Treasury department proposal could affect client trust accounts

May 9, 2012
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The American Bar Association is asking the U.S. Department of Treasury to reconsider possible rule changes announced in February that are aimed at tackling money laundering and terrorist financing. The bar association believes the proposals would impose “unreasonable and excessive” burdens on law firms.

The ABA sent a letter to the treasury department’s Financial Crimes Enforcement Network May 4, urging FinCEN not to proceed with proposed rules on customer due diligence requirements for financial institutions. The proposed rules would establish a categorical requirement for financial institutions to indentify beneficial ownership of their accountholders, subject to risk-based verification and pursuant to an alternative definition ownership as described in the proposals. The question of beneficial ownership can arise in the context of accounts created by an individual or entity, which could include a law firm or accounting firm, in which these firms could be acting on behalf of another person without disclosing that fact.

The proposals, according to the ABA, would require law firms that have client trust accounts at financial institutions to disclose the identity and other ownership information regarding the clients.

“If adopted in their current form, those proposals could impose unreasonable and excessive burdens on many law firms with client trust accounts and could undermine both the confidential lawyer-client relationship and traditional state court regulation of lawyers,” wrote Kevin L. Shepherd, chair of the ABA’s task force on gatekeeper regulation and the profession.

He cites the ABA’s Voluntary Good Practices Guidance for Attorneys to Detect and Combat Money Laundering and Terrorist Financing that the ABA House of Delegates adopted in August 2010 as a way for attorneys to address the issues raised in the proposals without following “burdensome and rigid ‘one-size-fits all’” rules.

Shepherd believes the proposals would undermine the client-lawyer relationship and confidentiality under ABA Model Rule 1.6 and corresponding state rules.

FinCen announced last week it has extended its comment period on these proposals. Follow this link  to learn how to submit comment.
 

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  2. Seventh Circuit Court Judge Diane Wood has stated in “The Rule of Law in Times of Stress” (2003), “that neither laws nor the procedures used to create or implement them should be secret; and . . . the laws must not be arbitrary.” According to the American Bar Association, Wood’s quote drives home this point: The rule of law also requires that people can expect predictable results from the legal system; this is what Judge Wood implies when she says that “the laws must not be arbitrary.” Predictable results mean that people who act in the same way can expect the law to treat them in the same way. If similar actions do not produce similar legal outcomes, people cannot use the law to guide their actions, and a “rule of law” does not exist.

  3. Linda, I sure hope you are not seeking a law license, for such eighteenth century sentiments could result in your denial in some jurisdictions minting attorneys for our tolerant and inclusive profession.

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