adding “formation agents” – i.e., those who assist in the creation of legal entities – to the BSA’s definition of a “financial institution” which is subject to the BSA’s reporting and AML obligations. This new definition potentially applies to a broad swath of businesses and individuals previously not regulated directly by the BSA, including certain attorneys.

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Continue Reading  Expanded Beneficial Ownership Reporting and AML Duties Under the Corporate Transparency Act