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Atty Reg. & FATF s Mutual Evaluations Regulation of Legal and Judicial Services Conf. Fordham Law School, New York, Dec. 9, 2017 Laurel S. Terry (LTerry@psu.edu) Penn State University, Dickinson Law, USA José Carlos Llerena Robles (jcllerena@pucp.pe) Universidad del Pacifico, Peru What this talk is REALLY about Who should regulate (or contribute to) lawyers? What are lawyers roles in the legal system? What creates a vibrant rule of law system? Do we need lawyers and why? What s their role in the administration of justice? When, if ever, is lawyer exceptionalism valid? These questions should be relevant to ALL who are interested in legal services reg. issues 2

Overview of Remarks Intro: Relevance of this talk to those at Fordham Status of FATF s 4 th Round Mutual Evaluations FATF Process FATF MER conclusions re lawyers 3 examples of legal profession preparation for FATF Two examples of FATF s impact: Peru & US Concluding observations 3 Intro: Why This Topic Matters EVERY SPEAKER at Fordham is from a country subject to FATF Recommendations & Mutual Evals. FATF s Recommendations apply to lawyers (DNFBPs) FATF Evals. may affect your legal profession regulation 4

FATF s Reach 5 4 th MER s for Conference Attendees 4 th MER Completed: 2014: Spain 2015: Australia 2016: Canada Singapore United States Date To be Decided: * - Nigeria, Palestinian Authority, Poland, & Slovak Republic *From FATF s assessment calendar Date Listed for 4 th MER In-Country Visit or Plenary * 2017: Ghana [5/17], Mexico [1/18], Ukraine 2018: China, Hong Kong, Israel, Peru, Solomon Islands, UK 2019: Japan, Russia, South Africa South Korea, UAE, Uruguay 2020: France, Germany, Netherlands 2021: 6 Argentina, Brazil, India

A Primer About FATF (GAFI) Financial Action Task Force (FATF): an IGO (intergovernmental organization) started in 1989 Goals: Fight money laundering & terrorist financing [aka AML/CFT; activities increased after 9-11] Members: 35 Jurisdictions + 2 regional groups Associate Members: cover most of the globe Focus: 40 Recommendations (as revised 2012, 2017) Methods: education, Mutual Evaluations 7 FATF s 40 Recommendations 8

FATF s 4 th Round of Mutual Evaluations Evaluates compliance with FATF 40 Recommendations (2012) FATF Recs. for lawyers (DNFBPs) are #22 and #23 MERs (reports) are discussed & approved by FATF Plenary MERs include recommendations with follow-up All Mutual Evaluation Reports (MERs) are available here http://www.fatf-gafi.org/home/ 9 FATF 4 th Round MER Results DNFBP Ratings as of 11-2017 Few C or green ratings FATF s table shows a country s rating re FATF Recs. 22 & 23 for lawyers & other DNFBPs: (Rec. 23 includes suspicious transaction reporting & no tipping off) 10

Summary of Current 4 th Round MERs Rec. 22 DNFBP Customer Due Diligence: 8 Non Compliant (Australia, Botswana, Canada, Fiji, Mongolia, Nicaragua, Sri Lanka, US) 18 Partially Compliant (Austria, Bahamas, Cambodia, Costa Rica, Denmark, Guatemala, Hungary, Ireland, Jamaica, Norway, Samoa, Serbia, Singapore, Switzerland, Tunisia, Uganda, Vanuatu, Zimbabwe) 13 Largely Compliant (Armenia, Bangladesh, Belgium, Cuba, Ethiopia, Honduras, Isle of Man, Italy, Malaysia, Slovenia, Spain, Sweden, Trinidad & Tobago) 1 Fully Compliant (Bhutan) [Data taken from FATF s 11-2017 Table of Assessment Ratings] 11 Summary of Current 4 th Round MERs Rec. 23 DNFBP Other Measures (e.g., STR & NTO): 5 Non Compliant (Australia, Canada, Mongolia, Nicaragua, & the US) 19 Partially Compliant (Bahamas, Bhutan, Botswana, Costa Rica, Fiji, Guatemala, Honduras, Hungary, Isle of Man, Jamaica, Samoa, Serbia, Singapore, Sri Lanka, Switzerland, Tunisia, Uganda, Vanuatu, Zimbabwe) 14 Largely Compliant (Austria, Bangladesh, Belgium, Cambodia, Cuba, Denmark, Ethiopia, Ireland, Italy, Malaysia, Norway, Slovenia, Sweden, Trinidad & Tobago) 2 Fully Compliant (Armenia & Spain) There has been significant litigation about R. 23 Note: Data taken from FATF s 11-2017 Table of Assessment Ratings 12

Treatment of Lawyers in FATF 4 th MERs Overall: It is common for the FATF 4 th ME Reports to cite issues related to DNFBPs who are lawyers Note the Burden allocation: Some MERs say lawyers or regulators haven t proved their systems are effective Common Complaints about Lawyers in FATF Reports: Insufficient AML/CFT regimes Lawyers don t understand their legal obligations (rule issues) Lawyers aren t implementing AML/CFT (application issues) Rule of Law concerns are rarely if ever cited (but see FATF Interpretative Note to Recommendation 23) 13 Competing Narratives re Lawyers & AML 14

Legal Profession Preparation We report how some legal professions prepared Australia, Canada, & the United States The US legal profession had the most involvement We invite your info/connections for more countries We report their advice re things to consider & how countries might want to prepare for FATF We urge EVERYONE to make sure that legal profession reps in your country are monitoring 15 Possible Impact in Peru & US 16

Peruvian Lawyers Regulation Peruvian Bar Association Colegio de Abogados (Disciplinary) Peruvian Legal Ethics Code (2012) Malpractice Lawyers National Register Ministry of Justice Dec, 2016 (Registro Nacional de Abogados Sancionados por Mala Práctica Profesional) 17 Peruvian Lawyers as persons obliged to report to Peruvian AML Authority Legislative Decrete 1249 (Dec, 2016) Lawyers and public accountants who are collegiate members and that, independently or as part of a society, regularly do or intend to do, on behalf of a third party, the following activities: (a) purchase and sale of goods; (b) securities, money and bank accounts and other assets management; (c) collect contributions for the incorporation, operation and management of legal entities; (d) incorporation, operation and management of legal entities and other legal structures; and, (e) purchase and sale of legal entities shares. (free translation) 18

Peruvian Background re AML Peru: Drug Trafficking 1st lucrative crime. Lava Jato corruption scandal Resistance from political parties in Congress to enact AML rules 19 FATF s Impact in the U.S. Conversations are underway re whether to add an ethics rule or comment that addresses FATF Rec. 22 re due diligence It could be a stand-alone rule as in Canada It could be a new Model Rule It could be a new section in an existing rule It could be a comment analogous to the technology comment in ABA MRPC 1.1 [8] I think a duty of inquiry implicitly exists (an atty couldn t fail to inquire re conflicts, could they?) but duty should be explicit 20

Concluding Observations FATF s 4th Round of Mutual Evaluations is relevant to legal services regulation Fordham attendees could help ensure awareness Lack of awareness could affect legal services regulation beyond AML issues Legal profession reps should consider how best to cooperate and share info 21 Switching gears: for the debriefing session Do you have suggestions for how we could better use the IAOLE website? There are committees, resources, & events listings http://www.iaole.org Email ideas to LTerry@psu.edu 22