On April 29, 2020, the ABA issued Formal Opinion 491 addressing a lawyer’s obligations when the lawyer has reason to believe that a client may be involved in criminal or fraudulent behavior.
Model Rule of Professional Conduct rule 1.2(d) prohibits a lawyer from assisting their clients in conduct the lawyer knows is criminal or fraudulent. See Model Rule of Professional Conduct 1.2(d). Knowledge “denotes actual knowledge of the fact in question” which may be “inferred from circumstances.” See Model Rules of Professional Conduct, r. 1.0(f).
When facts known to the lawyer establish a high probability that a client seeks to use the lawyer’s services for criminal or fraudulent activity, the lawyer has a duty to inquire further to avoid assisting such activity. See ABA Formal Opinion 491, p. 1. Failure to make a reasonable inquiry under these circumstances is “willful blindness” sanctionable under the “actual knowledge” standard of the Rule. See ABA Formal Opinion 491, p. 2.
If the client refuses to provide information, the lawyer should explain to the client that the lawyer cannot undertake the representation unless the appropriate inquiry is made. If the client still refuses to provide the information, then the lawyer must decline the representation or withdraw.
If the client provides additional information and the lawyer concludes the requested services would amount to assisting in a crime or a fraud, the lawyer must either discuss the matter further with the client, decline the representation, or seek to withdraw under Rule 1.16(a).
The opinion concludes:
Overall, as long as the lawyer conducts a reasonable inquiry, it is ordinarily proper to credit an otherwise trustworthy client where information gathered from other sources fails to resolve the issue, even if some doubt remains.
Formal Opinion 491 offers the following hypotheticals to illustrate when the lawyer must inquire further:
- A prospective client has significant business connections and interests abroad. The client has received substantial payments from sources other than his employer. The client holds these funds outside the US and wants to bring them into the US through a transaction that minimizes US tax liability. The client says: (i) he is “employed” outside the US but will not say how; (ii) the money is in a “foreign bank” in the name of a foreign corporation but the client will not identify the bank or the corporation; (iii) he has not disclosed the payments to his employer or any governmental authority or to anyone else; and (iv) he has not included the amounts in his US income tax returns.
- A prospective client tells a lawyer he is an agent for a minister or other government official from a “high risk” jurisdiction who wishes to remain anonymous and would like to purchase an expensive property in the United States. The property would be owned through corporations that have undisclosed beneficial owners. The prospective client says that large amounts of money will be involved in the purchase but is vague about the source of the funds, or the funds appear to come from “questionable” sources.
The opinion offers the following hypotheticals to illustrate when the lawyer would not be required to inquire further:
- A general practitioner in rural North Dakota receives a call from a long-term client asking her to form a limited liability company for the purpose of buying a ranch.
- The general practitioner in rural North Dakota receives a call from a new and unknown prospective client saying that the client just won several million dollars in Las Vegas and needs the lawyer to form a limited liability company to buy a ranch.
- A prospective client in New York City asks a general practitioner in a mid-size town in rural Georgia to provide legal services for the acquisition of several farms in rural Georgia. The prospective client tells the lawyer that he has made a lot of money in hedge funds and now wants to diversify his investments by purchasing these farms but says he doesn’t want his purchases to cause a wave of land speculation and artificially inflate local prices. He wants to wire money into the law firm’s trust account over time for the purchases. He asks the lawyer to create a series of LLCs to make strategic (and apparently unrelated) acquisitions.
The ABA opinion makes it clear that a lawyer may not simply turn a blind eye to circumstances suggesting that a client may be using the lawyer’s services to engage in conduct that is criminal or fraudulent. If a lawyer suspects that a client may be engaged in criminal or fraudulent conduct, the lawyer should start asking questions. If the client refuses to cooperate, the lawyer should decline the representation or withdraw under Rule 1.16.