By Daniel J. Siegel
In 2020, Congress passed the Corporate Transparency Act (CTA) as part of the Anti-Money Laundering Act. The CTA mandates that certain corporations, LLCs, and similar entities report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). These businesses must file a Beneficial Ownership Information Report (BOIR) by January 1, 2025.
What, you may ask, does the enactment of the CTA have to do with legal ethics, and why should you care?
The answer is that, in addition to understanding the CTA and advising clients on its provisions, ABA Model Rule of Professional Conduct 1.16(a) was amended and now states:
(a) A lawyer shall inquire into and assess the facts and circumstances of each representation to determine whether the lawyer may accept or continue the representation. 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;
(3) the lawyer is discharged; or
(4) the client or prospective client seeks to use or persists in using the lawyer’s services to commit or further a crime or fraud, despite the lawyer’s discussion pursuant to Rules 1.2(d) and 1.4(a)(5) regarding the limitations on the lawyer assisting with the proposed conduct.
Although not included in the text of the amendment, the report supporting the Rule included the following statement demonstrating the purpose of the amendment:
In the U.S., the primary anti-money laundering laws are the Bank Secrecy Act (“BSA”) and the Money Laundering Control Act. The U.S. Department of Treasury created the Financial Crimes Enforcement Network (“FinCEN”) to implement, administer, and enforce compliance with the BSA. Most recently, Congress enacted the Corporate Transparency Act (“CTA”) to enhance the identification and disclosure of certain beneficial ownership information. The CTA is part of the Anti-Money Laundering Act of 2020, which is part of the National Defense Authorization Act for Fiscal Year 2021.
Pennsylvania Rule of Professional Conduct 1.16 has not been amended to include the change adopted by the ABA. However, the underlying purpose of the amendment applies to all attorneys, regardless of whether it is part of a specific state’s Model Rules.
It seems obvious but bears repeating that a lawyer must always inquire about the facts and circumstances of each representation. It should and must be a part of every client screening. But apparently, some attorneys were not vetting clients, not vetting them sufficiently, or were unwittingly part of criminal activity because of law practices.
To provide further guidance into best practices under Model Rule 1.16(a), and to encourage best practices, the ABA Standing Committee on Ethics and Professional Responsibility issued Formal Opinion 513, “Duty to Inquire Into and Assess the Facts and Circumstances of Each Representation,” on August 23, 2024. The Opinion explains the Rule 1.16(a) amendment and offers guidance for attorneys, in essence, best practices.
The Opinion agrees that the amendment to Rule 1.16(a) announces in many ways the obvious: “lawyers must conduct a reasonable inquiry and assessment, proportionate to the risks presented by the facts and circumstances.” Should the attorney’s initial inquiry leave the lawyer with doubts or unresolved questions about whether the lawyer’s services are being used to commit or further a crime or fraud, however, then the lawyer must make additional efforts to resolve those questions.
The Opinion further states “that lawyers must conduct an inquiry and assessment, appropriate to the circumstances, to avoid counseling or assisting in the client’s fraudulent or criminal conduct.” Therefore, “some level of inquiry and assessment is required before undertaking each representation. The scope and extent of the required inquiry and assessment will vary.”
Citing Comment [2] to the Rule, the Opinion identifies five “non-exclusive factors” to consider when assessing the risk posed by accepting or continuing a particular representation. They are “(i) the identity of the client, including the client’s beneficial ownership if the client is an entity; (ii) the lawyer’s experience and familiarity with the client; (iii) the nature of the requested legal services; (iv) the relevant jurisdictions involved in the representation (for example, whether a jurisdiction is considered at high risk for money laundering or terrorist financing); and (v) the identities of those depositing into or receiving funds from the lawyer’s client trust account, or any other accounts in which client funds are held.”
All of these factors should be part of every lawyer’s intake and screening. In the end, the amendment to Model Rule 1.16(a) is a reminder that no matter who they represent, lawyers are required to screen every client, ask the right questions, and be sure that the representation we are asked to undertake is the correct one under all circumstances.
Daniel J. Siegel, a member of the Board of The Philadelphia Lawyer, is the principal of the Law Offices of Daniel J. Siegel, LLC, and chair of the Pennsylvania Bar Association Committee on Legal Ethics and Professional Responsibility. He provides ethical, techno-ethical, and disciplinary guidance and representation, as well as appellate, writing, and trial preparation services to other attorneys. He can be reached at dan@danieljsiegel.com.
