Ethics in Evolving Compliance Requirements

ETHICS
IN EVOLVING
COMPLIANCE
REQUIREMENTS
PRESENTED BY:
GARTH JACOBSON, ESQ.

• Current Lay of the Land:
– Present and future laws put Attorneys at risk of unknowingly violating Rule
1.2 Rules of Model Rules of Professional Conduct
– Background and connection between attorneys serving as business
formation professionals and unknowingly enabling money laundering
terrorism and tax evasion.
• Office of Foreign Assets Control
– What attorneys don’t know can result in fines.
– Specially Designated Nationals (SDN) list
• Attorneys need to screen their clients to avoid ethics rules violations.
• Financial Crimes Enforcement Network
– Bank Secrecy Act
– Suspicions Activity Reports (SARs) and Ethical impact on Attorneys
AGENDA

• The ABA Gatekeeper Initiative – Risk Based Guidance for Legal
Professionals
• Ethical Considerations of Potential Anti-Money Laundering
Requirements for Lawyers
– Model Rules of Professional Conduct/ Arizona Rules
• Rules 1.2, Representation,
• Rule 1.4 Communication
• Rule 1.6, Confidentiality
• Rule 1.9 Duties to Former Client
• Rule 1.18 Duties to Prospective Client
• Rule 1.13 Organization as a Client,
• Rule 4.1 Transactions with 3rd parties,
• Rule 8.4 Attorney Misconduct
• Attorney Due Diligence of Clients
– ABA Voluntary Good Practices Guidance for Lawyers
• Case Studies
AGENDA (CONT.)

MODEL RULES OF PROFESSIONAL CONDUCT
NO ASSISTANCE IN ILLEGAL OR FRAUDULENT ACTIVITIES
Rule 1.2(d)
• (d) A lawyer shall not counsel a client to engage, or assist a client, in
conduct that the lawyer knows is criminal or fraudulent, but a
lawyer may discuss the legal consequences of any proposed course of
conduct with a client and may counsel or assist a client to make a good
faith effort to determine the validity, scope, meaning or application of
the law.

MONEY LAUNDERING AND TERRORIST FINANCING
• Background
– Growing concern by federal government about money laundering
and terrorist financing.
• Six Government Accountability Office (GAO) studies since 2000.
– Federal Agencies believe states have failed to supervise the
formation and operation of legal persons.
– Business Formation Agents are viewed as integral part of the money
laundering problem.
• GAO reports assert registered agents shield identity of beneficial owners
of business entities.

• In 2003, money laundering had an estimated world wide value
between $500 billion and $1 trillion dollars annually
• Money laundering provides the financing for…
– Drug dealers
– Arms traffickers
– Terrorists
– International Organized Criminal
– As well as common tax cheats
. . . to operate and to expand their activities, with significant social and
economic consequences.
MONEY LAUNDERING IS SERIOUS

Are you familiar with FATF?
A. Yes
B. No
POLLING QUESTION NO.1

“In recent years, the Financial Action Task Force (FATF) has noted
increasingly sophisticated combinations of techniques, such as the
increased use of legal persons to disguise the true ownership and
control of illegal proceeds, and an increased use of professionals to
provide advice and assistance in laundering criminal funds.”
-FATF, The Forty Recommendations, 20 June 2003, incorporating the
amendments of 22 October 2004
EVOLUTION OF THE PROBLEM OF MONEY LAUNDERING –
IN THE DIRECTION OF BUSINESS FORMATION AGENTS

• FATF was established by the G-7 Summit of Paris in July 1989 in
response to mounting concern over money laundering.
• The FATF is an inter-governmental body whose self-described
purpose is the development and promotion of policies, both at
national and international levels, to combat money laundering and
terrorist financing.
THE FINANCIAL ACTION TASK FORCE ON MONEY LAUNDERING
(FATF)

(FATF)
• The FATF is mandated to:
– examine money laundering techniques and trends;
– review existing national and international legislation and
enforcement, and
– define further measures needed to combat money laundering.
• Prior to September 11, 2001, the FATF was primarily focused on
anti-money laundering and published the Forty
Recommendations to provide a set of counter-measures
• After September 11, FATF issued an additional Nine Special
Recommendations to address terrorist financing.
• FATF, as of February 2012, now has a revised 40
Recommendations.

• FATF’s recommendations call for countries to:
– criminalize money laundering and enable authorities to confiscate the
proceeds of money laundering;
– implement customer due diligence programs
• Require record keeping
• Require suspicious transaction reporting;
– establish a financial intelligence unit to receive and disseminate
suspicious transaction reports; and,
– cooperate internationally in investigating and prosecuting money
laundering
(FATF)

FATF’S MEMBERSHIP
• Argentina
• Australia
• Austria
• Belgium
• Brazil
• Canada
• China
• Denmark
• European Commission
• Finland
• France
• Germany
• Greece
• Gulf Co-operation Council
• Hong Kong, China
• Iceland
• India
• Ireland
• Italy
• Japan
• Luxembourg
• Mexico
• Kingdom of the Netherlands
• New Zealand
• Norway
• Portugal
• Russian Federation
• Singapore
• South Africa
• South Korea
• Spain
• Sweden
• Switzerland
• Turkey
• United Kingdom
• United States

WHY BE CONCERNED BY FATF?
Because FATF is successful:
• FATF 40 already incorporated into U.S. Bank Secrecy Act via USA Patriot ACT
for financial institutions.
• FATF 40 recommendations already accepted as international norms.
• FATF has initiated a movement to extend national anti-money laundering
programs beyond the financial sector.

US FAILED THE MUTUAL EVALUATION IN 2006
• Recommendation 22, Client Due Diligence in Business Formation
Process
– Attorney should conduct client due diligence to avoid doing
business with money launderers
– Non-compliant
• Recommendation 23, Company Formation Agents Duty to Report
Suspicious Activities to Law Enforcement
– Non-compliant
• Recommendation 24, Prevent unlawful use of “Legal Persons”
(business entities) and provide law enforcement access to
beneficial ownership information of those entities.
– Non-compliant

THE US ANTI-MONEY LAUNDERING CHARGE IS LEAD BY:
• Former Senator Carl Levin (D), Michigan
– Requests GAO Reports
• United States Senates Permanent Subcommittee on Investigations
– Conducts hearings on Money Laundering, Terrorism and Tax Shelter
Abuse
• Financial Action Task Force on Money Laundering (FATF)
• Financial Crimes Enforcement Network (FinCEN)
• Federal Money Laundering Threat Assessment Working Group
– Dept. of Treasury
– Dept. of Justice
• Federal Bureau of Investigation (FB)
• Drug Enforcement Administration (DEA)
– Dept. . of Homeland Security

2006 GAO REPORT FINDS ABUSES OF
SHELL COMPANIES PROMOTE MONEY LAUNDERING
• States do not uniformly collect common data elements on all
companies they form. These data elements are:
– The purpose of the company
– The address of the company’s principle office
– The name of the company’s agent for service of process.
– The physical address of the company’s agent for service of process
– The number and type of shares/ownership interests for all types of
companies.
– The signature and address of the incorporators/organizers.
– The names and addresses of all officers
– The names and addresses of all directors/managers/managing
members.
– The name and addresses of all beneficial owners

THE DEVELOPMENT OF LEGISLATION AND RELATED ACTIVITIES
• 2005 Anti-Money Laundering Task force identifies deficiencies with
DE, WY and NV
– Law Enforcement perceives the following as Deficiencies
– Minimal annual fees
– One-person company is allowed
– No annual report is required until the anniversary of the incorporation
date.
– Unlimited stock is allowed, of any par value
– Bearer stock can be used
– Nominee shareholders are allowed
– Share certificates are not required
– Minimal initial filing fees
– No minimum capital requirements
– Doesn't collect corporate income tax information to share with the
IRS

ANTI-MONEY LAUNDERING TASK FORCE
• Meetings may be held anywhere
• Officers, directors, employees and agents are statutorily
indemnified
• Continuance procedure (allows Wyoming to adopt a company
formed in another state)
• Stockholders are not revealed to the State.
– Law enforcement’s ultimate goal is transparency, exposing the
links between the legal person and those persons who control,
own, or benefit from the activities of a legal person.

TIMELINE ACTIVITIES
• 2006 June. Delaware passes increased regulation of RA and requires
maintaining the business entity to provide a contact person to RA.
• 2006 Nov. FinCEN report denounces LLC shell company activities that
promote money laundering activities.
• 2006 Senate Committee on Investigations Nov. 2006 hearing investigates
“Failure to Identify Business Owners Impedes Law Enforcement.”
• 2007 Feb. National Association of Secretaries of State (NASS) Task Force
convened to explore solutions to business entities and money laundering.
• 2007 Feb Senator Levin introduces SB 681 “Stop Tax Haven Abuse.
Cosponsored by Sen. Obama. Places “business formation agents” under
Bank Secrecy Act.
• 2007 April. Nevada passes MoRAA with provisions to respond to GAO and
FinCEN/FATF criticism.

TIMELINE (CONT.)
• July 2007 - NASS Task force report makes recommendation
• The NASS task force recommended that the ABA and NCCUSL amend
all of the model and uniform entity laws to:
– require that every form of entity keep a list of its record owners
– file a periodic report with the Secretary of State in the jurisdiction of
organization that identifies by name and address an individual with
access to the list of record owners

TIMELINE (CONT.)
• 2007 July NCCUSL authorizes creation of Record Owners of Business
Act (ROBA) committee to establish uniform solution.
• 2007 October. Association of Registered Agents (ARA) and the
National Public Records Research Association adopt a “bests
practices …” that includes client risk base assessment for the
prevention of money laundering and other financial crimes.
• 2007 Nov. NCCUSL ROBA committee meets and develops first draft
proposed legislation. Plans to fast track the legislation.
• 2007 Nov. National Conference of State Legislatures appoints task
force to make recommendations about business entities and money
laundering.
• Jan 2008 NCCUSL ROBA committee meets with Treasury officials to
further develop legislation. “Beneficial Ownership” dropped and
record owner custodian requirement agreed by all participants.

TIMELINE (CONT.)
• Treasury and Justice Dept. reject ROBA legislation but said that there
was no urgency to gain passage of uniform act.
• 2008 April. WY adopts its registered agents record keeping
legislation. Increases regulation of commercial registered agents
and requires RAs or SOS to keep list of managers of LLCs.
• 2008 May. Sen. Levin, Sen. Obama introduce S 2956 “Incorporation
Transparency and Law Enforcement Assistance Act. Would have:
– Placed business formation agents (attorneys) under BSA
– Required Secretary of State Offices to maintain list of beneficial owners
of business entities and make available to law enforcement

TIMELINE (CONT.)
• 2008 June NCCUSL ROBA Committee met to finalize
recommendation for NCCUSL annual meeting. Amendment
would require the disclosure of all officers, directors and
managers in annual report filings. Some commissioners
objected to requiring disclosure of member/managers of LLCs
• 2008 June. Delaware adopts legislation that strengthens its
annual report requirements for corporations. The listing of
officers and directors is no longer optional. There is no similar
provision for LLCs.
• 2008 June FATF establishes risk base recommendations for
“Trust Companies and Service Providers” to prevent the
promotion of money laundering activities.

TIMELINE (CONT.)
• 2009 Jan. OR proposes legislation to increase regulation of commercial
registered agents and require beneficial ownership records of business
entities. Legislation died
• 2009 Feb. The ROBA committee meets in Washington DC to further
draft the legislation. Dept. of Treasury people participate in the
drafting process and agree to support the legislation.
• 2009 March, Senator Levin introduces S 506 Stop Tax Haven Abuse
(Similar to S 681) and S 569 (similar to S 2956) Incorporation
Transparency and Law Enforcement Assistance Act. Both bills place
“business formation agents” under the Bank Secrecy Act. S 569
requires the disclosure of entity beneficial ownership to be filed with
the state filing offices but lacks any enforcement teeth to require the
states to comply. It also requires vetting foreign owners’ of an entity
through a business formation agent.

TIMELINE (CONT.)
• 2008 July. NCCUSL conducts “first reading” of ROBA.
• 2008 July NCSL adopts resolution opposing Levin legislation and
supporting the efforts of NCCUSL ROBA legislation
• 2008 August. ABA Gatekeepers task force proposes and House of
Delegates adopts “Resolution 300” in opposition to S 2956. The
resolution recommends attorneys promote risk based assessment of
clients to prevent unknowingly promote money laundering.
• S 2956 referred to Homeland Security Committee. No action taken.
Bill dies at end of 110th Congress
• 2008 October. FATF establishes risk base recommendations for
professionals for client screening and prevention of money
laundering activities.

TIMELINE (CONT.)
• 2009 The most recent redraft was distributed April 8, 2009. 2009
March The ROBA committee conducts three conference calls that
result in redrafts and continued refinement of the act. The name of
the act is changed to Uniform Law Enforcement Access to Entity
Information Act.
• 2009 June, Homeland Security Committee holds hearing on
“Examining State Business Incorporation Practices: A Discussion of the Incorporation
Transparency and Law Enforcement Assistance Act (S 569)
• 2009 July NCCUSL adopts the Uniform Law Enforcement Access to
Entity Information Act ULEAEIA
– Act not recommended for adoption pending federal legislative actions
• 2010 January, Permanent Subcommittee on Investigations hearing: Keeping
Foreign Corruption Out of the United States: Four Case Histories
• 2010 August, HR 6098 introduced. Sponsored by Rep Maloney, Rep.
Frank

TIMELINE (CONT.)
• 2011 July, Stop Tax Havens S 1346, HR 2669
• 2011 July, Incorporation Transparency and Law Enforcement
Assistance Act, S 1483
• FATF Conducting a Review of Standards preparing for the 4th Round
of Mutual Evaluations (US 2014).
– Require transparency in beneficial ownership
• Ownership
• Control
– Access to the records
– Updated and kept current
• 2012 March, Levin introduced S 2075
• 2012 Feb., Treasury announces advanced notice of proposed rule
making (ANPRN) on Beneficial Ownership

TIMELINE (CONT.)
• Feb 2013 S 268 Sen. Levin Tax Bill
• March 2013 OR HB 336
• March 2013 MA legislation
• May 2013 Nev. SB 60 passes
• May 2013 ABA Ethics Formal Opinion 463
• August 2013 SB 1465 introduced
• Feb 2014 IA SSB 3064 introduced
• July 2014 ….Proposed New Rules for customer due diligence for
financial institutions
– Oct 126 responses to the proposed rules

TIMELINE
• Aug. 2014, DE: New record keeping requirements and communications
contact person access to records for LLCs and LPs.
– Sections 18-305 and 18-104 (LLCs) and Sections 17-305 and 17-104 (LPs)
and now require that LLCs and LPs keep updated records of names and
last known business, residence, or mailing address of each member and
manager. Additionally, the LLC’s “communications contact” (liaison
between [LLC or LP] and registered agent) must have access to these
updated records.
• Feb. 2015S 174 Sen. Whitehouse. (Son of Levin Legislation)
• Feb 2015 NV SB 39 Communications Contact same as DE (passed leg.)
• March 2015, the United Kingdom Parliament passed into law the Small
Business, Enterprise and Employment Act 2015
• New Federal Legislation?????

POLLING QUESTION NO. 2
Are you familiar with OFAC or the SDN list?
• Yes
• No

THIS GOT OUR ATTENTION
All organizations involved in the corporate registration process need to
understand OFAC regulations. Undertaking any type of business or financial
transaction with a sanctions target is illegal under federal law and the
industry can make an important contribution to the achievement of national
security goals by identifying sanctioned targets in order to block their ability
to use the U.S. financial system or do business in the United States.

OFAC Sanctions programs are strict liability and apply to:
• U.S. persons, wherever located;
• Persons within the United States;
• U.S. origin goods, technology or services wherever located

There are two types of OFAC sanctions:
• List-based
– Terrorists and their supporters
– Narcotics traffickers and their supporters
– Persons engaged in the proliferation of weapons of mass
destruction
– Government officials who suppress democracy
• Country-based
– Cuba
– Iran
– Sudan
– Syria
– North Korea (limited sanctions remain)
TYPES OF SANCTIONS PROGRAMS

OFAC’s Regulations Prohibit:
• Almost all transactions by a U.S. person involving Cuba, Iran,
Sudan, Syria
• Some but not all transactions involving: North Korea
• All transactions involving:
– Terrorists, terrorist organizations and their supporters
– Narcotics traffickers and their supporters
– Persons involved in the proliferation of weapons of mass
destruction and their supporters
– Government officials in countries that support terrorism or
suppress democracy
OFAC SANCTIONS PROGRAMS

OFAC’s prohibitions are broad and include:
 Imports of goods, technology or services
 Exports of goods, technology or services
 Attempts to facilitate any of the above
PROHIBITED ACTIVITY

SPECIALLY DESIGNATED NATIONALS LIST (SDN)
• ALPHABETICAL LISTING OF SPECIALLY DESIGNATED NATIONALS AND BLOCKED
PERSONS ("SDN List"): This publication of Treasury's Office of Foreign Assets
Control ("OFAC") is designed as a reference tool providing actual notice of
actions by OFAC with respect to Specially Designated Nationals and other
persons (which term includes both individuals and entities) whose property is
blocked, to assist the public in complying with the various sanctions programs
administered by OFAC. The latest changes to the SDN List may appear here prior
to their publication in the Federal Register, and it is intended that users rely on
changes indicated in this document. Such changes reflect official actions of
OFAC, and will be reflected as soon as practicable in the Federal Register under
the index heading "Foreign Assets Control." New Federal Register notices with
regard to Specially Designated Nationals or blocked persons may be published at
any time. Users are advised to check the Federal Register and this electronic
publication routinely for additional names or other changes to the SDN List. 3MG
(a.k.a. MIZAN MACHINE MANUFACTURING GROUP), P.O. Box 16595-365, Tehran,
Iran [NPWMD] 7TH OF TIR (a.k.a. 7TH OF TIR COMPLEX; a.k.a. 7TH OF TIR
INDUSTRIAL COMPLEX; a.k.a. 7TH OF TIR INDUSTRIES; a.k.a. 7TH OF TIR
INDUSTRIES OF ISFAHAN/ESFAHAN; a.k.a. MOJTAMAE SANATE HAFTOME TIR;
a.k.a. SANAYE HAFTOME TIR; a.k.a. SEVENTH OF TIR), P.O. Box 81465-478,
Isfahan, Iran; Mobarakeh Road Km 45, Isfahan, Iran [NPWMD] 7TH OF TIR
COMPLEX (a.k.a. 7TH OF TIR; a.k.a. 7TH OF TIR INDUSTRIAL COMPLEX; a.k.a.
7TH OF TIR INDUSTRIES; a.k.a. 7TH OF TIR INDUSTRIES OF ISFAHAN/ESFAHAN;
a.k.a. MOJTAMAE SANATE HAFTOME TIR; a.k.a.

OFAC PENALTIES
• Civil fines up to $250,000 or twice the value of the
transaction at issue, whichever is greater.
• Civil penalties can accrue even if a U.S. person has no
knowledge of the violation.
• Criminal provisions cover persons who willfully commit,
attempt to commit, conspire to commit, or aid or abet in the
commission of an IEEPA-related violation.
• U.S. persons that willfully violate sanctions regulations now
face potential criminal fines of up to $1 million and up to
twenty years in prison.

SANCTIONS ENFORCEMENT GUIDELINES
• Sanctions Enforcement Guidelines
– OFAC published “holistic” guidelines on September 8, 2008
– Establish the “egregious v. non-egregious case” distinction
– Provides a set of 11 factors on which to determine the appropriate
enforcement action
• Appears to eliminates the risk-based compliance model of the 2006
Banking Procedures
• Reduces likelihood of mitigation for a “voluntary disclosure”
– New matrix for establishing a base civil penalty
– New procedures for issuing pre-penalty notices

BASE PENALTY MATRIX
Egregious Case
(1)
One-half of
Transaction Value
(capped at $125,000 per
violation/$32,500 per
TWEA violation)
(2)
Applicable
Schedule Amount
(capped at $250,000 per
violation/$65,000 per
TWEA violation)
(3)
One-half of
Applicable
Statutory Maximum
(4)
Applicable
Statutory Maximum
Voluntary
Self-disclosure
Yes
YesNo
No

TRENDS IN ENFORCEMENT ACTIONS
• What are the sources of information for OFAC enforcement actions?
– Routine Voluntary self-disclosures
– Blocking reports
– 31 C.F.R Section 501.602s Subpoenas
– 31 C.F.R. Section 501.603 Blocked Property Reports
– Whistleblowers
– Continued cooperation with bank regulators
– Memoranda of understanding
• Decentralization of prosecution
– New Enforcement Guidelines do not apply to DOJ
– There are 94 judicial districts
– An OFAC enforcement action can be a predicate for a money
laundering offense; we are also seeing sanctions cases giving rise to
FCPA cases and export controls cases

VOLUNTARY SELF-DISCLOSURES
• Voluntary self-disclosure substantially reduces the penalties
OFAC will impose
• “Voluntary self-disclosure” is a self-initiated notification to
OFAC of an apparent violation before any U.S. government
agency learns of the possible violation
• Notification does not constitute self-disclosure if a third party is
required to and does notify OFAC of the violation
– A report to OFAC by a U.S. correspondent bank of a blocked or
rejected transaction would prevent self-disclosure of that
transaction, even if the report is filed after the entity informed
OFAC of the apparent violation
– Voluntary self-disclosure is possible if the third party did not
report the apparent violation to OFAC
• Disclosure must be on behalf of the entity, so that reports by
whistle blowers are not self-disclosure

VOLUNTARY SELF-DISCLOSURE (CONT.)
• The benefits of voluntary self-disclosure may be largely illusory,
however
• If a transaction passes through the U.S. financial system, it may be
difficult to voluntarily self-disclose, because the U.S.
correspondent bank will report blocked or rejected transactions
– Even if you notify OFAC before the bank reports the transaction, it
will not count as self-disclosure

FAILURE TO MAINTAIN RECORDS
• Failure to maintain records in adequate manner: $50,000
– OFAC need not find a violation
– This penalty can be applied in addition to any penalty for a violation
• We are concerned that application of this penalty could become
automatic in any case OFAC finds a violation
– One of the charges against the U.K. bank was that, by altering SWIFT
messages, it prevented U.S. banks from maintaining accurate records
• This penalty effectively requires all parties to have a compliance
program

CURRENT FOCUS: IRAN & SYRIA
• OFAC and DOJ are making enforcement of Iran sanctions a
priority
• Department of Commerce (DOC) is also increasing scrutiny of
U.S. exports to Iran
– DOC licenses and administers U.S. exports
• Cooperation between OFAC and DOC has been limited, but is
increasing
• New sanctions: July 31, 2012 Executive Order and HR 1905.

IRAN LEGISLATION – HR 1905, PUB.L. 112-158. (2012)
Expand sanctions against Iran (again) targeting anyone who:
• works in Iran's petroleum, petrochemical, or natural gas sector;
• provides goods, services, infrastructure, or technology to Iran's oil and natural gas sector, including
financial services, consulting, and maintenance & repair;
• conducts oil-for-gold or other swap transactions with Iran; insures or re-insures investments in Iran's
oil sector;
• engages in joint ventures with the National Iranian Oil Company (NIOC);
• provides insurance or re-insurance to the National Iranian Oil Company or the National Iranian Tanker
Company (NITC);
• helps Iran evade oil sanctions through reflagging, etc;
• sells, leases, or otherwise provides oil tankers to Iran, unless from a country that is significantly
reducing its oil purchases;
• transports crude oil from Iran, concealing the origin of Iranian crude;
• transports refined petroleum products to Iran; sanctioned vessels could be prevented from landing at
a port in the U.S. for up to two years;
• provides special financial messaging services to designated Iranian banks, or those who enable such
activity;
• engages in uranium mining with Iran anywhere in the world.

Are you familiar with FinCEN or the BSA?
A. Yes
B. No

• Established in 1990 to support law enforcement agencies by
collecting, analyzing, and coordinating financial intelligence
information to combat money laundering
• In 1994, expanded to administer the Bank Secrecy Act
• The BSA was amended by the USA PATRIOT Act in 2001
• Is the U.S. Financial Intelligence Unit

• Apply to Financial Institutions
– Banks, credit unions and thrifts
– Brokers or dealers in securities
– Certain insurance companies
– Money services businesses
– Casinos and card clubs
– Dealers in precious metals, stones or jewels
THE BANK SECRECY ACT REGULATIONS

• Risk-based Anti-Money Laundering (AML) Program
– Written policies, procedures, and internal controls that are
based on the results of the risk assessment
– A compliance officer responsible for ensuring that the AML
program is effectively implemented, the program is updated
when necessary, and that the appropriate persons are trained
– Ongoing training of appropriate persons
– Independent testing on a periodic basis to monitor and maintain
the program
• Suspicious Activity Reporting (in some cases)
THE BSA REGULATIONS REQUIRE

• Identify the customer and verify the customer’s identity
• Confirm that the customer is not fronting for another person or
entity
• Identify the nature of the business relationship
• Confirm that the relationship reflects the company’s knowledge of
the customer’s activities and needs
• Create a risk profile that includes:
−Basic information on the customer
−The customer’s geographical location
−The geographical sphere of the customer’s activities
−The nature of the customer’s activities
−The customer’s method of payment
“KNOW YOUR CUSTOMER” (KYC) & RISK PROFILES

• Risk assessment determines the extent to which a financial
institution is vulnerable to exploitation by:
−Money launderers
−Terrorist financiers
−Persons seeking to evade economic sanctions
• A risk assessment includes a comprehensive evaluation of the
level of risk for a company’s:
−Products
−Services
−Customers
−Geographic locations
• For each category, the assessment will determine whether the
company is exposed to low, moderate, or high risk
RISK ASSESSMENT

• Section 352 of the USA PATRIOT Act requires that financial
institutions establish AML programs.
• Financial institutions includes “persons involved in real estate
closings and settlements
• FinCEN’s proposed rule solicited assistance from the private
sector to craft the AML Program Rule:
– What are the Money Laundering Risks in Real Estate Closing and
Settlements?
– How should Persons Involved in Real Estate Closings and
Settlements be Defined?
– Should any persons involved in real estate closings or settlements
be exempted from coverage under Section 352?
– How should AML program requirements for persons involved in real
estate closing and settlements be structured?
2003 PROPOSED RULE: AML PROGRAM REQUIREMENTS FOR
PERSONS INVOLVED IN REAL ESTATE CLOSINGS AND
SETTLEMENTS

• 52 Comments
• Result: Final Rule Never Published
• Implications for the future
− The Stop Tax Haven Abuse Act would amend the BSA Regulations to
include persons involved in corporate formation process.
− Final Rule published within 180 days
PUBLIC RESPONSE

NEW BENEFICIAL OWNERSHIP INFO
REQUIREMENTS FOR BANKS
• (b) Identification and Verification. With respect to legal entity
customers, the covered financial institution’s customer due
diligence procedures should enable the institution to:
– (1) Identify the beneficial owner(s) of each legal entity customer,
unless otherwise exempt pursuant to §1010.230(d). * * *
• (2) Verify the identity of each beneficial owner identified to the
covered financial institution, according to risk-based procedures
to the extent reasonable and practicable.

NEW (JULY 2014) PROPOSED RULES FOR FINANCIAL
INSTITUTIONS
• (c) Beneficial Owner. For purposes of this section, Beneficial
Owner means each of the following:
• (1) Each individual, if any, who, directly or indirectly, through
any contract, arrangement, understanding, relationship or
otherwise, owns 25% or more of the equity interests of a legal
entity customer;
• (2) A single individual with significant responsibility to control,
manage, a legal entity customer, including
– (i) An executive officer or senior manager (e.g., a Chief Executive
Officer, Chief Financial Officer, Chief Operating Officer, Managing
Member, General Partner, President, Vice President, or Treasurer);
or
– (ii) Any other individual who regularly performs similar functions.

THE GATEKEEPER INITIATIVE
• Originates from the Moscow Communiqué issued at the 1999 G-8
Finance Ministers
• Calls upon countries to consider various means to address money
laundering through the efforts of professional gatekeepers of the
international financial system including lawyers, accountants,
company formation agents and others
• Following the Moscow Communiqué, FATF created a working group
that has identified several professions as “gatekeepers” with respect
to money laundering
• Within the U.S., an inter-agency working group was established to
develop a U.S. position on the Gatekeeper Imitative. It includes the
Departments of Justice and Treasury, the SEC and FinCEN

THE GATEKEEPER TASK FORCE
• The ABA created the Gatekeeper Task Force in 2002 to address the
Gatekeeper Initiative
• Mission: to respond to initiatives by the USG task force and others that
will impact on the attorney-client relationship in the context of AML
enforcement
• Reviews ABA policies/procedures
• Develops educational programs for legal professionals and law students
• Prepared Risk-Based Guidance for Lawyers
• ABA Ethics Committee endorsed Voluntary Good Practices

FATF’S RISK-BASED GUIDANCE FOR LEGAL PROFESSIONALS
• Based on the “40+”, FATF issues Risk-Based Guidance for “gatekeepers”
• Published on October 23, 2008
• 125 paragraph “high-level” document addressing private and public
sector
• Outlines the risk factors lawyers must consider when developing a risk-
based compliance system
• It does not take into account practical realities of the practice of law;
nor does it address jurisdictional variations among FATF member
countries

Are you familiar with Senate Bill 174
A. Yes
B. No

BUSINESS FORMATION AGENTS PLACED UNDER BSA
• Excludes Attorneys who use business formation agents.
• Excludes state filing offices.

S 174 SECTION 204 PROVISION
• (a) Anti-Money Laundering Obligations for Formation Agents- Section
5312(a)(2) of title 31, United States Code, as amended by section 113
of this Act, is amended by inserting after subparagraph (Z) the
following:
• ‘(AA) any person engaged in the business of forming new corporations,
limited liability companies, partnerships, trusts, or other legal entities;
or’ * * *
• (2) EXCLUSIONS- The rule promulgated under this subsection shall
exclude from the category of persons engaged in the business of
forming new corporations or other entities--
• (A) any government agency; and
• (B) any attorney or law firm that uses a paid formation agent operating
within the United States to form such corporations or other entities.

SB 174 BANKING REQUIREMENTS SECTION 104
• ``SEC. 6045D. RETURNS BY FINANCIAL INSTITUTIONS REGARDING
ESTABLISHMENT OF ACCOUNTS IN NON-FATCA INSTITUTIONS.
``(a) Requirement of Return.--Any financial institution directly
or indirectly opening a bank, brokerage, or other financial
account for or on behalf of an offshore entity, including a trust,
corporation, limited liability company, partnership, or
foundation (other than an entity with shares regularly traded on
an established securities market), in a non-FATCA institution (as
defined in section 7701(a)(51)) at the direction of, on behalf of,
or for the benefit of a United States person shall make a return
according to the forms or regulations prescribed by the
Secretary.

SB 174 SECTION 104 (CONT.)
• Required Information.--For purposes of subsection (a) the
information required to be included on the return shall include–
• ``(1) the name, address, and taxpayer identification number of
such United States person,
• ``(2) the name and address of the financial institution at which
a financial account is opened, the type of account, the account
number, the name under which the account was opened, and
the amount of the initial deposit,
• ``(3) if the account is held in the name of an entity, the name
and address of such entity, the type of entity, and the name and
address of any company formation agent or other professional
employed to form or acquire the entity, and ``
• (4) such other information as the Secretary may by forms or
regulations provide

SEN. GRASSLEY? FORMER SEN. LEVIN S 1465, INCORPORATION
TRANSPARENCY AND LAW ENFORCEMENT ASSISTANCE ACT
• Cradle to the Grave Reporting of Beneficial Ownership
• Act applies only to Corporations and LLCs
• Business formation agents are placed under the Bank Secrecy Act.
– Excludes Attorneys (who use Licensed Business formation Agents) and state
filing offices.
• Business formation agents are defined as anyone who assists the
formation of a business for compensation.

S 1465, INCORPORATION TRANSPARENCY
• Scope
– Corporations and LLCs
• Exclusions
– Regulated or publicly traded entities
• Banks, Insurance, Companies
• Publicly Traded Entities
• Or subsidiaries of excluded entities
– Entities with over 20 employees and over 5 million revenue and
operating presence in US.
– Partnerships, LPs, LLPs, Cooperative Associations and Business
Trusts?

S 1465, INCORPORATION TRANSPARENCY (CONT.)
• Beneficial Ownership information
– It requires the states to maintain beneficial ownership information for all
private Corps and LLCs.
• See Exclusions
• Private holding permitted by Licensed Business formation Agent
– Beneficial owner mean a natural person who, directly or indirectly
• exercises substantial control over a corporation or limited liability company; or
• has a substantial interest in or receives substantial economic benefits from the
assets
• Information must include passport or driver’s license number or other
proof of identity
– Licensed Business Formation Agent must perform due diligence for foreign
entities
• State may maintain the information on a confidential data base or permit
licensed business formation hold information.
– States may still have problems holding the information without public access.
– State will set the standards for licensing business formation agents.

• Law enforcement (a state or federal agency or congressional
committee) can obtain the beneficial ownership information only:
– Through a civil, criminal, or administrative subpoena or summons; or
– Information provided in response to any written request by a federal
agency on behalf of another country, or
– A written request by the Financial Crimes Enforcement Network
(FINCEN) of the Treasury Department.

• $10,000 Penalty or 3 years imprisonment applies to “anyone who
affects foreign or interstate commerce” or threatens homeland
security by knowingly providing false or fraudulent information or
failing to provide information or updates.
• Willfully fail to provide updates of beneficial ownership information
• Penalty for disclosure of request for information to law
enforcement.
• Penalty for Licensed Business Formation to knowingly failing to
obtain and maintain updated credible, legible beneficial ownership
information.

• Rules and directives would be prepared jointly by Secretary of
Homeland Security, Justice Department and Treasury Department.
– ABA objects to the directive language

FINCEN/ TREASURY RULES?????
• New Rules for Financial Institutions and Beneficial Ownership
Information – February 2012 Announced Notice of Proposed Rule
Making (ANPRM)
– Proposed rules published July 2014 likely adopted soon
– Proposed rules require
• Beneficial ownership disclosure of 25% or more equity interest
• Disclosure of person in control of organization

NEW TREASURY SUPPORTED LEGISLATION?
• “Green Book” General Explanations of the Administration’s
Fiscal Year 2016 Revenue Proposals
– All new filing entities would be required to file EIN information
including “Responsible Party” information.
– “Responsible Party“ information could be shared with other law
enforcement agents
– 10K penalty for failure to file EIN information and $100 to $1000
for failure to update.
– Business formation agents would likely be placed under the BSA
• Presumable there would be the attorney carve-out.
– TBD new procedures for the regulation of business formation
process including possible state regulation of business formation
agents.

UNIFORM LAW ENFORCEMENT ACCESS TO ENTITY
INFORMATION ACT - FORMERLY KNOWN AS ROBA
• Cradle to grave requirement for entity record retention of
management and ownership records and operational agreements.
• Creates New filing requirements for ALL privately held business
entities with 50 or fewer shareholders/members.
– Exclusion also applies for regulated entities i.e. banks insurance
co. etc.
• Entity must designate a “Records Contact” who has access to the
entity records and can deliver them to law enforcement upon an
“appropriate request”
• Entity must designate a “Responsible Individual” who
– “Directly or indirectly, participates in the control or management
of an entity or, in the case of an entity being formed, will
participate in the control or management of the entity.”

ENTITY INTEREST HOLDERS FROM OUTSIDE THE US
• Must provide to the entity the name and address of their RI
• Must provide updates when RI changes
• Incorrect info does not jeopardize existence of entity or its
actions. (No piercing the corp. veil)
• The foreign entity that fails to provide the certified information
regarding its RI may not maintain an action in court related to that
entity
– It cannot enforce its rights as an interest holder in court until it
complies with the RI disclosure requirement

RECORDS REQUIREMENTS
• Name and address of each known
– Transferee
– Current interest holder
– Any person to whom the entity has been instructed to send distributions
• Name and jurisdiction of any public filing entity that is a transferee or
interest holder of entity
• Name and address for each governor of the entity
– Governmental Id of any foreign residence governor
• Information on how governors are elected or otherwise designated
– Bylaws, operating agreement etc.
• Voting power of interest holders and how determined
• Individuals responsible for preparing records
• Must be certified (under penalty of perjury) by entity that information
accurately reflects current records.

PENALTIES
• Judicial Dissolution of entity for
– Failure to provide record information to RC
• Not sure if inaccurate information provided is the same thing
– Issuing a certificate of bearer interest
• Administrative Dissolution
– Failure to maintain a RC or RI or
– Fail to provide statement of status that it is not a unregulated
private entity
– Administrative dissolution similar to failure to maintain registered
agent or failure to file annual report and pay appropriate fees or
taxes
• Reinstatement permitted upon cure of defect
• Reinstatement permits entity to relate back to good standing and entity
can continue as if the dissolution had not occurred
• Administrative dissolution may effect status of name similar to existing
procedures

PENALTIES (CONT.)
• Penalty of perjury for false information in filing or contained in
records
• Other sanctions for failure to comply with subpoena or summons
associated with “appropriate request”

LIMITATIONS OF LIABILITY
• RC not liable for production of records
• RC not liable for any inaccuracy in or omission from the record
information except
– Recklessness
– Intentional misconduct or
– Criminal conduct
• RC who doesn’t resign when the entity fails to produce records
could face liability for criminal conduct facing the entity
• Compliance or noncompliance with the act is not grounds for
liability of interest holders, governors etc. due to piercing the
liability veil or alter ego theory

UNINTENDED CONSEQUENCES OF INCORPORATION
TRANSPARENCY ACT OR ULEAEIA
• May have a chilling effect on filing and increase costs of filing and
maintaining records
• May cause entities to organize and file in foreign jurisdiction instead
of in the US
• A World bank study concludes that barriers to the formation of
business entities impedes economic development
• May cause the “die off” of entities failing to comply, after the
transition into the new requirements.

ETHICAL ISSUES FOR ATTORNEYS
• Does this act create possible liabilities of attorneys acting as business
formation agents and thereby create conflicts between the attorney
and his or her client?
– Given the increased liability for false information in entity formation
documents it is necessary for attorneys to conduct greater due diligence on
their clients before performing the services?
• Are attorneys potentially in violation of rule 1.6 if they serve as a
records contact/documentation agent or a responsible individual?
– Should attorneys obtain a client waiver before serving in that capacity,
even just for the purpose of assisting and organizing the entity?
• Should attorneys serve as responsible individuals on behalf of
corporations they work for or entities that hire them?
– The RI is the person who answers questions from law enforcement?

ETHICAL ISSUES FOR ATTORNEYS (CONT.)
• What happens if an attorney serves as a Records
Contact/Documentation Agent and knows the records received
from the entity are not correct?
– Is resignation good enough?
– Can that attorney continue with an attorney-client relationship?
• If S 1465 passes should attorneys as formation agents vet foreign
ownership interests in business entities?
• What are the ethical consequences of Attorneys regulated under
the BSA?

MODEL RULES OF PROFESSIONAL CONDUCT
NO ASSISTANCE IN ILLEGAL OR FRAUDULENT ACTIVITIES
Rule 1.2(d)
• (d) A lawyer shall not counsel a client to engage, or assist a
client, in conduct that the lawyer knows is criminal or
fraudulent, but a lawyer may discuss the legal consequences
of any proposed course of conduct with a client and may counsel
or assist a client to make a good faith effort to determine the
validity, scope, meaning or application of the law.

RULE 1.4(5) COMMUNICATION
1.4 (a) A lawyer shall:
• (5) consult with the client about any relevant limitation on
the lawyer’s conduct when the lawyer knows that the
client expects assistance not permitted by the Rules of
Professional Conduct or other law.

MODEL RULE 1.6 CONFIDENTIALITY
Client-Lawyer Relationship
Rule 1.6 Confidentiality Of Information
• (a) A lawyer shall not reveal information relating to the representation of a client
unless the client gives informed consent, the disclosure is impliedly authorized in
order to carry out the representation or the disclosure is permitted by paragraph
(b).
• (b) A lawyer may reveal information relating to the representation of a client to
the extent the lawyer reasonably believes necessary:
– (1) to prevent reasonably certain death or substantial bodily harm;
– (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;
– (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;
– (4) to secure legal advice about the lawyer's compliance with these Rules;
– (5) to establish a claim or defense on behalf of the lawyer in a controversy between
the lawyer and the client, to establish a defense to a criminal charge or civil claim
against the lawyer based upon conduct in which the client was involved, or to
respond to allegations in any proceeding concerning the lawyer's representation of
the client; or
– (6) to comply with other law or a court order.

RULES 1.9 1.18 DUTIES TO PROSPECTIVE/FORMER CLIENT
1.9 Duties to Former Client
(c) A lawyer who has formerly represented a client in a matter shall not thereafter:
• (1) use information relating to the representation to the disadvantage of the former client
except as these Rules would permit or require with respect to a client, or when the
information has become generally known; or
• (2) reveal information relating to the representation except as these Rules would permit or
require with respect to a client.
• Rule 1.18 Duties to Prospective Client
• (a) A person who discusses with a lawyer the possibility of forming a client-lawyer
relationship with respect to a matter is a prospective client.
• (b) Even when no client-lawyer relationship ensues, a lawyer who has had discussions with a
prospective client shall not use or reveal information learned in the consultation, except as
Rule 1.9 would permit with respect to information of a former client.

MODEL RULE 1.13 ORGANIZATION AS A CLIENT
Client-Lawyer Relationship
Rule 1.13 Organization As Client
• (a) A lawyer employed or retained by an organization represents the
organization acting through its duly authorized constituents.
• (b) If a lawyer for an organization knows that an officer, employee or
other person associated with the organization 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 that is likely to result in substantial injury to the
organization, then the lawyer shall proceed as is reasonably necessary
in the best interest of the organization. Unless the lawyer reasonably
believes that it is not necessary in the best interest of the organization
to do so, the lawyer shall refer the matter to higher authority in the
organization, including, if warranted by the circumstances to the
highest authority that can act on behalf of the organization as
determined by applicable law.

MODEL RULE 1.13 (CONT.)
• (c) Except as provided in paragraph (d), if
– (1) despite the lawyer's efforts in accordance with paragraph (b) the highest authority that can act on behalf
of the organization insists upon or fails to address in a timely and appropriate manner an action, or a refusal
to act, that is clearly a violation of law, and
– (2) the lawyer reasonably believes that the violation is reasonably certain to result in substantial injury to the
organization,
– then the lawyer may reveal information relating to the representation whether or not
Rule 1.6 permits such disclosure, but only if and to the extent the lawyer reasonably
believes necessary to prevent substantial injury to the organization.
• (d) Paragraph (c) shall not apply with respect to information relating to a lawyer's
representation of an organization to investigate an alleged violation of law, or to defend the
organization or an officer, employee or other constituent associated with the organization
against a claim arising out of an alleged violation of law.
• (e) A lawyer who reasonably believes that he or she has been discharged because of the
lawyer's actions taken pursuant to paragraphs (b) or (c), or who withdraws under
circumstances that require or permit the lawyer to take action under either of those
paragraphs, shall proceed as the lawyer reasonably believes necessary to assure that the
organization's highest authority is informed of the lawyer's discharge or withdrawal.
• (f) In dealing with an organization's directors, officers, employees, members, shareholders
or other constituents, a lawyer shall explain the identity of the client when the lawyer
knows or reasonably should know that the organization's interests are adverse to those of
the constituents with whom the lawyer is dealing.
• (g) A lawyer representing an organization may also represent any of its directors, officers,
employees, members, shareholders or other constituents, subject to the provisions of Rule
1.7. If the organization's consent to the dual representation is required by Rule 1.7, the
consent shall be given by an appropriate official of the organization other than the
individual who is to be represented, or by the shareholders.

AZ COMMENTS TO RULE 1.13
• 6] The authority and responsibility provided in this Rule are concurrent with the
authority and responsibility provided in other Rules. In particular, this Rule does
not limit or expand the lawyer's responsibility under ERs 1.8, 1.16, 3.3 or
4.1. Paragraph (c) of this Rule supplements Rule 1.6(d) by providing an
additional basis upon which the lawyer may reveal information relating to the
representation, but does not modify, restrict, or limit the provisions of Rule
1.6(d)(1)-(5). Under paragraph (c) the lawyer may reveal such information only
when the organization's highest authority insists upon or fails to address
threatened or ongoing action that is clearly a violation of law, and then only to
the extent the lawyer reasonably believes necessary to prevent reasonably
certain substantial injury to the organization. It is not necessary that the
lawyer's services be used in furtherance of the violation, but it is required
that the matter be related to the lawyer's representation of the
organization. If the lawyer's services are being used by an organization to
further a crime or fraud by the organization. Rules 1.6(d)(1) and 1.6(d)(2) may
permit the lawyer to disclose confidential information. In such circumstances
Rule 1.2(d) may also be applicable, in which event, withdrawal from the
representation under Rule 1.16(a)(1) may be required.

RULE 1.16 DECLINING OR TERMINATING REPRESENTATION
• (a) Except as stated in paragraph (c), a lawyer shall not
represent a client or, where representation has commenced,
shall withdraw from the representation of a client if:
– (1) the representation will result in violation of the Rules of
Professional Conduct or other law;
– (2) the lawyer’s physical or mental condition materially impairs
the lawyer’s ability to represent the client; or
– (3) the lawyer is discharged.

RULE 1.16 (CONT.)
• (b) Except as stated in paragraph (c), a lawyer may withdraw from
representing a client if:
– (1) withdrawal can be accomplished without material adverse effect on
the interests of the client;
– (2) the client persists in a course of action involving the lawyer’s services
that the lawyer reasonably believes is criminal or fraudulent;
– (3) the client has used the lawyer’s services to perpetrate a crime or
fraud;
– (4) the client insists upon taking action that the lawyer considers
repugnant or with which the lawyer has a fundamental disagreement;
– (5) the client fails substantially to fulfill an obligation to the lawyer
regarding the lawyer’s services and has been given reasonable warning
that the lawyer will withdraw unless the obligation is fulfilled;
– (6) the representation will result in an unreasonable financial burden on
the lawyer or has been rendered unreasonably difficult by the client; or
– (7) other good cause for withdrawal exists.

MODEL RULES RULE 4.1: STATEMENTS TO OTHERS
Rule 4.1 Truthfulness In Statements To Others
• In the course of representing a client a lawyer shall not
knowingly:
• (a) make a false statement of material fact or law to a third
person; or
• (b) fail to disclose a material fact to a third person when
disclosure is necessary to avoid assisting a criminal or fraudulent
act by a client, unless disclosure is prohibited by Rule 1.6.

AZ COMMENTS TO RULE 4.1
• Crime or Fraud by Client
• [3] Under ER 1.2(d), a lawyer is prohibited from counseling or assisting a client
in conduct that the lawyer knows is criminal or fraudulent. Paragraph (b) states
a specific application of the principle set forth in ER 1.2(d) and addresses the
situation where a client's crime or fraud takes the form of a lie or
misrepresentation. Ordinarily, a lawyer can avoid assisting a client's crime or
fraud by withdrawing from the representation. Sometimes it may be necessary
for the lawyer to give notice of the fact of withdrawal and to disaffirm an
opinion, document, affirmation or the like. In extreme cases, substantive
law may require a lawyer to disclose information relating to the
representation to avoid being deemed to have assisted the client's crime or
fraud. If the lawyer can avoid assisting a client's crime or fraud only by
disclosing this information, then under paragraph (b) the lawyer is required
to do so, unless the disclosure is prohibited by ER 1.6. If disclosure is permitted
by ER 1.6, then such disclosure is required under this Rule, but only to the
extent necessary to avoid assisting a client crime or fraud.

MODEL RULE 8.4 MISCONDUCT
Rule 8.4 Misconduct
• It is professional misconduct for a lawyer to:
– (a) violate or attempt to violate the Rules of Professional Conduct,
knowingly assist or induce another to do so, or do so through the acts of
another;
– (b) commit a criminal act that reflects adversely on the lawyer's honesty,
trustworthiness or fitness as a lawyer in other respects;
– (c) engage in conduct involving dishonesty, fraud, deceit or
misrepresentation;
– (d) engage in conduct that is prejudicial to the administration of justice;
– (e) state or imply an ability to influence improperly a government agency
or official or to achieve results by means that violate the Rules of
Professional Conduct or other law; or
– (f) knowingly assist a judge or judicial officer in conduct that is a violation
of applicable rules of judicial conduct or other law.

CLIENT DUE DILIGENCE: ABA GOOD PRACTICES
• Client Intake Concerns
– Client Identity
• Know your client or verify his or her identity
• Natural Person Client
– Name, Age, Address, Phone numbers, SS Number, Drivers License
other identifying information
• Entity Client
– Parent and Subsidiary entities, Directors/Officers/Managers,
– Know the beneficial owners or at least the majority owners
– Client Due Diligence
• OFAC SDN Check
• Google Search
• Background Checks
• Periodic Updates

CLIENT RISK ASSESSMENT
• Know the clients circumstances, business activities and services
provided
– Consider the money laundering risks involved with the transaction
– Look for the red flags such as money flowing through trust account
• Client risk factors
– Country geographic risk
• Client from countries engaged in questionable activities or on watch
lists
– Client risk considerations
• Politically Exposed Person
• Unusual circumstances
• Hiding beneficial ownership
• Cash intensive businesses
• Entities with no legal purpose
• Clients with no or multiple addresses

CLIENT RISK ASSESSMENT (CONT.)
– Service Risk
• Touching the money
• Concealment of beneficial ownership
• Unusual transactions
• Cash payments
• Shell companies
• Establish Client Due Diligence Training for Law firm or Company
• Be Careful out there (Hill Street Blues)

CASE STUDIES
• Used by permission of the State Bar of Montana published in the
“Montana Lawyer” Feb 2010.
• Taken from an article “Global Scammers now aiming to rip off
Montana Attorneys.”

SOURCES LINKS
• OFAC Regulations for Corporate Registration Industry
http://www.ustreas.gov/offices/enforcement/ofac/regulations/facreg.pdf
• Specially Designated Nationals List (SDN)
http://www.ustreas.gov/offices/enforcement/ofac/sdn/sdnlist.txt
• OFAC website location for SDN list
http://www.ustreas.gov/offices/enforcement/ofac/sdn/index.shtml
• Title 31- CFR CHAPTER V--OFFICE OF FOREIGN ASSETS CONTROL,
DEPARTMENT OF THE TREASURY
http://www.access.gpo.gov/nara/cfr/waisidx_08/31cfrv3_08.html#500
• Links to State Rules of Professional Conduct
http://www.abanet.org/cpr/links.html

ETHICS
IN EVOLVING
COMPLIANCE REQUIREMENTS
PRESENTED BY:
GARTH JACOBSON, ESQ.
THANK YOU FOR ATTENDING

Ethics in Evolving Compliance Requirements

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