By LEWIS COHEN, Special to The Florida Law Journal –
Rule 4-1.6 of the Rules Regulating the Florida Bar provides that “a lawyer shall not reveal information relating to the representation of a client.”
The rule’s commentary makes clear that an attorney’s ethical duty of confidentiality is broader in scope than the well-founded principle of attorney-client privilege, and extends not merely to matters communicated in confidence by the client to the attorney, but to all information relating to the representation of the client, whatever its source.
Section 352 of The USA PATRIOT Act amended the Bank Secrecy Act (“BSA”) to require U.S. financial institutions to report to the U.S. Department of the Treasury, Financial Crimes Enforcement Network (“FinCEN”), transaction activity attempted by, through, or at a financial institution if (a) the financial institution knows or has reason to suspect that the transaction involves funds derived from illegal activities, (b) the transaction has no business or apparent lawful purpose, or (c) the transaction is not the sort in which the particular customer would normally be expected to engage (i.e., the transaction is “out of profile” for a particular customer) and the financial institution knows of no “reasonable explanation” for the transaction after examining the available facts, including the background and possible purpose of the transaction — 31 CFR 103.18 (emphasis supplied).
The implementation of this regulation requires financial institutions to develop internal policies, procedures, and controls to detect activity which may be “out of profile” for a particular customer or indicative of illegal activity.
Due to the volume of transaction activity, most financial institutions utilize sophisticated software to “flag” account transactions that are inconsistent with a customer’s typical pattern of activity, including the size and frequency of transaction activity, and to document the financial institution’s due diligence in establishing a reasonable explanation for the account activity. Failure to detect “out of profile” activity and to conduct and document such due diligence can result in severe penalties for the financial institution.
A financial institution’s BSA inquiry into an attorney’s account activity, including trust account activity, often gives rise to concerns regarding attorney-client privilege and confidentiality. Transactions which are lawful but which deviate from an attorney’s normal account activity patterns may trigger the filing of a report with FinCEN, unless the financial institution can satisfactorily complete and document its due diligence.
Federal regulatory agencies and bar associations have been less than sympathetic to one another’s positions with respect to the potential conflict between a financial institution’s duty to inquire and an attorney’s duty to maintain confidentiality. As a result, attorneys and financial institutions alike may find themselves in a quandary regarding how to enable a financial institution to document that it has formed a reasonable belief that a flagged transaction has a legitimate and lawful purpose while allowing an attorney to comply with his or her obligation to maintain the confidentiality of information relating to the representation of a client.
Here are some suggestions to help solve the dilemma. First, communicate with your relationship manager. If your financial institution understands the general nature of your practice and the types of transactions and volume of activity to expect, this can assist your financial institution in completing its due diligence while minimizing the need for intrusive inquiry.
Second, understand that a financial institution’s BSA inquiries are not challenges to your honesty or integrity. By understanding the recordkeeping and reporting requirements that the BSA imposes on financial institutions, and familiarizing your relationship manager with the nature of your practice and the frequency and volume of transaction activity to anticipate, you can facilitate your financial institution’s compliance with its obligations under federal law without compromising your ethical obligations.
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Attorney Lewis Cohen is the founder of Lewis R. Cohen, P.A., with offices in Miami-Dade County. He has more than 20 years of experience in the areas of banking, commercial finance, real property finance, real estate transactions and commercial litigation. Mr. Cohen can be reached at lrcohen@lrcohenlaw.com or (305) 371-8177.
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