Tightening up on the intermediaries – a new update

August 5th, 2010

Following yesterday’s blog about the New York State Bar Association, we now have an update from David Spencer.

As a reminder, the New York State Bar Association had said that lawyers should not counsel or assist clients in conduct they know to be illegal or fraudulent “in New York or any other jurisdiction.” That last part in parenthesis, we noted, is crucial – for it addresses a common offshore loophole – helping someone else commit an illegal act in a foreign jurisdiction may not be illegal in the home jurisdiction. This loophole has allowed tax haven intermediaries to assist foreign criminality, fraud and other illegality, with impunity. The New York State Bar Association, to its credit, disagreed.

Since that determination was issued by the New York State Bar Association, however, New York has adopted the relevant provision of the American Bar Association Model Rules of Professional Conduct, which reads, in the relevant part, as follows:

“A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.”

In other words, the “in any other jurisdiction” clause remains valid, which is a good thing, but theĀ  professional ethics rules in New York State are now narrower because they now refer to “conduct that is criminal or fraudulent.” (To be clear — “illegal” included civil law and criminal law.)

What we now need to see, far more widely around the world, is professional associations – be it lawyers, accountants, bankers or whoever – being directly asked specific questions like this: notably whether a local practitioner, in assisting offshore illegality, is engaging in local illegality.

In fact this ought to be one of the great questions of our globalised age. And yet who ever asks it?

Written by Nicholas Shaxson

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