On August 23, 2024, the ABA Standing Committee on Ethics and Professional Responsibility released Formal Opinion 513 discussing a lawyer’s duty to inquire into and assess the facts and circumstances of each representation. See ABA Formal Op. 513 (Aug. 23, 2024). Formal Opinion 513 guides lawyers when conducting initial inquiries at the commencement of the representation and further inquiries upon changes during the representation to reduce the risk of counseling or helping a client commit a crime or fraud. The opinion further guides when a lawyer must decline or withdraw from the representation under Rule 1.16 when a lawyer detects that a client is using the lawyer’s services to further their criminal or fraudulent conduct.
Background
Lawyers must inquire into and assess the facts and circumstances of a representation before accepting the representation. This obligation is not new. The duty to inquire and assess has long been implicit in several of the Model Rules of Professional Conduct and the associated comments.
In 2023, the ABA amended the text of Rule 1.16 and its Comments. The changes explicitly incorporated into the text of the rule a lawyer’s duty to inquire into and assess the facts and circumstances of each representation to determine whether the lawyer may accept or continue the representation. See ABA Model Rules of Professional Conduct, Rule 1.16(a). The amendment also explicitly incorporated into the text that a lawyer has to reject or discontinue the representation if the client or prospective client seeks to use or persists in using the lawyer’s services to commit or further a crime or fraud, despite the lawyer’s discussions with the client regarding the limitations on the lawyer assisting with the proposed conduct.
The revisions to the comments “elaborate[d] on a lawyer’s obligation to inquire into and assess the facts and circumstances of the representation.” ABA Formal Op. 513 at 3. The comments now “makes clear that the duty [to inquire] is one that continues throughout the course of the representation…and provides guidance on conducting the required inquiry and assessment.” Id.
Formal Opinion
Formal Opinion 513 confirms that revised Rule 1.16 requires that lawyers conduct a reasonable inquiry and assessment to avoid counseling or helping in the client’s fraudulent or criminal conduct. However, the opinion notes that “the scope and the extent of the required inquiry and assessment will vary.” Id. at 5.
Formal Opinion 513 highlights that the scope and extent of a lawyer’s required inquiry and assessment will depend on the risk that the client or prospective client seeks to use the lawyer’s services to commit or further a crime or fraud. As detailed in the comments to Rule 1.16, lawyers must utilize a “risk-based approach” to determine how much inquiry—and what kinds of inquiries—the lawyer is required to undertake. This risk-based approach utilizes concepts of reasonableness and proportionality to classify risks presented by both the client and the representation.
What does this mean for you?
Undoubtedly, a lawyer must conduct some level of inquiry and assessment before undertaking each representation. Lawyers should utilize the following five non-exclusive factors when assessing the risk posed by accepting or continuing a representation:
(i) the identity of the client, including the client’s beneficial ownership if the client is an entity;
(ii) the lawyer’s experience and familiarity with the client;
(iii) the nature of the requested legal services;
(iv) the relevant jurisdictions involved in the representation (for example, whether a jurisdiction is considered at high risk for money laundering or terrorist financing); and
(v) the identities of those depositing into or receiving funds from the lawyer’s client trust account, or any other accounts in which client funds are held.
Id. at 6.
Most representations will present a low risk that the representation will involve the lawyer in assisting a crime or fraud. As explained by the committee, the “the initial inquiry required by Rule 1.16 will not exceed what most lawyers would otherwise undertake before deciding to accept the representation.” Id. at 6. “[I]f, having conducted a reasonable, risk-based inquiry, the lawyer determines that the representation is unlikely to involve assisting in a crime or fraud, the lawyer may undertake the representation.” Id. at 6.
However, a lawyer may have “actual knowledge” that the lawyer’s services will be used to commit or further criminal or fraudulent activity. If so, “the lawyer must decline the representation; or, if the representation is ongoing, the lawyer must ‘consult with the client regarding the limitations on the lawyer’s conduct’ and if ‘there is no misunderstanding and the client persists, the lawyer must withdraw.’” Id. at 6.
A lawyer may also learn facts during their risk-based inquiry that “indicate a high probability that a client seeks to use the lawyer’s services for criminal or fraudulent activity.” Id. at 6. If so, the lawyer’s “conscious, deliberate failure to inquire [would] amount[ ] to knowing assistance of criminal or fraudulent activity.” The Model Rules require that the lawyer inquire further or decline the representation. Id.
The Committee further explained that “[t]he lawyer need not resolve all doubts. Rather, if some doubt remains even after the lawyer has conducted a reasonable inquiry, the lawyer may proceed with the representation as long as the lawyer concludes that doing so is unlikely to involve assisting or furthering a crime or fraud.” Id. at 13.
The risk-based inquiry must be reasonable. As explained by the committee, the “obligation [is] to conduct a reasonable risk-based inquiry, not a perfunctory one and not one that involves a dragnet-style operation to uncover every fact about every client.” Id. at 7. The lawyer’s obligation to inquire into and assess continues throughout the course of the representation. Id. at 7. The opinion then provides a hypothetical to illustrate these principles and their application.
