Money launderingThe set-up:  Potential client calls you on the phone.  He says he is representing a government minister from a mineral-rich West African nation — he won’t say which one.  But his (unnamed) principal needs legal help in order to move millions of dollars into the U.S. — consisting of what the representative candidly describes as “tainted money” and “gray money;” actually, bribes the government minister has received in exchange for grants of mineral rights.

Do you take the bait and schedule a meeting to discuss representing the client?  Do you accept an engagement?

Secret tapes

That, in fact, was the set-up for the 60 Minutes segment on money-laundering and the U.S. legal system on January 31; you can watch it here.

Of course, the “representative” of the unnamed West Africa government official was in fact an imposter who was working with Global Witness, a British-based public advocacy group.  But shockingly, 13 law firms scheduled meetings with the supposed client to discuss representing his anonymous principal.  That was out of 50 firms the imposter called.

The resulting interviews with the “client’s” representative were secretly videotaped, and some might appear to suggest that the lawyers involved were willing to advise the “client” in carrying out an illegal money-laundering scheme.

Glass half-full?

So far, so bad.  One lawyer, though, rejected the bait, saying that “it ain’t for me,” and raising questions about the Foreign Corrupt Practices Act.  That’s nice, but what about the other 12 firms?

My friend Brian Faughnan, over at Faughnan on Ethics, has some interesting comments.  Among other things, he suggests that the proverbial glass might actually half-full.  Yes, 12 firms were potentially on thin ice, ethically speaking, if the “client” had been real, and if the secret tapes accurately reflected their conduct.  But 37 firms wouldn’t even meet with the guy.  That’s a 75 percent score for the smart folks.  The American Bar Association’s response to the 60 Minutes segment is here.

I don’t think that 75 percent is anything to brag about, necessarily.  Lawyers need to be far more responsive to the big red flags that were abundant in the fake scenario portrayed in the videos:  unnamed African countries, anonymous principals, and above all, money that was candidly described as “tainted.”

Ethical duties at risk

Everyone should be aware of the knife edge that your jurisdiction’s version of Model Rule 1.2(d) puts you on.  You can never “counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent.”  You can and should “discuss the legal consequences of any proposed course of conduct with a client.”

And, as Comment [9] explains, you are not precluded “from giving an honest opinion about the actual consequences that appear likely to result from a client’s conduct. … There is a critical distinction between presenting an analysis of legal aspects of questionable conduct and recommending the means by which a crime or fraud might be committed with impunity.”

Where the line between these two polarities is located is the ethical challenge that we all face.  But a significant minority of the lawyers in the 60 Minutes segment flunked the test.  That’s a disappointment, and adds to a media image of the legal profession that is sadly too common.

Advising a “client” on how to move “grey money” into the U.S. has resulted in an agreed public censure in September for a New York attorney.  The lawyer (along with a number of others) was caught on video by Global Witness, a British-based public advocacy group.  But the sanction raises some questions regarding the imposition of discipline for conduct based on a pretextual situation.

The “client” was actually an undercover investigator who posed as a German lawyer and succeeded in getting appointments with 13 firms (out of 50 he tried) to supposedly get advice on behalf of an undisclosed African government official.  The question from the fake lawyer’s fake client:  how to launder funds described as “gray money” or “black money,” including by buying a New York brownstone, a jet and a yacht.

60 Minutes exposé

The video later aired on 60 Minutes.  (The section on the censured lawyer is here.)  We previously wrote about Global Watch’s sting operation, noting that the bad news was that some of the firms appeared to be on ethical thin ice in their interaction with the investigator (assuming the secret tapes accurately reflected their conduct).  The good news was that 37 firms didn’t schedule meetings with the fake prospect.  (And one lawyer who agreed to a meeting firmly rejected the bait, saying that “it ain’t for me,” and pointing out the Foreign Corrupt Practices Act.)

The American Bar Association’s response to the 60 Minutes segment is here.

Agreed censure for “counseling a client”?

Almost two years after the 60 Minutes piece, the censured New York lawyer entered into a discipline-by-consent agreement based on his meeting with the Global Witness actor.

Significantly, the main charge was counseling “a client to engage in conduct [the lawyer] knew was illegal or fraudulent,” in violation of New York’s version of Model Rule 1.2(d).

Of course, no lawyer should violate that rule.  But the brief opinion of the New York Appellate Division’s First Department reflects no acknowledgment that the person speaking to the censured lawyer was an actor, that there was no bona fide prospective “client,” and that there was never going to be any action taken in response to whatever comments the censured lawyer might have made.  Rather, the opinion speaks of the conduct occurring during “a meeting with a potential client.”

The lawyer’s misconduct was significantly mitigated, the First Department noted, by his cooperation, and the fact that it was a single “aberrational” incident in the lawyer’s 50-year career.  Those factors justified the relatively light sanction — a public censure.

Beware possible counseling traps

This case spotlights the knife-edge you sometimes walk in counseling clients — including that a disciplinary authority might view as sanctionable even conduct undertaken in response to a pretext where there is no actual client.

You can never “counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent.”  But under Rule 1.2(d) you can and should “discuss the legal consequences of any proposed course of conduct with a client.”

And, as Comment [9] explains, you are not precluded “from giving an honest opinion about the actual consequences that appear likely to result from a client’s conduct. … There is a critical distinction between presenting an analysis of legal aspects of questionable conduct and recommending the means by which a crime or fraud might be committed with impunity.”

The stakes now appear higher than ever in getting that distinction right.

This Photo by Unknown Author is licensed under CC BY-SA

If a South American investor asks you to take delivery of $1 million cash in your law office, to deposit it into a client account and then wire it to different designated accounts, all to supposedly “leverage” additional funds to produce a movie — should you do it?  A New York lawyer who did was charged with money laundering, allowed to plead to a lesser offense, and earlier this month was suspended from practice for three years based on the conviction.

The opinion of the New York Appellate Division in the case dovetails nicely with a recent ABA ethics opinion on the “duty to inquire” in order to avoid assisting with a fraudulent transaction.

“Didn’t feel good about it”

The lawyer in the case was assured by the client that the money was “clean.”  He testified that under the irregular circumstances he “didn’t feel good about it,” but went ahead with the arrangement anyway.  For his role in the transaction, the lawyer was paid $25,000.

In hindsight, the lawyer should have listened to his tingling Spidey sense, and run the other way, because several years after the transaction, he “learned that the money was ‘drug money,'” according to the court of appeals opinion.

The lawyer was immediately suspended from practice after his guilty plea in the criminal case; regulations in New York as in other systems provide for such interim suspensions upon conviction for serious crimes.

Later, in imposing the three-year suspension, the appeals court quoted the remark of the judge at the lawyer’s criminal sentencing:  “People usually don’t walk into an office with a million dollars in cash” and ask that it be converted into another form, and therefore, the court said in the disciplinary case, the lawyer “should have been on notice that this was not a legitimate transaction.”  In fact, the lawyer acknowledged that something was not right but decided to participate anyway, the court said.

Duty to inquire

If you find yourself with a cool million bucks that a client wants you to move around, like this lawyer did, you should first read the ABA’s Opinion 491, which was issued April 29.  Model Rule 1.2(d) prohibits a lawyer from advising or assisting a client in conduct the lawyer “knows” is criminal or fraudulent.  The extensively-footnoted opinion discusses when you “know” that, and spotlights some circumstances that require lawyers to inquire further before they provide their services.  The opinion includes some hypotheticals.

The knowledge that a deal is criminal or fraudulent may be inferred from the circumstances, “including a lawyer’s willful blindness to or conscious avoidance of facts,” the ABA Committee said.  Therefore, if you have facts that “establish a high probability that a client seeks to use the lawyer’s services” for a crime or fraud, you have “a duty to inquire further to avoid advising or assisting” the wrongdoing.

Even if information you get (whether from an intake interview or during the representation) doesn’t meet the “high probability” standard under Rule 1.2(d), the Committee advised, other rules on competence, diligence, communication and honesty may require you to inquire further.

If the client or prospective client refuses to give you information necessary for you to assess the legality of the proposed transaction, you “must ordinarily decline the representation or withdraw” from an existing representation, the Committee concluded.

Listen to your Spidey sense

“A lawyer may not ignore the obvious,” the ABA Committee wrote.  We’ve commented before (here and here) on the 2016 TV exposé that captured secretly-taped intake interviews in which lawyers appeared to be willing to use “gray money” to carry out transactions proposed by fake “clients.”  In each set-up, there were clues that should arguably have prompted further inquiry.

Bottom line:  If your nose tells you something is fishy about a client transaction you are asked to help with, then as the ABA opinion quoted, you have “an ethical responsibility to find out whether the proposal [is] above-board before performing the services.”

In the movie “Goodfellas,” Robert De Niro famously advises that the two greatest life lessons are “Never rat on your friends, and always keep your mouth shut.”  Those are good rules if you’re in a crime syndicate.  But as most lawyers know, our Rules of Professional Conduct can actually require us to “rat out” our fellow lawyers, under some limited circumstances.  Model Rule 8.3(a), adopted in some version in almost all jurisdictions, says:

“A lawyer who knows that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer’s honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate professional authority.”

Rule 8.3(b) applies the principle to judges.

But do you ever have to, in effect, rat yourself out — self-reporting your own ethical misconduct?

In almost every jurisdiction (my home state of Ohio is an exception), the answer is “No.”  The Model Rule, as incorporated into almost all the state professional conduct rules and the rules of the District of Columbia, deals expressly with reporting the ethical misconduct of “another lawyer.”  Under that language, there is no ethical duty to self-report your own violation of the professional conduct rules.  In some jurisdictions, though, self-reporting might be considered as part of the mitigating factors that can reduce the severity of professional discipline, as a recent Nevada opinion illustrates.

Stayed suspensions for trust fund misconduct

In the Nevada case, two lawyers got one-year fully-stayed suspensions after their employee improperly used more than $1 million in client trust account funds to pay firm business expenses.  As described in the state supreme court’s opinion, the two lawyers admitted they violated Nevada’s version of Model Rule 5.3, by failing to properly supervise a non-lawyer assistant, and they agreed to the sanction.  The lawyers were not aware of the non-lawyer’s actions.  And, strikingly, “Within fifteen minutes of discovering the non-lawyer assistant’s improper trust fund transfers,” they “self-reported to the State Bar.”  In accepting the proposed discipline, the supreme court noted the lawyers’ “full and free disclosure to disciplinary authority.”  It also helped that the lawyers immediately hired a forensic accountant for an audit, and began repaying the trust account shortfall out of earned fees.

… And you might have to self-report crimes and/or other discipline

The general rule excusing you from ratting on yourself is turned upside down in many places, however, when it comes to self-reporting discipline that is imposed on you by a court (for instance a federal court) or by a disciplinary authority in another jurisdiction.  In those cases, many jurisdictions require you to bring the matter to the attention of your home state’s disciplinary body.  It’s not the misconduct itself, but the fact of disciplinary action emanating from somewhere besides your home jurisdiction’s highest court that triggers this kind of self-reporting duty.

You also might have a duty to self-report if you are charged with or convicted of a crime.  If (heaven forbid) you find yourself in that situation, you should get advice about what your jurisdiction requires of you, including any mandatory time frames on self-reporting.

Carve-out for lawyer assistance programs

Last, a PSA:  If you are struggling with a mental health problem, or with substance abuse, be aware that the lawyer assistance program that every jurisdiction has is very likely exempted from reporting to disciplinary authorities misconduct that its staff lawyers learn of in the course of helping you.  Check your own state’s version of Model Rule 8.3(c), but those I’m aware of have some form of the Model Rule’s carve-out:   “This Rule does not require disclosure of information otherwise protected by Rule 1.6 or information gained by a lawyer or judge while participating in an approved lawyers assistance program.”

Here in Ohio, our lawyer assistance program advises that no disciplinary problem is ever made worse by seeking help.