MONEY LAUNDERING, THE GATEKEEPER INITIATIVE, AND THE ATTORNEY-CLIENT RELATIONSHIP

1. MONEY LAUNDERING, THE GATEKEEPER INITIATIVE, AND THE ATTORNEY-CLIENT RELATIONSHIP Edward J. Krauland STEPTOE & JOHNSON LLP February 2003

2. INTERNATIONAL EFFORTS TO COMBAT MONEY LAUNDERING • Money Laundering: Moving ill-gotten assets into legitimate business to hide proceeds • Estimate of $600 billion a year • FATF: Intergovernmental entity created in 1989 by G-7 (29 member countries & 2 international organizations) • 40 Non-binding recommendations to address money laundering; reviews money laundering trends and techniques

3. THE GATEKEEPER INITIATIVE • October 1999 Moscow G-8 Finance Ministers • Identified Professions as “Gatekeepers”: Lawyers, Accountants, Auditors • FATF Consultation Paper (May 2002) • Due Diligence Re Clients • Internal AML Compliance Programs • Recordkeeping Requirements • Suspicious Transaction Reporting Requirement • No “Tipping Off” • Exception For Privileged Information: Unclear

4. U. S. GOVERNMENT RESPONSE • National Money Laundering Strategy Report CY 2002/CY2001 • Interagency Working Group (DOJ, Treasury, SEC, FinCEN) • USA Patriot Act • USG Position On Gatekeeper Still Under Review

5. OTHER RESPONSES RE GATEKEEPER • United Kingdom: Limited Gatekeeper Regime Requiring Solicitor Reports on Clients • Switzerland: Gatekeeper Regime for Lawyers as Financial Intermediaries, Reporting to SRO • European Union: Directive 2001/97/EC Passed in Late 2001 Requiring Gatekeeper Laws by June 2003 • Canada: Gatekeeper Legislation Enjoined By Legal Challenge From Bar Despite Exception For Solicitor-Client Privilege

6. Attorney-Client Privilege Work Product Doctrine Facts and Non- Information Client Secrets and Confidences COMPONENTS OF CONFIDENTIALITY

7. FOUNDATIONS OF THE PRIVILEGE • Part Of U.S. Common Law: Dates To 16th Century Reign Of Queen Elizabeth in England • Public Policy Basis: “Full And Frank Communications Promotes Broader Public Interests In Observance Of Law and Administration Of Justice” Upjohn (1981) • U.S. Constitution 6th Amendment Right to Counsel; 10th Amendment States’ Rights

8. EXCEPTIONS TO THE PRIVILEGE • The Privilege Has Been Waived By The Client • Attorney Must Disclose In Order To Prevent Fraud On The Tribunal • The Communication Is Not For The Purpose Of Committing A Crime Or Fraud

9. MODEL RULES OF PROFESSIONAL CONDUCTRule 1.6(a) • A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation, or the disclosure is permitted by paragraph (b).

10. RULE 1.6(b) EXCEPTIONS ALawyer May Reveal Client Confidential Information : • To Prevent Reasonably Certain Death Or Substantial Bodily Harm • To Secure Legal Advice About The Lawyer’s Compliance With These Rules • To Establish A Claim Or Defense On Behalf Of The Lawyer In A Civil Or Criminal Case Against The The Lawyer; • To Comply With Other Law Or Court Order

11. TRENDS IN STATE ETHICS RULES: PERMISSIVE DISCLOSURE • Prevent An Act Likely To Lead To Death, Substantial Bodily Harm (17 States) • A Criminal Or Fraudulent Act Likely To Result In Substantial Financial Injury (10 States) • Prevent Or Reveal The Intention Of A Client To Commit A Criminal Act Or Harm (34 States)

12. TRENDS IN STATE RULES:MANDATORY DISCLOSURE • 7 States: To Prevent Client From Committing A Criminal Act Likely To Lead To Death Or Substantial Bodily Harm • 3 States: To Prevent Fraudulent Acts Likely To Lead To Death Or Substantial Bodily Harm • 2 States: To Prevent “A Crime” • 1 State: To Prevent Crime or Fraud Likely To Result In Substantial Financial Harm

13. PRESSURES ON THE PRIVILEGE • USA Patriot Act: Obligation Of Attorneys To File “Suspicious Activity Reports”? • Sarbanes - Oxley: Obligation Of Attorneys To Report Violations Of Security Law Up The Chain Of Command In The Corporation • ABA Task Force On Corporate Accountability: Greater Permissive Disclosure

14. ABA TASK FORCE ACTIVITIES • Establish Contacts With USG Officials Re Gatekeeper Initiative • Liase With Legal Professionals Outside United States – JFBA, CCBE, CBA • Promote Education And Awareness Within The Bar • Submit Comments On The FATF Consultation Paper – August 2002 • Develop ABA Policy On Gatekeeper Initiative

15. ABA TASK FORCE COMMENTS TO FATF • Oppose The Suspicious Transaction Reporting Requirement • Oppose The “No Tipping Off” Rule • Client Due Diligence And Record Keeping For Lawyers Acting As Financial Intermediaries • Collaboration And Consultation With Bar Associations

16. ABA POLICY ON GATEKEEPER INITIATIVE • Task Force Resolution Approved At ABA Mid Year Meeting In Seattle, Washington – February 2003 • Recognizes USG Fight Against Money Laundering And Terrorist Financing • Reaffirms Critical Role Of Lawyers In Administration Of Justice, Independence Of Bar, And Importance Of Client Confidentiality

17. ABA POLICY ON GATEKEEPER INITIATIVE • Opposes Mandatory STR That Compromises Independence Of Bar And Client Confidentiality • Review Of Model Rules Re Permissive Disclosure • Urges Further Education Of Lawyers And Law Students Re Money Laundering Risks And Laws

18. CONCLUSION • Independence Of Bar And Client Confidentiality Critical To Rule Of Law And Administration Of Justice • Efforts To Stop Money Laundering And Terrorist Financing Are Clearly Warranted • Gatekeeper Initiative Must Accommodate The Role Of Lawyers In Society • Bar Association Must Be Proactive In Education, Ethics And Engagement With Government Officials