The Oklahoma Bar Journal December 2022

client’s consent. 51 The reporting out is not mandatory, but even the dis cretion to do so was unprecedented at the time of adoption. 52 In 2007, the ORPC were amended to accommodate the “reporting up” and “reporting out” rules of Sarbanes-Oxley. The rules provide that a lawyer who knows that a cli ent entity is about to violate the law, resulting in substantial injury to the client, should report the matter to the client’s “highest authority.” 53 If the highest authority refuses to act, the lawyer may report the matter to a government authority if the lawyer believes substantial injury is about to occur. 54 The reporting concepts fit with a lawyer’s duties of inquiry under the CTA and other anti-money laundering laws. The American Bar Association (ABA) has issued guidance in the area. In 2010, recognizing the global push for transparency, the ABA encour aged lawyers to adopt risk-based due diligence approaches when dealing with clients whose own ership or activities were murky. 55 The ABA followed with a formal ethics opinion. It objected to the role of lawyers as gatekeepers, but acknowledged that lawyers must act competently, which may require that they assess a client’s objectives before proceeding. 56 In the ABA’s most recent pronounce ment, client due diligence became a mandatory obligation. “Where there is a high probability that a client seeks to use a lawyer’s services for criminal or fraudulent activity, the lawyer has a duty to inquire further to avoid advising or assisting such activity.” 57 Under the CTA, lawyers’ duty of inquiry will most likely arise when discussing beneficial own ership with a client. The extent of the duty turns on the risk that the client will give false information. 58 Voluntary Guidance and Formal

other misconduct. In other words, lawyers’ duties to the legal system and society at large would surpass thier duties to their clients. The lawyer as gatekeeper is not a new concept. The Oklahoma Rules of Professional Conduct (ORPC) have several exceptions to client duties. For example, lawyers cannot assist a client in criminal or fraud ulent activity. 47 Lawyers must dis close client confidences if necessary to prevent death or serious injury or, when using lawyers’ services, to mitigate actions that would harm the financial interests of another. 48 Disclosure of client confidences is also permitted “to comply with other law or court order.” 49 The gatekeeper role is expand ing. In the wake of the Enron scandal, Congress adopted the Sarbanes-Oxley Act of 2002, which obligates a lawyer to report to a publicly held client evidence that a material violation of the securities laws or fiduciary duties is reason ably likely. This “reporting up” starts with the chief legal officer or chief executive officer. If no appro priate response is received, the lawyer must report to the Board of Directors or the Audit Committee. 50 If the board fails to respond, the lawyer may “report out” the misconduct to the Securities and Exchange Commission without the

subsequent contact may not expect notification. Filing for a reporting company formed years ago may pose some difficulty. Presumably, the report ing company will report its current ownership and has no requirement to report historical ownership. Having an interest in the report ing company, current ownership should be motivated to cooperate in the process. That would not be true for prior ownership with no present interest. Under the final rules, existing reporting compa nies will file beneficial ownership information but no information for company applicants. 45 Lawyers should also examine whether their role in advising the entity made them an applicant and, thus, a reporting person under the CTA. 46 As lawyers advise clients about their CTA reporting respon sibilities, they should also disclose their possible role as applicants. transparency in the ownership of legal entities has long sought to impose greater responsibility on lawyers who assist in form ing the entities. That push would insert lawyers as gatekeepers to prevent money laundering, tax evasion, terrorist funding and The Lawyers’ Role Under the CTA The global push for greater

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THE OKLAHOMA BAR JOURNAL