Jack A. Blum

Mr. Blum is a partner in Lobel, Novins & Lamont, a Washington, D.C. law firm. As a Senate attorney he was involved in a number of well know investigations, including BCCI, General Noriega's drug trafficking, and Lockheed Aircraft's overseas bribes. He is an expert on controlling government corruption, international financial crime, money laundering, international tax havens and drug trafficking. In his law practice he negotiated numerous international business transactions, and has assisted clients who have been the victims of complex fraud. He works as an expert witness and consultant to various government agencies and private clients. He has been a consultant to the United Nations Centre on Transnational Corporations, the United Nations Office of Drug Control and Crime Prevention.

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Money Laundering and Legal Ethics

By Jack A. Blum, Esq.
Lobel, Novins & Lamont
Washington, D.C.

When I was asked to prepare remarks for this meeting on the ethical issues raised by money laundering, it occurred to me that a discussion of the ethical codes of the countries represented here would be a waste of your time. I am sure you are all familiar with your own national codes and that you could do better job than I of discussing your own national legal codes. But, a technical discussion of the application of legal codes of ethics would miss the point entirely. The issue is not technical - it is an issue of right and wrong, of commitment to the values of the society and the role of the legal profession.

I can say with some certainty that one of the problems is that, even if you wind up helping launder money, the odds against you facing ethical or criminal charges is quite small. The fact is that, in the United States and around the world, the self policing machinery of the bar rarely disciplines lawyers, unless there is a complaint from a client or the lawyer is convicted of a crime.

What I hope to do is persuade you that helping clients launder money is morally wrong and violates the fundamental role of a lawyer in society. Our job as lawyers is to teach clients what the law is and how to obey it. To appreciate why a lawyer should never help launder money you need to understand the destructive impact money laundering has and why all money laundering transactions should be avoided. I will also make some recommendations on how to handle clients who ask you to help them launder money.

Money laundering is a form of consensual crime. The parties to the transaction, including the legal and accounting professionals who do it, are happy with the transaction as long as they get paid. Unlike a homicide, where there is a corpse that must be explained, and unlike armed robbery where there is a complaining victim, there is no victim to report money laundering transactions to the authorities. In that respect, money laundering is similar to drug trafficking and prostitution; the crime is discovered in the context of other investigations or when an informant tips off the police.

Because consensual crime is rarely reported, its perpetrators are rarely arrested, tried, and convicted. As we all know from basic criminology, arrests and convictions provide the deterrent that keeps a substantial number of the people away from criminal activity. In several money laundering cases in which I advised the prosecutors, I argued for the arrest of the lawyers and accountants who were involved because of the potential deterrent effect. But, alas, the police are less likely to take on the professionals than they are to go after the banks and money managers. That needs to change.

However, if money laundering by lawyers and accountants is not to be prevented through public shaming, prosecution and disbarment, ethical issues should dissuade them from helping clients who want to launder money, despite the pressures that push members of our profession into questionable transactions.

Over the past six months the newspapers have been filled with stories about corporate crime. Enron and Tyco have become household names, each associated with greedy executives who enriched themselves at the expense of their shareholders and customers. In each of those cases, large American law firms helped and, in a few instances, blessed the improper activity. We can now know that the accounting firm of Arthur Andersen helped design and conceal Enron's questionable transactions.

Why did these skilled and well paid lawyers and accountants willingly assist their clients in bending, if not breaking, the law? Why did they take the risk of destroying their firm and the very clients they were hired to protect?

The answer, I believe, lies in the realities and pressures of modern legal practice. On a day to day basis, we are focused on getting clients, doing the work, billing and maintaining a revenue flow. We are businessmen and women selling a service.

We all also face competitive pressures. When I say to a client that I cannot give him an opinion that something he wants to do is legal, I have to face the possibility that he will find another lawyer who will give him the opinion he wants to hear. How many times have you been told by a client to find a way around a law or regulation? How many times have you lost business to other lawyers who successfully avoided the impact of restrictive laws by proposing a questionable dodge?

In a few of the large law firms, these large ethical issues are avoided by dividing the work into so many small pieces that no one asks about the big picture. The task before the individual lawyer is how to set up an offshore company or whether the offshore company is sufficiently independent to be kept off the parent's books. The individual lawyer is not asked to look at the totality of the scheme and evaluate whether what is being done is deceptive.

But the big picture issues cannot be avoided. We must each take responsibility for our own actions. We must look at the totality of the transactions and ask the difficult questions. And, yes, sometimes it will mean that we lose the business, but to take the business would negate our function in society and risk our careers. As lawyers, we are society's first line of defense. It is our job to teach our clients what is allowed and what is not allowed. As counselors, our advice must err on the side of keeping the client away from investigation, much less prosecution and conviction.

Very few legal issues offer bright lines signaling what is right and wrong. For the most part, the behavior that is legal shades into the behavior that is illegal. So far as money laundering is concerned, we have to look at the whole transaction and the intent of the people who are asking for help in carrying it out. Where did the money come from? Where is it going? Why do the clients want it hidden? Is the reason illegal or unethical?

Money laundering amounts to moving money out of the reach of the law. Sometimes there are good reasons for moving money out of the reach of the law. When Nazi Germany undertook the confiscation of Jewish property on the basis of race, helping the victims hide the money was not, in my judgement, unethical. When a criminal regime in Haiti allowed a group of thugs to steal anything they wanted to take, protecting money from the thugs was not unethical. But those reasons are rare. In today's world, the money that wants to hide is more often than not, the product of tax evasion, bribery, financial crime, drug trafficking, and kidnaping. If the money is successfully laundered, society as a whole suffers.

Over the past several years I have participated in programs to help the Mexican government with one of its most serious problems - corruption. The Mexican President Vincente Fox, has made the issue a top priority and I am awed by his efforts to inculcate Mexican civil servants with the importance of honest and ethical behavior on the job. But Mexico has a terrible corruption problem. It cannot pay its employees enough. In my view, if you take a man, give him some training, and a badge and a gun, but then pay him half of what it takes to live, you have created a corrupt policeman. You have also created a policeman who will not risk his life to protect the public.

When I raise the pay issue, everyone in the government agrees with the point, but they then ask where will the money to pay them come from? I answer that the Mexican tax system is at the heart of the matter. Wealthy Mexicans must pay their fair share. They cannot be allowed to continue to hide their money and their company profits offshore. I am then told privately how difficult it is to collect the taxes because the money is so well concealed through the efforts of the best Mexican lawyers and accountants.

What is most amazing is that later in the day at a cocktail party the same accountants and lawyers will complain loudly about how Mexico city is so dangerous because the risk of robbery and kidnaping is so high. They seem unable to connect the work they have done moving money out of the government's reach with social problems that must be addressed. Why don't they see the connection between lost tax revenue and corrupt police?

Each form of laundered money brings its own problems. Drug money has distorted electoral politics in one country after another throughout the hemisphere. Drug money was one of the pillars of financial support for the Taliban government and the al Queda terrorist organization. Drug money invested in legitimate business destroys competitors and distorts markets.

For a period of time, drug traffickers were laundering their dollars by buying high priced computers and computer accessories in Miami, shipping them to Colombia and selling them for Colombian pesos. They were able to sell computers below cost because all they cared about was moving and converting the money, not profits in the computer business. Of course, all the legitimate dealers were forced out of business.

How then should a lawyer or law firm evaluate a client's request for help with a financial transaction that involves hiding the source or destination of funds? The first step is knowing the client and knowing the source of the funds. Is the client someone with a public persona? Most wealthy individuals leave some trace in the press and can be investigated on the internet.

Are the funds the product of a legitimate transaction? Did they come from inherited family wealth? Have taxes been paid on the funds?

Several years ago, I was approached by what we refer to as a "very high net worth" individual who wanted my help in hiding his money offshore. He began the conversation by explaining that he was about to file for divorce against his wife who would take him to the cleaners in the proceedings.

"She'll hire some great white sharks," he said, "and I want to keep the money out of her hands."

I told him there was nothing I could do to help him. He wanted to know why. "Half a dozen other lawyers wanted to help. What's wrong with you?"

I explained that, to hide the money successfully, he would have to lie under oath. He would know where the money was hidden. If I hid the money, I would be suborning perjury, something I could not and would not do. He was astonished. I told him to his amazement that a Washington lawyer had been disbarred on this very point. He looked at me in disgust and told me that there were plenty of others who would be willing to help him.

I tell this story not to brag about my own ethics, but to make you think about the money laundering client who comes in with the motive of hiding money from creditors. Asset protection has its pitfalls.

If a lawyer believes that the proposed transaction is criminal, it is his obligation to advise the client of the illegality and refuse to do the work. If the lawyer believes that the money laundering will involve lying under oath, as it will if there is some legal proceeding, the lawyer must refuse the work.

The obligation to refuse the work is clear. It is also clear that, if the lawyer goes forward, and the activity is criminal, the lawyer's status changes from legal adviser to co-conspirator. The lawyer can be prosecuted with the client without the attorney-client privilege to hide behind. Our profession cannot be in the position of advising criminals on how to beat the system. It cannot be in the position of advising criminals on the odds of their being caught and successfully prosecuted.

In a number of jurisdictions in the hemisphere, the law imposes an even higher standard on the profession. For example, members of the Cayman Islands Bar are required to report suspicious transaction requests by clients to the authorities. The reports are confidential and the attorneys are exempt from prosecution if they give them to the proper authorities.

This leads me to the most interesting and complex ethical issue raised in the money laundering field - what is the obligation of lawyers to respect the laws of other jurisdictions. If I work in Panama, for example, should I care whether my client is violating the law of another country? Do I have an ethical obligation to refuse the work, if the crimes or the regulatory violations have been committed elsewhere?

Thus, I have wondered whether, under Cayman law, the law firm that set up the "special purpose entities" that Enron used to keep debt off its books had the obligation to investigate the propriety of the transactions before undertaking the work. In my view, even if the law did not require it, ethically they should have asked whether they were proper. If a publically traded American corporate client came to me and asked me to set up five thousand companies, I would certainly want to know why they needed to be in the Cayman Islands and whether the entities met the disclosure requirements imposed in the United States.

I have been told about a lawyer in Geneva who has a specialty of hiding money stolen by departing heads of state. He is an expert in creating financial blind alleys in the form of offshore corporations and trusts and then creating legal obstacles to efforts to recover the money. In my mind, his entire practice is unethical. He is responsible for putting millions of people in poverty. No respectable lawyer should be in that business.

It may be that he will never be reported to the police and that no ethics complaint will be filed against him. But, we, as a profession, have the obligation to condemn him and his works. We have the obligation to say no, if a client comes to us asking for the kind of services he offers. We have the obligation to stand together in saying no so the lowest ethical common denominator does not prevail.

Increasingly, as business becomes more global, we, as a profession, have to take the responsibility for protecting the global community and the global economy by encouraging clients to behave legally everywhere they do business. We have to push our clients to look at the total legal and social impact of the transactions they want us to implement - wherever the impact is felt. And, on a personal level, we will have to connect the ethical dots and ask whether the advice we give at the office is the source of the very societal problems we complain about when we get home.

Money laundering for a long list of crimes has been condemned by international agreement. For those crimes, especially the crimes of drug trafficking, gun running, terrorism and kidnaping, the ethical responsibility of the legal profession is global. I believe that global responsibility goes beyond the listed crimes to the other issues which are at the heart of our social problems. We have to recognize that and behave accordingly.


Federación Interamericana de Abogados © Derechos Reservados 2002