MONEY LAUNDERING, THE GATEKEEPER INITIATIVE, AND THE ATTORNEY-CLIENT RELATIONSHIP Edward J. Krauland STEPTOE & JOHNSON LLP February 2003

INTERNATIONAL EFFORTS TO COMBAT MONEY LAUNDERING  Money Laundering: Moving ill-gotten assets into legitimate business to hide proceeds  Estimate of $600 billion a year  FATF: Intergovernmental entity created in 1989 by G-7 (29 member countries & 2 international organizations)  40 Non-binding recommendations to address money laundering; reviews money laundering trends and techniques

THE GATEKEEPER INITIATIVE  October 1999 Moscow G-8 Finance Ministers  Identified Professions as “Gatekeepers”: Lawyers, Accountants, Auditors  FATF Consultation Paper (May 2002)  Due Diligence Re Clients  Internal AML Compliance Programs  Recordkeeping Requirements  Suspicious Transaction Reporting Requirement  No “Tipping Off”  Exception For Privileged Information: Unclear

U. S. GOVERNMENT RESPONSE  National Money Laundering Strategy Report CY 2002/CY2001  Interagency Working Group (DOJ, Treasury, SEC, FinCEN)  USA Patriot Act  USG Position On Gatekeeper Still Under Review

OTHER RESPONSES RE GATEKEEPER  United Kingdom: Limited Gatekeeper Regime Requiring Solicitor Reports on Clients  Switzerland: Gatekeeper Regime for Lawyers as Financial Intermediaries, Reporting to SRO  European Union: Directive 2001/97/EC Passed in Late 2001 Requiring Gatekeeper Laws by June 2003  Canada: Gatekeeper Legislation Enjoined By Legal Challenge From Bar Despite Exception For Solicitor-Client Privilege

COMPONENTS OF CONFIDENTIALITY Facts and Non- Information Client Secrets and Confidences Attorney-Client Privilege Work Product Doctrine

FOUNDATIONS OF THE PRIVILEGE  Part Of U.S. Common Law: Dates To 16 th Century Reign Of Queen Elizabeth in England  Public Policy Basis: “Full And Frank Communications Promotes Broader Public Interests In Observance Of Law and Administration Of Justice” Upjohn (1981)  U.S. Constitution 6 th Amendment Right to Counsel; 10 th Amendment States’ Rights

EXCEPTIONS TO THE PRIVILEGE  The Privilege Has Been Waived By The Client  Attorney Must Disclose In Order To Prevent Fraud On The Tribunal  The Communication Is Not For The Purpose Of Committing A Crime Or Fraud

MODEL RULES OF PROFESSIONAL CONDUCT Rule 1.6(a) (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).

RULE 1.6(b) EXCEPTIONS A Lawyer May Reveal Client Confidential Information :  To Prevent Reasonably Certain Death Or Substantial Bodily Harm  To Secure Legal Advice About The Lawyer’s Compliance With These Rules  To Establish A Claim Or Defense On Behalf Of The Lawyer In A Civil Or Criminal Case Against The The Lawyer;  To Comply With Other Law Or Court Order

TRENDS IN STATE ETHICS RULES: PERMISSIVE DISCLOSURE  Prevent An Act Likely To Lead To Death, Substantial Bodily Harm (17 States)  A Criminal Or Fraudulent Act Likely To Result In Substantial Financial Injury (10 States)  Prevent Or Reveal The Intention Of A Client To Commit A Criminal Act Or Harm (34 States)

TRENDS IN STATE RULES: MANDATORY DISCLOSURE  7 States: To Prevent Client From Committing A Criminal Act Likely To Lead To Death Or Substantial Bodily Harm  3 States: To Prevent Fraudulent Acts Likely To Lead To Death Or Substantial Bodily Harm  2 States: To Prevent “A Crime”  1 State: To Prevent Crime or Fraud Likely To Result In Substantial Financial Harm

PRESSURES ON THE PRIVILEGE  USA Patriot Act: Obligation Of Attorneys To File “Suspicious Activity Reports”?  Sarbanes - Oxley: Obligation Of Attorneys To Report Violations Of Security Law Up The Chain Of Command In The Corporation  ABA Task Force On Corporate Accountability: Greater Permissive Disclosure

ABA TASK FORCE ACTIVITIES  Establish Contacts With USG Officials Re Gatekeeper Initiative  Liase With Legal Professionals Outside United States – JFBA, CCBE, CBA  Promote Education And Awareness Within The Bar  Submit Comments On The FATF Consultation Paper – August 2002  Develop ABA Policy On Gatekeeper Initiative

ABA TASK FORCE COMMENTS TO FATF  Oppose The Suspicious Transaction Reporting Requirement  Oppose The “No Tipping Off” Rule  Client Due Diligence And Record Keeping For Lawyers Acting As Financial Intermediaries  Collaboration And Consultation With Bar Associations

ABA POLICY ON GATEKEEPER INITIATIVE  Task Force Resolution Approved At ABA Mid Year Meeting In Seattle, Washington – February 2003  Recognizes USG Fight Against Money Laundering And Terrorist Financing  Reaffirms Critical Role Of Lawyers In Administration Of Justice, Independence Of Bar, And Importance Of Client Confidentiality

ABA POLICY ON GATEKEEPER INITIATIVE  Opposes Mandatory STR That Compromises Independence Of Bar And Client Confidentiality  Review Of Model Rules Re Permissive Disclosure  Urges Further Education Of Lawyers And Law Students Re Money Laundering Risks And Laws

CONCLUSION  Independence Of Bar And Client Confidentiality Critical To Rule Of Law And Administration Of Justice  Efforts To Stop Money Laundering And Terrorist Financing Are Clearly Warranted  Gatekeeper Initiative Must Accommodate The Role Of Lawyers In Society  Bar Association Must Be Proactive In Education, Ethics And Engagement With Government Officials