ABA House of Delegates Amends the AML Model Rule to Curb Financial Crimes

The House of Delegates amended the ABA Model Rule of Professional Conduct 1.16, which covers declining and terminating the representation of clients, during the American Bar Association (ABA) annual meeting in Denver, on August 8th. 

The ABA standing committee on Ethics and Professional Responsibility, along with a committee of Professional Regulation, advised a change in the model rule; according to the ABA report, it will ensure that “lawyers conduct client due diligence — appropriate to the circumstances — to detect and prevent involvement in unlawful activities, to combat terrorist financing and money laundering.” 

According to these amendments, a lawyer can decline the client’s request if they detect their involvement in illicit activities. Additionally, they should determine whether to accept or decline a particular client’s representation after assessing all the pertinent information about them. According to 1.16 of the amended legislation, lawyers should conduct customer due diligence throughout the representation process. Lawyers must also keep track of the risk assessment and anti-money laundering inquiry on a client at all times since circumstances and facts can change.

Additionally, the amendments say that the lawyer’s perspective of the due diligence will change from client to client according to the associated risk. In compliance with the new model rule, lawyers may have to determine the risk to a client by examining several factors, including verifying client identity, their working industry, the nature of service needed, and the jurisdictions lawyers follow during representation. Daniel J. Crothers, chairman of the standing committee on professional regulation, stated, “This makes explicit what is already a lawyer’s duty, The substantive words are that the lawyer has an obligation to inquire and to assess information relating to the representation. That requirement exists today, we submit. According to Crothers, the rules were amended in Model Rule 1.16, corresponding to what lawyers are required to do in conflict of interest situations. “As lawyers, when we’re doing a conflict check, this is not a one-and-done exercise. Rather, you do a conflict check when you intake the client; you do another one if a client is added or a claim is added, or a party is added. This is basic good lawyering—the purpose of this rule, at its base, is to help lawyers be good lawyers.”

Kevin Shepherd, the national leader working as an ABA Treasurer, also spoke for the right of the amendments, urging that adoption of this regulation preserves the profession’s integrity. He also mentioned that not accepting the update in Model Rule will not only finish the ABA policies but invite federal regulations of the lawyers. According to the resolution report, the extensive concerns about the lawyer’s involvement in illicit activities with a client have increased the risk of federal supervision. One example of working under federal regulation is the proposed ENABLERS Act which will regulate lawyers and law firms as “Financial Institutes” and force them to disclose the suspicious activities of their clients.

Shepherd mentioned, “As a wake-up call, [the U.S.] The Treasury informed me last Friday that the failure of the ABA to adopt Resolution 100 would cause the Treasury to explore every means available in its regulatory toolkit to impose regulations on the legal profession. It’s not a threat—it’s just a simple fact and political reality. We ignore it at our peril.”

The ABA has been against the ENABLERS Act for many years, arguing that these or similar obligations will impose a regulatory burden on lawyers and law firms. ABA House of Delegates addressed that amendments in Model Rule 1.16 will enhance compliance with AML regulation without forcing regulatory burden on lawyers and not compromising lawyer-client confidentiality.

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