2008 Int'l Bar Association -- Money Laundering Gatekeeper Ethics


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Impact of AML on Lawyers: Ethical Considerations. I have various articles dealing with money laundering that I would make available.

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  • Dear Ethan,
    I would very much appreciate any articles on AML that you could refer to me.
    Kind regards,
    Allan Bell
    Faculty of :Law
    Hong Kong University
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2008 Int'l Bar Association -- Money Laundering Gatekeeper Ethics

  1. 1. Ethical Dilemma: The Attorney as Gatekeeper in Anti-Money Laundering Systems <ul><li>International Bar Association – Buenos Aires, Argentina </li></ul><ul><li>October 2008 </li></ul><ul><li>Ethan S. Burger </li></ul><ul><li>Georgetown University Law Center </li></ul><ul><li>& </li></ul><ul><li>American University’s School of International Service </li></ul><ul><li>Washington, D.C. </li></ul>
  2. 2. AML Policies and Lawyers as Gatekeepers: Are the Ethical Implications As Great as Some Feared? <ul><li>I. U.N. Actions – The Role of International Law. </li></ul><ul><li>II. Financial Action Task Force – Putting a New Objective in </li></ul><ul><li>an Old Bottle. </li></ul><ul><li>III. The Ethical/Systemic Concerns of the Legal Community. </li></ul><ul><li>IV. Groping for an Appropriately Balanced Policy. </li></ul><ul><li>V. Questions to Ponder. </li></ul>
  3. 3. United Nations Office on Drugs & Crime <ul><li>In 1997, the UNODC established the Global Program Against Money </li></ul><ul><li>Laundering (GPML) to assist with the implementation of various UN </li></ul><ul><li>instruments and other resolutions including: </li></ul><ul><li>1988 UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances; </li></ul><ul><li>1998 UN General Assembly Special Session (UNGASS) Political Declaration and Action Plan against Money Laundering which broadened GPML’s mandate beyond drug offences to all serious crime; </li></ul><ul><li>1999 International Convention for the Suppression of the Financing of Terrorism; </li></ul><ul><li>2000 UN Convention against Transnational Organized Crime (2000); and </li></ul><ul><li>2003 UN Convention against Corruption. </li></ul>
  4. 4. Additional United Nations’ Actions <ul><li>Security Council Resolutions 1267(1999), 1373(2001), 1540(2004), </li></ul><ul><li>1566(2004), and 1624(2005) call on UN Member States to combat terrorism, including financing of terrorism; GPML’s mandate expanded. </li></ul><ul><li>Security Council Resolution 1617 (2005) ‘’ Strongly urges all Member States to implement the comprehensive, international standards embodied in the Financial Action Task Force’s (FATF) Forty Recommendations on Money Laundering and the FATF Nine Special Recommendations on Terrorist Financing.’’ </li></ul><ul><li>General Assembly Resolution 60/288 of 2006), included plan of action ‘’To encourage States to implement the comprehensive international standards embodied in the Forty Recommendations on Money-Laundering and Nine Special Recommendations on Terrorist Financing of the Financial Action Task Force, recognizing that States may require assistance in implementing them. . . .’ </li></ul>
  5. 5. The Financial Action Task Force <ul><li>Created in 1989, FATF is a 34-member inter-governmental </li></ul><ul><li>body that develops/promotes national & international anti- </li></ul><ul><li>money laundering (AML) and anti-terrorist financing </li></ul><ul><li>policies.  </li></ul><ul><li>FATF is a &quot;policy-making body&quot; working to promote </li></ul><ul><li>legislative and regulatory reforms as well as assist in their </li></ul><ul><li>implementation. </li></ul><ul><li>FATF has issued 40 AML Recommendations (1990, updated </li></ul><ul><li>in 1993 & 1996) and 9 Special Recommendations on </li></ul><ul><li>Combating Terrorist Financing (2001 updated in 2004). </li></ul>
  6. 6. FATF 40 Recommendations <ul><li>Scope of the criminal offence of money laundering; measures and confiscation; Actions by Financial Institutions and Non-Financial Businesses and Professions. </li></ul><ul><li>Customer due diligence and record-keeping; Reporting of suspicious transactions and compliance. </li></ul><ul><li>Dealing with respect to countries failing to comply with FATF Recommendations. </li></ul><ul><li>Regulation and supervision; Institutional and other measures necessary for combating Money Laundering and Terrorist Financing. </li></ul><ul><li>Competent authorities, their powers and resources. </li></ul><ul><li>Transparency of legal persons and arrangements. </li></ul><ul><li>International Co-operation; Mutual legal assistance and extradition. </li></ul>
  7. 7. 9 Special Recommendations on Terrorist Financing <ul><li>I. Ratification and implementation of UN Instruments; </li></ul><ul><li>II. Criminalising the financing of terrorism and associated money laundering; </li></ul><ul><li>III. Freezing and confiscation of terrorist assets; </li></ul><ul><li>IV. Reporting suspicious transactions related to terrorism; </li></ul><ul><li>V. International cooperation; </li></ul><ul><li>VI. Alternative remittance; </li></ul><ul><li>VII. Wire transfers; </li></ul><ul><li>VIII. Non-profit organistions; and </li></ul><ul><li>IV. Cash couriers. </li></ul>
  8. 8. Methods of Money Laundering <ul><li>TAX HAVENS </li></ul><ul><li>OFFSHORE SECRECY JURISDICTIONS </li></ul><ul><li>DISGUISED CORPORATIONS </li></ul><ul><li>FLEE CLAUSES (If regulatory inquiries, move the money) </li></ul><ul><li>SHELL BANKS </li></ul><ul><li>ANONYMOUS TRUSTS </li></ul><ul><li>FAKE FOUNDATIONS </li></ul><ul><li>FALSE DOCUMENTATION </li></ul><ul><li>MISPRICING IN UNRELATED-PARTY TRANSACTIONS </li></ul><ul><li>ABUSIVE TRANSFER PRICING IN RELATED-PARTY TRANSACTIONS </li></ul><ul><li>LOOPHOLES LEFT IN LAWS OF WESTERN COUNTRIES </li></ul>
  9. 9. ML Contributes to World Inequality 1820 – 1980. What are the Consequences? (Raymond W. Baker)
  10. 10. Benefits and Challenges <ul><li>Potential Benefits: </li></ul><ul><li>• Better management of risks and cost-benefits. </li></ul><ul><li>• Financial institution focus on real and identified threats. </li></ul><ul><li>• Flexibility to adapt to risks that change over time. </li></ul><ul><li>Potential Challenges: </li></ul><ul><li>• Identifying appropriate information to conduct a sound risk analysis. </li></ul><ul><li>• Addressing short term transitional costs. </li></ul><ul><li>• Greater need for more expert staff capable of making sound judgments. </li></ul><ul><li>• Regulatory response to potential diversity of practice. </li></ul>
  11. 11. FATF’s Attempt to Balance Attorney-Client Confidentiality & the Value of Making Lawyers “Gatekeepers” <ul><li>FATF determined that lawyers could play critical “gatekeeper” functions. This was particularly true since organized crime groups and individual criminals increasingly used professionals to advise or otherwise assist them in laundering criminal proceeds, for example, by structuring and documenting sham transactions, creating shell entities, opening bank accounts, etc. </li></ul><ul><li>At one point FATF considered regulating lawyers and other legal professionals: </li></ul><ul><li>(i) in all their activities; </li></ul><ul><li>(ii) when acting as financial intermediaries on behalf of or for the benefit of the client reasonably believed by the lawyer to be engaged in illicit activity; and/or </li></ul><ul><li>(iii) when involved in the planning or execution of financial, property, corporate or fiduciary business for the client reasonably believed by the lawyer to be connected with illegal activity. </li></ul><ul><li>Ultimately, FATF focused its efforts on approaches (i) and (ii), but lawyers nonetheless had to </li></ul><ul><li>increase their efforts to avoid unknowingly to be pulled into illegal schemes, which are not </li></ul><ul><li>always easily identifiable. </li></ul>
  12. 12. FATF -- Recommendation 12 <ul><li>Customer due diligence and record-keeping requirements relating to complex or unusual </li></ul><ul><li>business structures or transactions involving a “high risk” of money laundering, particularly those </li></ul><ul><li>involving jurisdictions failing to comply with FATF guidelines apply to designated non- </li></ul><ul><li>financial businesses and other professions : </li></ul><ul><li>d) Lawyers , notaries, other independent legal professionals and accountants </li></ul><ul><li>when they prepare for or carry out transactions for their client concerning the following activities: </li></ul><ul><li>- buying and selling of real estate; </li></ul><ul><li>- managing of client money, securities or other assets; </li></ul><ul><li>- management of bank, savings or securities accounts; </li></ul><ul><li>- organization of contributions for the creation, operation or management of </li></ul><ul><li>companies; [and] </li></ul><ul><li>- creation, operation or management of legal persons or arrangements, and buying </li></ul><ul><li>and selling of business entities. </li></ul>
  13. 13. FATF-- Recommendation 16 <ul><li>The relevant FATF Recommendations relate in part to designated non-financial </li></ul><ul><li>Businesses and professions (DNFBPs). They are subject to the following </li></ul><ul><li>qualifications of concern to Lawyers : </li></ul><ul><li>a) Lawyers, notaries, other independent legal professionals and accountants should be required to report suspicious transactions when, on behalf of or for a client, they engage in a financial transaction in relation to the activities described in Recommendation 12(d) [set out in the prior slide]. Countries are strongly encouraged to extend the reporting requirement to the rest of the professional activities of accountants, including auditing. </li></ul><ul><li>Lawyers , notaries, other independent legal professionals , and accountants acting as independent legal professionals, are not required to report their suspicions if the relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege. </li></ul>
  14. 14. IBA-Established Norms <ul><li>-- Confidentiality / professional secrecy – “ A lawyer shall at all times </li></ul><ul><li>maintain and be afforded protection of confidentiality regarding the </li></ul><ul><li>affairs of his or her present or former clients, unless otherwise required </li></ul><ul><li>or permitted by law or, if permitted, by client’s authorisation. IBA General </li></ul><ul><li>Principles for the Legal Profession. </li></ul><ul><li>-- IBA Terrorism Resolution provision : “As representative of the </li></ul><ul><li>International legal profession, the IBA has a vital role to play in </li></ul><ul><li>defending the rule of law and developing legal mechanisms to prevent </li></ul><ul><li>acts of terrorism and ensure that any person who participates in the </li></ul><ul><li>financing, planning, preparation or perpetration of terrorist acts is </li></ul><ul><li>brought to justice.” Approved/ Adopted by IBA Council, Cancun, October </li></ul><ul><li>2001. </li></ul>
  15. 15. Council of Bars & Law Societies of Europe/El Consejo de la Abogacía Europea ( CCBE) Code of Conduct –2.3 Confidentiality <ul><li>-- 2.3.1. It is of the essence of a lawyer’s function that the lawyer should be told by his or her client things which the client would not tell to others, and that the lawyer should be the recipient of other information on a basis of confidence. Without the certainty of confidentiality there cannot be trust. Confidentiality is therefore a primary and fundamental right and duty of the lawyer. The lawyer’s obligation of confidentiality serves the interest of the administration of justice as well as the interest of the client. It is therefore entitled to special protection by the State. </li></ul><ul><li>-- 2.3.2. A lawyer shall respect the confidentiality of all information that becomes known to the lawyer in the course of his or her professional activity. </li></ul><ul><li>-- 2.3.3. The obligation of confidentiality is not limited in time. </li></ul><ul><li>-- 2.3.4. A lawyer shall require his or her associates and staff and anyone engaged by him or her in the course of providing professional services to observe the same obligation of confidentiality. </li></ul>
  16. 16. The Anti-Money Laundering Legislation Implementation Group (AMLLIG) – under Int’l Bar Association Auspices <ul><li>Ensure appropriate awareness of the difficulties encountered in preventing and detecting ML among legal professionals and their clients throughout the world; </li></ul><ul><li>Seek a dialogue with FATF, the European Commission, local regulatory bodies, bar associations and others to share information and encourage more co-ordination; </li></ul><ul><li>Analyse the impact on international law firms and private practitioners on the implementation of the EU ML Directive and other international initiatives; </li></ul><ul><li>Monitor all legislative and regulatory AML requirements affecting lawyers and their clients worldwide; and </li></ul><ul><li>Act as a resource for practitioners and academics to promote a better understanding of the practical implications of AML regulations. </li></ul>
  17. 17. Principal AMLIIG Concerns relating to the Application of AML Rules to the Legal Profession <ul><li>The IBA fears that the performance of Customer Due Diligence (CDD) places an unnecessary administrative burden on the legal profession as different approaches taken by different countries lead to confusion amongst clients, unnecessary costs and regulatory arbitrage, thereby hampering cross border services. There is also a tension between the risk-based and rules-based approaches. </li></ul><ul><li>The CCBE fears that the obligation to report suspicious transactions breach the principle of the attorney-client relationship - which lies at the core of the legal profession worldwide; severely harms the rule of law and democracy; and impairs access to justice. It is worth noting that the CCBE’s Code of Conduct is probably the single most important source on the role of European lawyers. </li></ul><ul><li>Incidentally, national legislations and courts frequently refuse to follow more rigorous EU Directives. </li></ul>
  18. 18. Excerpts of 18 U.S. C. § 1956. Laundering of Monetary Instruments – The Issue of Extra-territoriality <ul><li>Whoever, knowing that the property involved in a financial transaction represents the proceeds </li></ul><ul><li>of some form of unlawful activity, conducts or attempts to conduct such a financial transaction </li></ul><ul><li>which in fact involves the proceeds of specified unlawful activity— </li></ul><ul><li>(A) (i) with the intent to promote the carrying on of specified unlawful activity . . . . </li></ul><ul><li>(B) knowing that the transaction is designed in whole or in part— (i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or (ii) to avoid a transaction [REGULATORY] reporting requirement . . . . </li></ul><ul><li>Jurisdiction over foreign persons.— . . . . U.S. shall have jurisdiction over any foreign person, including any financial institution authorized under the laws of a foreign country, against whom the action is brought, if service of process upon the foreign person is made under the Federal Rules of Civil Procedure or the laws of the country in which the foreign person is found, and— (A) the foreign person commits an offense . . . . involving a financial transaction that occurs in whole or in part in the U.S.; (B) the foreign person converts, to his or her own use, property in which the U.S. has an ownership interest . . . or (C) the foreign person is a financial institution that maintains a bank account at a financial institution in the U.S. . . . . </li></ul><ul><li>THE ROLE OF INTERNATIONAL LAW PRIMARILY TREATIES IS CRITICAL </li></ul><ul><li>* * * * * </li></ul>
  19. 19. Specified ML Offices: Double Standard? Criminal Activity US Ex-US Criminal Activity US Ex-US Criminal Activity US Ex-US Aircraft piracy X Firearms X Prohibited nucl. materials… X Alien smuggling X Food stamp crimes X Racketeering X Arms export X Foreign Agents Reg. crimes X Securities fraud X Bank fraud X X Foreign corrupt practices X X Sexual exploitation, children X Bank rob./burg., gov. prop. X Fraud and false statements X State felonies X NA Bank Secrecy Act crimes X Gambling X Tariff Act crimes X Bankruptcy fraud X X Health care fraud X Terrorism X X Bribery X X Kidnapping X X Threat./injure fed. official… X Computer crimes X Mail fraud X X Trading w/ Enemy crimes X Congress/cabinet assassin. X Mail theft X Trafficking contraband cig. X Conspiracy to kill, kidnap… X Malicious mischief X Trafficking counterfeit goods X Copyright infringement X Murder on federal facility X Trafficking in stolen property X Counterfeiting and forgery X Murder, foreign officials… X X Transport. illegal sex. act. X Customs crimes X Murder, US employee X X Treaty violations--extradition NA X Destruction of aircraft X Narcotics offenses X X Unauth. sound/video record. X Destruct., fire… gov. prop X National resource conserv. X Union/labor mgt. embezzle. X Embezzlement and theft X X Obscenity X Unlawful citizenship X E. Econ. Powers Act crimes X Obstruction of justice X Violence at intl airports X Espionage X Ocean dumping X Violence, maritime navig… X Export crimes X X Passport/visa crimes X Water pollution X Extortion and threats X X Peonage and slavery X Wire fraud X X Extort. credit transactions X Presidential violence/kidnap. X
  20. 20. American Bar Ass’n Rules of Prof. Conduct 1.6: Confidentiality of Information <ul><li>(a) A lawyer shall not reveal information relating to the representation of a client unless the client </li></ul><ul><li>gives informed consent . . . [or] is permitted by paragraph (b). </li></ul><ul><li>(b) A lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary: </li></ul><ul><li>(1) to prevent reasonably certain death or substantial bodily harm; </li></ul><ul><li>(2) to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer's services; </li></ul><ul><li>(3) to prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client's commission of a crime or fraud in furtherance of which the client has used the lawyer's services; </li></ul><ul><li>* * * * * </li></ul><ul><li>(6) to comply with other law or a court order. </li></ul>
  21. 21. Key Excerpts from ABA Rule 1.13: Organization as Client <ul><li>(b) If a lawyer . . . knows that an officer, employee or other person . . . is engaged in action, intends to act or refuses to act in a matter related to the representation that is a violation of a legal obligation to the organization, or a violation of law that reasonably might be imputed to the organization, and . . . likely to result in substantial injury to the organization, then the lawyer shall . . . proceed in the best interest of the organization . . . [and if necessary] refer the matter to the highest authority in the organization . . . . </li></ul><ul><li>(c) [If] (1) [the highest authority] . . . fails to [correct the situation] . . . or refus[es] to act, [concerning a] clear [legal violation], and (2) the lawyer reasonably believes . . . the violation is reasonably certain to result in substantial injury to the organization, then the lawyer may reveal information . . . [to the authorities] . . , but only if and to the extent . . . [needed] to prevent substantial injury to the organization. </li></ul><ul><li>Exceptions: internal investigations and while acting as defense counsel in litigation. </li></ul>
  22. 22. Recent Observations of James H. Freis, Jr., Director, U.S. Financial Crimes Enforcement Network <ul><li>With a regulatory context such as AML activities, the term “Gatekeeper” is used tp refer to lawyers and other professionals that aid clients with transactions such as the purchase of real estate, managing money and other assets, the acquisition, merger or sale of businesses. When acting in such activities, lawyers may be aiding or abetting illegal conduct. As a result, those individuals acting in good faith may be able to identify transactions and other suspicious activities involving money laundering, terrorist financing or other unlawful conduct. </li></ul><ul><li>The Bank Secrecy Act (BSA) does not apply to such “gatekeepers” in the U.S regulatory regime. Other countries have taken this approach, particularly with respect to lawyers and accountants, but FinCEN is currently not contemplating any such approach. That having been said, FinCEN appreciates that this industry, appropriately as “gatekeepers,” voluntarily and actively keeps abreast of BSA and the issues affecting their customers in the financial industry that are regulated under the BSA. </li></ul>
  23. 23. The Importance of Effective Oversight within Law Firms <ul><li>Criminals will always find lawyers willing to facilitate their activities. </li></ul><ul><li>Law firms must have effective client intake (i.e. CCD) and monitoring procedures. What should be the frequency for such AML actions? </li></ul><ul><li>Despite the best of intentions, it is not always possible to “know one’s client.” </li></ul><ul><li>Remember the interests of individual lawyers will frequently diverge from those of their law firm or other employer (e.g. Vinson & Elkins in Enron matter). Problems for mult-ioffice and multinational firms. </li></ul><ul><li>Consequently lawyers need to be familiar with the relevant AML rules that are in force in the jurisdiction in which they practice. The failure to ensure that this occurs increases risks both with respect to regulators as well as private parties. </li></ul>
  24. 24. Certain Questions to Ponder <ul><li>Are AML efforts achieving their objectives or are existing systems merely diverting resources from more critical tasks (i.e. is conventional crime or terrorism the greater concern and what are the implications for existing AML activities)? </li></ul><ul><li>Should there be AML equivalents of whistle-blowing / qui tam incentives for those leading to ML convictions? </li></ul><ul><li>What are the principal obstacles to effective AML efforts and what should be done about them – particularly in the area of obtaining better coordination among law enforcement entities? Will this have ethical implications for lawyers working for state bodies, private legal entities and individuals? </li></ul><ul><li>Will an increase in the level of terrorism in the future lead inevitably to greater infringements on civil (including privacy) and human, in particular those having an impact on the attorney-client relationship and trial-related rights? </li></ul><ul><li>Choice of law dilemmas – whose law to follow for cross-border situations.? </li></ul>