The ABA Standing Committee on Ethics and Professional Responsibility has called for comments on possible amendments to the Model Rules of Professional Conduct concerning lawyers’ client due diligence obligations. See ABA Center for Professional Responsibility, Seeking Comments to Proposed Amendments to the Model Rules of Professional Conduct Rules of Professional Conduct Concerning Lawyers’ Client Due Diligence Obligations (Dec. 2021). The Standing Committee’s proposed amendments to the comments of the Model Rules of Professional Conduct are here.
These proposals arise out of the desire to clarify in the comments to the Model Rules that in some situations a lawyer can have “actual knowledge” when a lawyer consciously avoids or ignores relevant facts. Currently, the Model Rules provide that “knowing” means “actual knowledge of the fact in question.” See Model Rules of Prof’l Conduct, r. 1.0(f). Further, the rule explains that “a person’s knowledge may be inferred from circumstances.” See id. ABA Formal Opinion 463 and 491 expand on this definition. Formal Opinion 463 concerns a lawyer’s obligations under the Model Rules regarding efforts to asses and deter money laundering and terrorist financing. See ABA Formal Opinion 463 (2013). Formal Opinion 491 concludes that where a situation shows a “high probability” that the client is seeking the lawyer’s services in a transaction to further criminal or fraudulent activity, lawyers have an affirmative duty under Rule 1.2 (d) to ask their client for additional information to avoid assisting such activity. See ABA Formal Opinion 491 (2020). We previously covered Formal Opinion 491 on our blog here.
In proposing to amend the comments to the Model Rules, rather than the Model Rule itself, the ABA concluded:
ABA Formal Ethics Opinions 463 and 491 concluded the Model Rules, as currently written, create an enforceable duty to inquire of a client when risk factors are present like those discussed in the Voluntary Good Practices. Based on the Opinions, the Ethics and Regulation Committees determined the black letter of the Model Rules of Professional Conduct did not need amending. Instead, the Committees focused on explaining the existing duties subject to disciplinary enforcement by proposing additional guidance in the Comments to Model Rules 1.0, 1.1, and 1.2
See ABA Center for Professional Responsibility, Seeking Comments to Proposed Amendments to the Model Rules of Professional Conduct Rules of Professional Conduct Concerning Lawyers’ Client Due Diligence Obligations (Dec. 2021) Among other things, the proposed amendments would do the following:
- Provide enhanced guidance regarding the definition of knowledge in Rule 1.0(f). The Model Rules state that a person’s knowledge may be inferred from the circumstances. The comment would further explain that “A lawyer’s knowledge may be derived from the lawyer’s direct observation, credible information provided by others, reasonable factual inferences, or other circumstances. For purposes of these Rules, a lawyer who ignores or consciously avoids obvious relevant facts may be found to have knowledge of those facts.”
- Incorporate a lawyer’s due diligence obligations into the lawyer’s duty of competence. Specifically, the comment would provide that “in some circumstances, competent representation may require verifying, or inquiring into, facts provided by the client. Ignoring or consciously avoiding obvious relevant facts, or failure to inquire when warranted, may violate the duty of competence.”
- Provide a non-exclusive list of factors to use when determining when evaluating whether a client is seeking to use the lawyer’s assistance in criminal or fraudulent activity. The factors would include: (i) the identity of the client, (ii) the lawyer’s familiarity with the client, (iii) the nature of the requested legal services, and (iv) the relevant jurisdictions involved in the representation (when a jurisdiction is classified by credible sources as high risk for criminal or fraudulent activity).