Lawyers Reluctant to Report Suspicious Client Acts

Prompted in part by disclosures from the Pandora Papers investigation last year, a recent piece of language working its way through the U.S. Congress is aimed at shutting down what supporters see as loopholes in the Bank Secrecy Act that effectively let oligarchs like those allied with Vladimir Putin take advantage of U.S. entities in order to launder money.

However, lawyers are strongly pushing back against the in-progress legislation, saying it would require them to report suspicious transactions by clients, thus disrupting attorney-client privilege and empowering the Treasury Department to conduct random audits. They argue that this would in effect be redundant, because banks are already required to report such suspicious transactions and are not governed by attorney-client privilege.

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The new requirement, if the legislation is passed, would also apply to accountants, payment service providers, and trust companies.

According to Representative Tom Malinowski (D-NJ), a sponsor of the bill, passage of the language would prevent kleptocrats from being able “to use American law and accounting firms and trust companies to shelter their ill-gotten wealth.”

In July, the House of Representatives approved the annual defense bill containing the anti-laundering language with broad bipartisan support. The previous month, the House Armed Services Committee had inserted the provision into the bill. The Senate Armed Services Committee, however, did not include the anti-laundering language in its version of the bill that the panel approved in June, but Senator Sheldon Whitehouse (D-R.I.) has said he indeed backs the anti-laundering proposal and plans to introduce it.

The Pandora Papers investigation in October conducted by the International Consortium of Investigative Journalists (ICIJ) claimed that the law firm Baker McKenzie had helped multinational companies and wealthy individuals avoid taxes through shell companies and trusts.

Just four days after the allegations against the firm were published, Rep. Malinowski and a bipartisan group of five colleagues introduced the Enablers Act, later basing the language in the defense bill on the language from this act.

A spokeswoman for Baker McKenzie, for its part, referred a reporter to a statement that said that as part of its risk management protocols, “Baker McKenzie performs comprehensive anti-money-laundering and sanctions compliance and background checks on all potential clients.”

Naturally, The American Bar Association has come out on the side of law firms in the matter, saying the legislation would regulate services law firms provide, such as trust formation and company registration, and interfere with attorney-client relationships.

“The attorney-client privilege and the lawyer’s ethical duty of confidentiality are bedrock legal principles,” then-ABA President Reginald Turner said in letters to House and Senate leaders on July 5.