Lawyers and Money Laundering

The recent money-laundering and obstruction-of-justice indictment of prominent Miami criminal defense attorney Ben Kuehne, although arising in the context
of a narcotics case, illustrates the possible risks faced by U.S. lawyers related to money-laundering compliance. Kuehne, a member of the Florida Bar Board of Governors and a former president of both the Miami chapter of the Florida Association of Criminal Defense Lawyers and the Dade County Bar Association, was indicted in connection with work he did for well-known criminal defense attorney Roy Black. Black had hired Kuehne to insure that Black's legal fees from a Medellin drug kingpin came from a legitimate source. Federal prosecutors have charged that approximately $3.7 million of the fees Kuehne vetted, and Black ultimately accepted, ran through five undercover operations that intercepted drug money in Miami. They allege that Kuehne was both aware that the fees originated in drug-related activity and that he participated in transactions to conceal that illicit source. Kuehne's motive for his alleged crime was a legal fee totaling slightly less than $200,000.

The Kuehne indictment is, of course, not the first time a lawyer has been indicted for money laundering in connection with a narcotics case. And indictments of lawyers for money laundering have not been limited to the narcotics context. For example, in United States v. Landerman, 109 F.3d 1053 (5th Cir. 1997), the defendant lawyer was sentenced to 135 months in prison upon his conviction of conspiracy to commit mail fraud, wire fraud and money laundering arising out of his agreement to hold a client's fraudulently obtained funds in his attorney trust account and to transfer the funds to another entity. After the Fifth Circuit reversed his conviction because of trial errors, the attorney pleaded guilty and received a 60-month sentence. See Landerman v. State Bar of Texas, 2008 Tex. App. LEXIS 1641 (Court of Appeals, Fifth District 2008). Similarly, in United States v. Tarkoff, 242 F.3d 991 (11th Cir. 2001), the defendant was a criminal defense lawyer in a Medicare fraud case who engaged in transactions that assisted his client in transferring his assets out of the United States.

The Kuehne prosecution, however, is a very different type of case. While it appears from the indictment that the government believes it can prove that Kuehne knowingly engaged in financial transactions designed to conceal the illicit source of the fees in violation of 18 U.S.C. ' 1956, the indictment does not make clear what each of the three defendants specifically did. And there is no escaping the fact that the indictment focuses at least in part on Kuehne's role in rendering advice concerning potentially tainted funds. To that extent, the indictment breaks new ground ' a fact that might explain why it was signed by Department of Justice lawyers based in Washington, DC, including Alice Fisher, the Assistant Attorney General in charge of the Criminal Division.

EU Offices of American Firms

As previously mentioned, lawyers in Europe, including in the European offices of American law firms, can be criminally prosecuted not only for substantive money laundering offenses, but for violating their 'gatekeeping' obligations. Those obligations have been imposed, with increasing levels of detail and burden, by a series of Directives of the European Parliament and Council of the European Union, the most recent issued on Oct. 26, 2005, effective Dec. 15, 2007. It applies to legal professionals 'when participating in financial or corporate transactions, including providing tax advice, where there is the greatest risk of the services of those legal professionals being misused for the purpose of laundering the proceeds of criminal activity or for the purpose of terrorist financing.' ('Whereas' Clause 19). It requires European Union Member States to impose obligations on covered persons to: 1) conduct customer due diligence, varying in intensity on a 'risk-sensitive' basis; 2) report suspicious activity 'and in particular complex or unusually large transactions which have no apparent economic or visible lawful purpose' (Article 20); 3) refrain from disclosing any reports of suspicious activity; 4) maintain certain records; and 5) conduct appropriate training. There is a carve-out from the reporting requirement for lawyers with regard to information received in connection with legal advice or representation in a judicial proceeding (Article 23, Clause 2).

In the U.S.

Attempts to impose 'gatekeeping' obligations on U.S. lawyers have been unsuccessful. The U.S. Treasury has set forth a list of proposals for combating money laundering and similar financial crimes on a national level. While largely directed at banks and other large financial institutions, the document also hinted at the possibility of regulating lawyers. Treasury did not outline any specific measures it had considered or was considering with respect to lawyers, but noted that continuing to address the role of legal and other professionals in combating money laundering was a priority: 'Because of the role they play as 'gatekeepers' to the domestic and international financial system, professionals such as lawyers and accountants may be positioned to detect and deter money laundering or to facilitate the crime. A Gatekeepers Working Group has engaged in a first round of candid discussions with a range of professional bodies to solicit their efforts in assuring that their members and the businesses they serve are not unwittingly complicit in money laundering. The Working Group will continue its efforts to analyze existing professional legal and accounting literature and standards for their application, or adequacy, to detect and prevent money laundering.' 2001 National Money Laundering Strategy at 30.

Treasury's 2002 National Money Laundering Strategy made no significant mention of lawyers (nor did subsequent releases), but did emphasize the U.S. role in helping the Financial Action Task Force (a global anti-money-laundering organization) revise its Forty Recommendations, a list of proposals designed to address international money laundering challenges. Treasury highlighted FATF's recommended regime of mandatory suspicious activity reporting (or SARs). The revised Forty Recommendations provided that 'Lawyers, notaries, other independent legal professionals and accountants should be required to report suspicious transactions when, on behalf of or for a client, they engage in a financial transaction.'

In a response to the Forty Recommendations, the American Bar Association cautioned that proper anti-money-laundering rule-making 'must include detailed knowledge of the roles and work of the legal profession and the importance of access by all members of the public to justice. It must take full account of the trade-offs that fulfilling AML goals will have.' The ABA expressed particular concern that FATF had not given enough consideration to the importance of lawyer-client confidentiality. As alternatives to FATF's proposals, the ABA recommended that attorneys be subject to reporting requirements only when acting as financial intermediaries for clients, and only in situations where lawyers were either holding client funds in or transferring client funds from their accounts.

In 2003, driven in part by money-laundering concerns, the ABA amended Rule 1.6 of the ABA Model Rules of Professional Conduct to permit a lawyer to reveal information pertaining to client representation when the lawyer reasonably believes it necessary 'to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer's services.' Significantly, the amended Model Rule did not require a lawyer to make such a report.

As recently as 2006, a high-level Treasury official was reported as indicating that it was highly unlikely that lawyers any time soon would be added to the list of 'financial institutions' required by the Bank Secrecy Act to report suspicious transactions. The gatekeeper initiative in the U.S. therefore appears dead in its tracks. Apart from the reasons advanced by the ABA against imposing gatekeeping obligations on lawyers, the Kuehne case graphically illustrates the new risks associated with gatekeeping.

Howard W. Goldstein ([email protected]), a member of this newsletter's Board of Editors, is a partner at Fried, Frank, Harris, Shriver & Jacobson LLP in New York and a former federal prosecutor. Zachary Hall, an associate at the firm, assisted in the preparation of this article.

As anti-money laundering enforcement has become an international priority, financial institutions around the world increasingly rely on lawyers to help them navigate stringent anti-money laundering regulations enforced by criminal penalties. While the duty of lawyers representing financial institutions in the United States is almost solely toward their clients, in the European Union, lawyers have affirmative obligations to report suspected money-laundering activity to government authorities. In other words, lawyers may be involuntarily conscripted as enforcement agents or 'gatekeepers' at the institutions they represent. American lawyers in the European offices of U.S.-based 'international' law firms are not exempt. In some countries, they face criminal liability if they fail to follow 'know your customer' protocols or fail to report suspicious transactions. Meanwhile, in the United States, such 'gatekeeper' reporting obligations have met stiff resistance by the organized bar and have not been implemented.

Sometimes lost in the debate about 'gatekeeping' is the fact that lawyers in the United States have been, and continue to be, prosecuted for substantive violations of the money-laundering statutes. And as companies become both more sophisticated and more global in their operations, the prosecution possibilities expand. As one commentator noted: 'Lawyers are much more involved in advising clients about how to conduct their business than ever before due to the pervasiveness of the regulation of economic activity. When the lawyer moves from the courtroom to the boardroom, the possibility of a lawyer becoming enmeshed in questionable conduct increases substantially.' Henning, Targeting Legal Advice 54 Am. U.L. Rev., 669, 686 (2005).

The Kuehne Case

The recent money-laundering and obstruction-of-justice indictment of prominent Miami criminal defense attorney Ben Kuehne, although arising in the context
of a narcotics case, illustrates the possible risks faced by U.S. lawyers related to money-laundering compliance. Kuehne, a member of the Florida Bar Board of Governors and a former president of both the Miami chapter of the Florida Association of Criminal Defense Lawyers and the Dade County Bar Association, was indicted in connection with work he did for well-known criminal defense attorney Roy Black. Black had hired Kuehne to insure that Black's legal fees from a Medellin drug kingpin came from a legitimate source. Federal prosecutors have charged that approximately $3.7 million of the fees Kuehne vetted, and Black ultimately accepted, ran through five undercover operations that intercepted drug money in Miami. They allege that Kuehne was both aware that the fees originated in drug-related activity and that he participated in transactions to conceal that illicit source. Kuehne's motive for his alleged crime was a legal fee totaling slightly less than $200,000.

The Kuehne indictment is, of course, not the first time a lawyer has been indicted for money laundering in connection with a narcotics case. And indictments of lawyers for money laundering have not been limited to the narcotics context. For example, in United States v. Landerman , 109 F.3d 1053 (5th Cir. 1997), the defendant lawyer was sentenced to 135 months in prison upon his conviction of conspiracy to commit mail fraud, wire fraud and money laundering arising out of his agreement to hold a client's fraudulently obtained funds in his attorney trust account and to transfer the funds to another entity. After the Fifth Circuit reversed his conviction because of trial errors, the attorney pleaded guilty and received a 60-month sentence. See Landerman v. State Bar of Texas, 2008 Tex. App. LEXIS 1641 (Court of Appeals, Fifth District 2008). Similarly, in United States v. Tarkoff, 242 F.3d 991 (11th Cir. 2001), the defendant was a criminal defense lawyer in a Medicare fraud case who engaged in transactions that assisted his client in transferring his assets out of the United States.

The Kuehne prosecution, however, is a very different type of case. While it appears from the indictment that the government believes it can prove that Kuehne knowingly engaged in financial transactions designed to conceal the illicit source of the fees in violation of 18 U.S.C. ' 1956, the indictment does not make clear what each of the three defendants specifically did. And there is no escaping the fact that the indictment focuses at least in part on Kuehne's role in rendering advice concerning potentially tainted funds. To that extent, the indictment breaks new ground ' a fact that might explain why it was signed by Department of Justice lawyers based in Washington, DC, including Alice Fisher, the Assistant Attorney General in charge of the Criminal Division.

EU Offices of American Firms

As previously mentioned, lawyers in Europe, including in the European offices of American law firms, can be criminally prosecuted not only for substantive money laundering offenses, but for violating their 'gatekeeping' obligations. Those obligations have been imposed, with increasing levels of detail and burden, by a series of Directives of the European Parliament and Council of the European Union, the most recent issued on Oct. 26, 2005, effective Dec. 15, 2007. It applies to legal professionals 'when participating in financial or corporate transactions, including providing tax advice, where there is the greatest risk of the services of those legal professionals being misused for the purpose of laundering the proceeds of criminal activity or for the purpose of terrorist financing.' ('Whereas' Clause 19). It requires European Union Member States to impose obligations on covered persons to: 1) conduct customer due diligence, varying in intensity on a 'risk-sensitive' basis; 2) report suspicious activity 'and in particular complex or unusually large transactions which have no apparent economic or visible lawful purpose' (Article 20); 3) refrain from disclosing any reports of suspicious activity; 4) maintain certain records; and 5) conduct appropriate training. There is a carve-out from the reporting requirement for lawyers with regard to information received in connection with legal advice or representation in a judicial proceeding (Article 23, Clause 2).

In the U.S.

Attempts to impose 'gatekeeping' obligations on U.S. lawyers have been unsuccessful. The U.S. Treasury has set forth a list of proposals for combating money laundering and similar financial crimes on a national level. While largely directed at banks and other large financial institutions, the document also hinted at the possibility of regulating lawyers. Treasury did not outline any specific measures it had considered or was considering with respect to lawyers, but noted that continuing to address the role of legal and other professionals in combating money laundering was a priority: 'Because of the role they play as 'gatekeepers' to the domestic and international financial system, professionals such as lawyers and accountants may be positioned to detect and deter money laundering or to facilitate the crime. A Gatekeepers Working Group has engaged in a first round of candid discussions with a range of professional bodies to solicit their efforts in assuring that their members and the businesses they serve are not unwittingly complicit in money laundering. The Working Group will continue its efforts to analyze existing professional legal and accounting literature and standards for their application, or adequacy, to detect and prevent money laundering.' 2001 National Money Laundering Strategy at 30.

Treasury's 2002 National Money Laundering Strategy made no significant mention of lawyers (nor did subsequent releases), but did emphasize the U.S. role in helping the Financial Action Task Force (a global anti-money-laundering organization) revise its Forty Recommendations, a list of proposals designed to address international money laundering challenges. Treasury highlighted FATF's recommended regime of mandatory suspicious activity reporting (or SARs). The revised Forty Recommendations provided that 'Lawyers, notaries, other independent legal professionals and accountants should be required to report suspicious transactions when, on behalf of or for a client, they engage in a financial transaction.'

In a response to the Forty Recommendations, the American Bar Association cautioned that proper anti-money-laundering rule-making 'must include detailed knowledge of the roles and work of the legal profession and the importance of access by all members of the public to justice. It must take full account of the trade-offs that fulfilling AML goals will have.' The ABA expressed particular concern that FATF had not given enough consideration to the importance of lawyer-client confidentiality. As alternatives to FATF's proposals, the ABA recommended that attorneys be subject to reporting requirements only when acting as financial intermediaries for clients, and only in situations where lawyers were either holding client funds in or transferring client funds from their accounts.

In 2003, driven in part by money-laundering concerns, the ABA amended Rule 1.6 of the ABA Model Rules of Professional Conduct to permit a lawyer to reveal information pertaining to client representation when the lawyer reasonably believes it necessary 'to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer's services.' Significantly, the amended Model Rule did not require a lawyer to make such a report.

As recently as 2006, a high-level Treasury official was reported as indicating that it was highly unlikely that lawyers any time soon would be added to the list of 'financial institutions' required by the Bank Secrecy Act to report suspicious transactions. The gatekeeper initiative in the U.S. therefore appears dead in its tracks. Apart from the reasons advanced by the ABA against imposing gatekeeping obligations on lawyers, the Kuehne case graphically illustrates the new risks associated with gatekeeping.

Howard W. Goldstein ([email protected]), a member of this newsletter's Board of Editors, is a partner at Fried, Frank, Harris, Shriver & Jacobson LLP in New York and a former federal prosecutor. Zachary Hall, an associate at the firm, assisted in the preparation of this article.