Second of a Two-Part Blog: Anti-Money Laundering Programs Coming to the Legal Profession?

Yesterday, we began our discussion of the proposed Corporate Transparency Act of 2017 (the “Act”), and observed that, if passed, the Act would represent another chapter in the domestic and global campaign to increase transparency in financial transactions through information gathering by private parties and expanded requirements for Anti-Money Laundering (“AML”) reporting. Today, we summarize the details of this complex legislation, focusing in particular on two significant ways in which the Act would amend the Bank Secrecy Act (“BSA”):

  • Requiring regulations to establish minimum standards for State procedures regarding the formation of legal entities such as corporations and limited liability companies (“LLCs”) and the identification of the beneficial owners of such entities when they are formed.
  • Adding “formation agents” – i.e., those who assist in the creation of legal entities – to the BSA’s definition of a “financial institution” which is subject to the BSA’s reporting and AML obligations. This new definition potentially applies to a broad swath of businesses and individuals previously not regulated directly by the BSA, including certain attorneys.

Continue Reading Expanded Beneficial Ownership Reporting and AML Duties Under the Corporate Transparency Act

First of a Two-Part Blog

In late June, Representatives Carolyn Maloney and Peter King of New York introduced The Corporate Transparency Act of 2017 (the “Act”). In August, Senators Ron Wyden and Marco Rubio introduced companion legislation in the Senate. A Fact Sheet issued by Senator Wyden is here. Representative King previously has introduced several versions of this proposed bipartisan legislation; the most recent earlier version, entitled the Incorporation Transparency and Law Enforcement Assistance Act, was introduced in February 2016.  Although it is far from clear that this latest version will be passed, the Act is worthy of attention and discussion because it represents a potentially significant expansion of the Bank Secrecy Act (“BSA”) to a whole new category of businesses.

The Act is relatively complex.  In part, it would amend the BSA in order to compel the Secretary of the Treasury to issue regulations that would require corporations and limited liability companies (“LLCs”) formed in States which lack a formation system requiring robust identification of beneficial ownership (as defined in the Act) to themselves file reports to the Financial Crimes Enforcement Network (“FinCEN”) that provide the same information about beneficial ownership that the entities would have to provide, if they were in a State with a sufficiently robust formation system.  More colloquially, entities formed in States which don’t require much information about beneficial ownership now would have to report that information directly to FinCEN – scrutiny which presumably is designed to both motivate States to enact more demanding formation systems, and demotivate persons from forming entities in States which require little information about beneficial ownership. However, there is another facet to the Act which to date has not seemed to garner much attention, but which potentially could have a significant impact. Under the Act, formation agents – i.e., those who assist in the creation of legal entities such as corporations or LLCs – would be swept up in the BSA’s definition of a “financial institution” and therefore subject to the BSA’s AML and reporting obligations.  This expanded definition potentially applies to a broad swath of businesses and individuals previously not regulated directly by the BSA, including certain attorneys. Continue Reading The Corporate Transparency Act: A Proposal to Expand Beneficial Ownership Reporting for Legal Entities, Corporate Formation Agents and – Potentially – Attorneys

A Guest Blog by Bruce Zagaris, Esq.

Today we are very pleased to welcome guest blogger Bruce Zagaris, who is a Partner at the Washington, D.C. law firm of Berliner, Corcoran & Rowe.  He is the editor of the International Enforcement Law Reporter; the author of International White Collar Crime: Cases and Materials; and an Adjunct Professor at the Texas A & M University School of  Law.  Mr. Zagaris also is a member of the Task Force on the Gatekeeper and the Profession of the American Bar Association (“ABA”).

As Mr. Zagaris explains immediately below, growing international trends have led the ABA Task Force to consider a new Model Rule of Professional Conduct that would impose basic “client due diligence” requirements on U.S. lawyers to determine whether their clients are engaging in money laundering or terrorist financing.  This development relates directly to issues about which we previously have blogged, including European perceptions of lawyers as potential gatekeepers and of the United States as a haven for money laundering and tax evasion.  The possible new Model Rule potentially would represent a significant shift in how the U.S. legal profession regards itself and its relationship to its clients.  We hope that you enjoy this discussion by Mr. Zagaris of these important issues. -Peter Hardy

Increasingly, international bodies are calling for higher standards for gatekeepers, known in the parlance of the Financial Action Task Force (“FATF”) as “designated non-financial businesses and professions” (“DNFBPs”). DNFBPs include lawyers, accountants, real estate agents, and trust and company service providers (other than trust companies).  In particular, in the United States, lawyers play a key role in areas that give rise to potential money laundering:  company formation; real estate transactions; business planning; tax planning; wealth management; trust and estate work; and formation and operation of charities, including transnational philanthropy.

In 2006 and again in 2016, the FATF, an intergovernmental body in charge of making and overseeing compliance with international money laundering standards, performed Mutual Evaluation Reports (“MERs”) to assess compliance by the United States with international standards.  While the FATF gave the U.S. high marks generally, both MERs found the U.S. “non-compliant” in gatekeepers and entity transparency.

As a result of this international trend, the ABA’s Task Force on the Gatekeeper and the Profession has prepared and discussed a new ABA Model Rule of Professional Conduct that would impose basic “client due diligence” requirement on lawyers.  We discuss this potential new model rule, and the developments which have led to its consideration, below.  Clearly, due diligence for lawyers will increasingly be on the radars of banks, financial institutions, and law firms. Continue Reading AML Due Diligence Standards for U.S. Lawyers

The District Court for the Eastern District of New York has denied motions for acquittal and new trial by a Florida attorney convicted at trial of assisting in an undercover money laundering “sting” operation.

Although the sting operation was orchestrated by an undercover FBI agent, it was modeled on a similar, uncharged and actual scheme to launder the proceeds of fake stock certificates in which the attorney allegedly had participated previously, and which had been run by the defendant’s former client – who introduced the attorney to the undercover FBI agent.  As is typical for money laundering prosecutions of third-party professionals, the key issue was knowledge. Continue Reading “Sting” Money Laundering Scheme and Cooperating Client Ensnares Attorney