Applying Anti-Money Laundering/Anti-Terrorist Financing Controls to the United States Legal Profession: A Response to the Senate Permanent Subcommittee Report on the Proceeds of Foreign Corruption

Nicholas S. Kazmerski

Abstract

"Applying Anti-Money Laundering/Anti-Terrorist Financing Controls to the United States Legal Profession: A Response to the Senate Permanent Subcommittee Report on the Proceeds of Foreign Corruption" ***

Abstract:

This paper examines and comments on the reforms to the U.S. legal profession as proposed by the Senate Permanent Subcommittee Report on the Proceeds of Foreign Corruption (issued February 2010), specifically whether these proposed reforms are realistic or necessary given the existing attorney regulatory framework. To do so, it will first be necessary to provide a general overview of money laundering/terrorist financing followed by a background of anti-money laundering regulation starting with the Bank Secrecy Act of 1970 through to the 2001 USA PATROIT Act. The paper then introduces the role of the Financial Action Task Force (FATF) and the concept of “gatekeeper initiative” as applied to attorneys. The current regulatory system governing the legal profession is examined with an emphasis on the existing anti-fraud safeguards and the question of whether further regulatory measures pertaining to AML/BSA compliance are required. The paper suggests that imposition of BSA controls and suspicious activity reporting on the United States law profession as a whole would be difficult to reconcile against strong traditions of client loyalty and confidentiality that exist in the United States system. The paper then analyzes and suggests several alternate responses to the issue, including imposition of a hybrid approach. This “hybrid approach” involves imposing AML/BSA controls on the U.S. legal profession in a tailored manner, limited to only to law professionals practicing certain transactions. The paper will also discuss the possibility of enacting federal regulations that mirror the Model Rules of Professional Conduct, such as to provide a measure of teeth to the existing attorney regulatory structure as well as an enhanced degree of deterrence.

Kazmerski, Nicholas S., Applying Anti-Money Laundering/Anti-Terrorist Financing Controls to the United States Legal Profession: A Response to the Senate Permanent Subcommittee Report on the Proceeds of Foreign Corruption (May 22, 2010). Available at SSRN: http://ssrn.com/abstract=1613256

***All rights reserved, no portion of this paper may be reproduced, copied or transmitted without the express written consent of the author, Nicholas S. Kazmerski.