Tightening up on the intermediaries

Posted on

The Tax Justice Network is beginning new research project. As is asked on the TJN blog:

Some jurisdictions license and regulate intermediaries such as legal and tax advisers [but c]an an attorney licensed in one jurisdiction assist and counsel a client if the attorney knows, or has reason to know that the client is violating foreign law? You would think that the answer is obvious: no, of course not. But it is not so simple. The prevailing view seems to be "don't ask, don't tell."

As TJN then notes:

Now we have an informal decision which holds much promise. The New York State Bar Association has recently issued the following determination about one of its Disciplinary Rules, based on a fact situation submitted to it:

"A client who is a citizen and resident of a foreign country has consulted with you about a proposed transaction ("Transaction") in which the client would open a bank account in his name at a New York bank, or create a wholly-owned corporation in a zero tax jurisdiction ("Offshore Corporation") and have the Offshore Corporation open a bank account at a bank in New York.

You know or have reason to know that the client is required under the laws of the foreign country to report the proposed Transaction in his tax returns in the foreign country and/or in other reports that must be submitted to the foreign country's government. You have learned that the client does not want to report the Transaction in the foreign country because this would result in tax liability or other legal liability in the foreign country. The client has requested your assistance to help structure the Transaction to reduce the possibility that information about the Transaction will become available to tax and/or other government authorities in the foreign country.

Your inquiry concerns the scope of Disciplinary Rule DR 7-102 (A) (7), which provides:

In the representation of a client, a lawyer shall not … (7) Counsel or assistant the client in conduct that the lawyer knows to be illegal or fraudulent.

You inquire as to whether the reference in DR 7-102 to conduct that the lawyer knows to be "illegal or fraudulent" is limited to conduct that is illegal or fraudulent under the laws of New York, or encompasses conduct that is "illegal or fraudulent" under the laws of jurisdictions other than New York.

The meaning of the admonition in DR 7-102 (A) (7) is clear: if a lawyer "knows" that a client intends to engage in illegal or fraudulent conduct, the lawyer cannot explain to the client how to engage in the conduct nor provide legal services that enable the client to achieve the illegal or fraudulent purpose.

The language of the prohibition in DR 7-102 (A) (7) against counseling or assisting the client in conduct the attorney knows is illegal or fraudulent is not limited by jurisdiction ‚Ķ‚Ķ‚Ķ.. Accordingly, we conclude that the phrase "illegal or fraudulent" in DR 7-102 (A) (7) encompasses conduct that is illegal or fraudulent in New York or any other jurisdiction."

The last four words of this determination have enormous implications, which go right to the core of the tax justice network's agenda. And we are delighted to hear it.

I agree.

I wonder if other professional bodies might be willing to offer rulings on similar scenarios? Anyone know?