Five Tips to Avoid Client Trust Account Money Laundering

By Jeffrey Luszeck, Esq. and Alan Freer, Esq.

1. What is money laundering?
Money laundering is the conversion of proceeds from crime into legitimate currency or other assets. Money laundering involves three stages: (1) placement stage – where funds from illegal activity are introduced into the financial system; (2) layering stage – where funds are disguised and/or distanced from their illegal source through the use of a series of parties or complex financial transactions; and (3) integration stage – where the “laundered” funds are returned to the organized criminal group that generated said funds.
While money laundering typically presents itself in cash intensive businesses such as restaurants, bars, and parking structures, client trust accounts also present money laundering risks because said accounts are not subject to mandatory requirements for cash deposits and withdrawals of over $10,000 and clients are not required to disclose their tax identification number. Consequently, financial institutions, which typically have stringent “know your client” requirements, have no direct relationship with, or knowledge of, the beneficial owners of client trust accounts.

2. What laws and rules do I need to know?
Lawyers must comply with federal laws that prohibit conduct that aids, abets, or commits a violation of anti-money laundering (18 USC 1956, 1957) and counterterrorism (Anti-Terrorism & Effective Death Penalty Act of 1996 & USA Patriot Act) laws. For example, in 2016 a San Diego lawyer was sentenced to five years in prison for using his trust account to hide the source of $12 million dollars that was later sent to international destinations.
NRPC 1.2(d) ethically prohibits attorneys from counseling and/or assisting clients to engage in conduct the lawyer knows is criminal or fraudulent, such as money laundering. A lawyer may, however, discuss the legal consequences of any proposed course of conduct, including counseling with a client to determine the validity, scope, meaning, or application of law.

3. What should I look for?
Anti-money laundering compliance begins with adequate client intake procedures, such as obtaining basic information about a potential client. The level of due diligence varies on the risk profile of the client. For example, risk profiles are heightened when a client wires international funds or requests to deposit cash into the client trust account.
In addition, attorneys should be mindful if the client is reluctant to provide basic information or documentation required in the scope of representation and whether the client is native to, a resident of, and/or incorporated in a high-risk country such as Afghanistan, Bosnia, Iraq, Syria, Uganda, or Vanuatu.

4. What should I do if my client trust account has been used for money laundering?
Consider terminating the relationship with the client suspected of money laundering (NRPC 1.16), and disclosing/reporting the client’s action to the appropriate authorities. NRPC 1.6(2) and (3) permit disclosure of confidential client information without consent to prevent the commission of and/or to rectify injury from a crime using their services.

5. Where can I learn more?
Several agencies and organizations have published best-practices guidelines to assist lawyers with preventing client trust account money laundering. Below are several such guides:

About the authors:

Jeffrey Luszeck, Esq.

Jeffrey P. Luszeck is a partner of the Las Vegas law firm of Solomon Dwiggins & Freer, Ltd., where he focuses his practice primarily on trust and estate litigation and small business litigation. Mr. Luszeck also handles all aspects of trusts and estate administration.

Alan Freer, Esq.

Alan D. Freer is a member of the Las Vegas law firm of Solomon Dwiggins & Freer, Ltd., where he focuses his practice primarily on trust and estate litigation. Mr. Freer also routinely prosecutes and defends claims for breach of fiduciary duty, fraud, undue influence, breach of trust, accounting, fiduciary removal, competency, lack of capacity, unjust enrichment, closely held business disputes, and elder abuse.

This article was originally published in the “Five Things” issue (January 2020) of Communiqué, the official publication of the Clark County Bar Association.

© 2020 Clark County Bar Association (CCBA). All rights reserved. No reproduction of any portion of this issue is allowed without written permission from the publisher. Editorial policy available upon request.

%d bloggers like this: