By Jack A.
Lobel, Novins & Lamont
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.
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.
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.
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.
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
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?
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
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.
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?
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.
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
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?
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
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?
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.
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
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.
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
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.
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
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
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.
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