Pubdate: Tue, 10 Feb 2004
Source:  Lawyers Weekly USA (US)
Copyright: 2004 Lawyers Weekly, Inc
Contact:  http://www.mapinc.org/media/3256
Website: http://www.lawyersweeklyusa.com/ a
Author: Diana Digges, Lawyers Weekly USA
Bookmark: http://www.mapinc.org/topics/Money+Laundering
Bookmark: http://www.mapinc.org/topics/forfeiture

Balancing Life and Practice

HOW CLEAN IS YOUR CLIENT'S MONEY?

Gone are the days when a criminal defense attorney could accept a bag
of cash from a client as a fee retainer - or even a check from the
client's grandma with assurances that the money was squeaky clean.

In the wake of the F. Lee Bailey fee forfeiture case, enforcement of
the Money Laundering Control Act of 1986 can now be much stricter. The
act gives the government the power to seize fees from attorneys if
they are the fruit of illegal activities. The question created by the
Bailey case is what constitutes tainted money?

"The answer to that question is markedly different now than just a
year ago," said John Henry Hingson, III, a sole practitioner in Oregon.

The precedent it established for pro-rated fee forfeitures has lawyers
wondering just what constitutes due diligence.

"Lawyers are thirsting for guidelines to make sure they don't cross
the line. The line ought to be bright, but it is not," said Hingson.
"What has happened is that this shift has caused defenders to act more
like inquisitors with their own clients. You have to run a paper trail
two or three times back to make sure [the fee] is not washed money.
Very few of us will accept cash any more."

The ABA, through the chairman of the Criminal Justice Section, Albert
Krieger, has been trying for years to get the Department of Justice to
commit to a clear set of guidelines, but with little success.

The result is that attorneys are left in a bind: is it sufficient, as
many lawyers still believe, to obtain the client's assurance that the
funds are not the fruit of some criminal enterprise? Or must they go
further? And how far can they go without antagonizing the client?

"We're just not getting answers," said Irwin Schwartz, former
president of the National Academy of Criminal Lawyers. "The code of
professional responsibility requires that I represent my clients
zealously. When a client comes in for representation, whether that's
someone on a marijuana charge or a senior corporate executive, the
lawyer's first job is to build trust and confidence. If you begin by
cross-examining the client, it undercuts the attorney-client
relationship."

Although there are no reliable estimates of an increase in fee
forfeiture cases, "the threat is real, and it has gotten worse,"
according to Krieger.

"Steadily, we've seen a march of forfeitures starting from drug cases,
moving into corporate cases, and now it's a problem across the board,"
said Schwartz.

The latest sector of the profession to feel its effects is the real
estate bar. As the Department of Treasury seeks comments on money
laundering regulations scheduled to be imposed on real estate
transactions, attorneys in that practice area worry about increased
due diligence, invasion of attorney-client privilege and the
possibility of fee forfeitures.

"There's no empirical data that a money laundering problem even exists
in commercial real estate transactions," said Kevin Shepherd, of the
American College of Real Estate Lawyers. "On the basis of four
appellate cases, the government wants to regulate a multi-trillion
dollar industry. It doesn't make sense. There will be dramatic
consequences for lawyers if they run afoul of the regulations."

The Bailey Alert While attorneys in civil practice struggle with the
"whiff of encroachment on attorney-client privilege," as Shepherd puts
it, their colleagues in the criminal defense bar have long been
dealing with such constraints.

The most recent case to sound the alarm bell is U.S. v. McGorkle,
which involved attorney F. Lee Bailey. After Bailey's clients were
found guilty of laundering proceeds of a fraudulent telemarketing
scheme, an 11th Circuit judge ordered the forfeiture of $2 million in
legal fees to Bailey, which had been placed in an offshore account.

Bailey has plenty of detractors in the bar. But many of them
nevertheless express concern about the Feb. 18 decision. The court
held that an attorney who, in the course of representing a client,
discovers that the up-front fee was tainted is subject to forfeiture
on a pro-rated basis. He may only keep that portion of the fees which
were rendered for services while he met the "bona fide purchaser" test
- - a standard for demonstrating that the lawyer was, in fact, rendering
legal services rather than participating in a money laundering scheme.

The court wrote:

"The point is this: a criminal defendant cannot pay an attorney for
the rendition of future legal services with the expectation that the
entire payment will be immune from forfeiturea€|For example, if an
attorney receives an up-front payment of $5 million for his future
legal services and the attorney loses his BFP status a week later
(say, because the client is indicted, and the attorney learns
additional information about his client's guilt,) the attorney may
keep only the reasonable value of his services prior to losing his BFP
status; he may not keep the entire $5 million."

The decision represents a crackdown on lawyers who directly or
indirectly - knowingly or not - participate in money laundering.
Attorneys complain that in the process, it creates a disincentive for
finding out if a client's fee is clean, thus making it easier for
lawyers to stumble into wrongdoing.

Krieger argues that "a case like McGorkle gives so much power to the
prosecution that it can destroy the private bar. Whether the fee is
five million or $50,000 doesn't matter. What Bailey did is what we all
try to do - get paid up front. You do some preliminary vetting that
leaves you satisfied the money is untainted. You then render service.
As a result, you become aware of certain information that makes you
know the money had a tainted provenance. And you're asked why you
didn't inquire further in the beginning. This is a very dangerous
situation for lawyers, and the courts are going to have to straighten
it out."

The dilemma, according to Kreiger, is that if a lawyer accepts a
criminal case and, in the process of developing the case, realizes the
client has been laundering money, he has two bad choices: Continue
working the case knowing his fees could be seized or drop the case
like a hot potato, and in so doing, signal his client's guilt. The end
result, critics say, could be a decline in private lawyers willing to
take on criminal cases.

The Bailey case comes on the heels of several others that have alarmed
defense attorneys in recent years. One of the most troubling (United
States v. Ferguson) involved a Florida criminal defense attorney and
former federal prosecutor. Donald Ferguson's client wanted money for
defense costs; Ferguson contacted a third party for assistance. He
received four cash payments, filed the appropriate IRS forms for the
money and was indicted under the "receiving and depositing" statute.
He was the first lawyer prosecuted on the theory that in receiving a
fee he engaged in money laundering.

The government's position is that criminally derived funds can't be
used for any purpose; attorneys in the defense bar counter that
blocking clients from hiring attorneys destroys the presumption of
innocence and violates the accused's Sixth Amendment right to counsel.
The tension between the two positions was recognized when Congress
passed an amendment to the 1986 Money Laundering Control Act
recognizing a "safe harbor" provision for attorney fees, thus
protecting the defendant's right to an attorney.

In 1989, however, a pair of narrowly decided U.S. Supreme Court
decisions, (Caplin & Drysdale v. United States and United States v.
Monsanto) held that there was no exception for payment of attorney's
fees.

"There's a lot of free-floating anxiety out there," said David Smith,
author of a treatise on forfeitures and a former associate director in
the DOJ's Asset Forfeiture Office. "I get a lot of calls from criminal
defense attorneys who are worried about their fees, and mostly what I
do is calm them down."

"This Justice Department is hostile to defense attorneys - the most
aggressive we've seen in a while," he added. "There are efforts to
undermine attorney-client privilege on a number of fronts."

Smith believes that while the threat of fee forfeiture is minimal, the
hostile environment created by the government has created a "bit of
hysteria" within the criminal defense bar.

What Lawyers Can Do In the current climate, lawyers have to be
extremely careful regarding the origin of their fees, cautions Martin
Weinberg, of the National Association of Criminal Defense Attorneys.
"Too many lawyers simply believe that all of their relations to their
clients are privileged, whereas in fact the courts have carved out
financial transactions as a largely unprivileged domain and therefore
susceptible to government subpoena."

To demonstrate a good faith effort, experts suggest that
attorneys:

Demand verification of the origins of the fees, particularly if they
are in the form of cash or money orders.

"Obviously, if a kid comes into your office charged with drug
importation and dumps an attachA(c) case with your $500,000 fee, alarm
bells go off," said Krieger. "But if he gives you a check from
Grandma? It's reasonable to say, give me some kind of proof of where
the money came from. If Grandma just mortgaged the house, give me that
information. If you borrowed it from a lender, give me that
information. If they say it's an inheritance or won it on the lottery,
give me proof."

Include a clause in your retainer agreement in which the client
assures the money is clean. "I routinely include a clause, but
sometimes that's not enough," said Hingson. "At times, I quote a fee
that includes the money to hire a retired IRS criminal investigation
division agent to assist me in assuring the bonafides of the fee."

That, however, can backfire, points out Joel Hirschhorn, a Florida
attorney and president of the American Board of Criminal Lawyers.

"Let's say you come into my office, and I decide I'd like to represent
you. But the first thing you have to prove to me is that the money for
my fee did not come from ill-gotten gains. Oh, and by the way, you
also need to pay me [in case the government tries to seize my fees.]"

That's no way to develop trust in the attorney-client relationship, he
said.

Examine the indictment and the dates for alleged illegal
conduct.

"Probe the client about what assets they had before the indictment;
look to those pre-indictment assets for payment of fees," said Hirschhorn.

Pick up the phone and call a professor of ethics or senior
practitioners. "The best way for an attorney to protect himself or
herself is to demonstrate that if an alarm bell has gone off, it was
not ignored," said Schwartz, who routinely educates young lawyers on
"self-defense."

"I believe that if the lawyer can demonstrate that a good faith effort
was made to keep both feet inside the line - wherever that line may be
- - he can protect himself before a jury."

Be careful to avoid even the appearance of greed.

"Make sure your moral compass is pointed to true north. Make sure
there's no willful blindness; doctor your eyes," said Hingson. "To
make sure you don't have blindness, let there be light. Put the
ever-loving light on this money, and make sure it doesn't have one
iota of dirt on it." 
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