Recent corporate scandals have now affected the law profession with the American Bar Association voting this week to compel corporate attorneys to report suspicions of fraud — a major change in attorney/client confidentiality rules.
With attorneys under growing fire for the role they played — or didn’t play — in looking the other way in cases such as Enron and WorldCom, the ABA took the dramatic step at its annual meeting to adopt standards that are similar to Securities and Exchange Commission rules now in effect. A similar measure failed to gain approval two years ago, but that was before the recent spate of corporate scandals.
The association’s policy branch, the House of Delegates, voted 239-147 on Tuesday to change the ABA’s model ethics code, which is mirrored by many state bar associations. The new rules require lawyers to report fraud suspicions to a company’s "highest authority" and to go a step further by reporting to regulators if the company’s board fails to act on the information.
"After the corporate accounting scandals, it was clear that the American Bar Association lagged behind everybody else's perception of what needed to be done," Georgetown University law professor Donald Langevoort told Bloomberg News.
Even though 42 states already have similar rules in place, the ABA’s action was still controversial, with attorneys expressing concern about the erosion of the sacrosanct attorney/client relationship, which includes a presumption of confidentiality.
While corporate attorneys largely backed the measure since it will give them the ability to report misdeeds, trial attorneys were adamantly opposed, accusing the ABA of caving in to outside pressure.
The Christian Science Monitor reported that William G. Paul, former ABA president said the organization was "bartering away a piece of our professional soul to gain some hoped-for public approval."
The New York Times reported a second major development at the ABA annual meeting. On Monday, ABA approved a proposal to allow — but not require — a lawyer to disclose a client's confidences to prevent or rectify a crime by that client that would cause substantial financial harm to others, if the lawyer's services were used to further the crime, the Times said.