The wealthy will feel the brunt of change and they need to prepare now.

It has always been the case that effective lawyers are predictive of risk and inform their clients of these potential risks. Paraphrasing the greatest hockey player of all time Wayne Gretzky on the need to skate to where the puck is going, and not where it is—we need to guide our clients not where the law is now but where we believe it will be and not allow our clients to be caught on the cusp of change.

There is a history of this type of problem, of course, that is highly instructive, and the road is strewn with the wealthy who did not see change coming fast enough to correct future behaviors or they reacted to their past behaviors far too late to mitigate the risks caused by them. In the 1980s we saw the fall of Michael Milken, one of the greatest American financiers of all time. He knew that he was under constant scrutiny by the Securities and Exchange Commission due to his as best described “questionable” behavior in the high-yield bond and leveraged buyout space yet he continued to push the edge of the envelope.

Milken's role in these behaviors has been much debated over the years. In one book, April Fools, written by Dan Stone, a former Drexel Burnham Lambert executive, the author states that Milken viewed securities regulation with a degree of contempt, feeling that these rules hindered the free flow of trade and that Milken condoned questionable and illegal acts by his colleagues.

Milken ultimately pleaded guilty to six counts of securities and tax violations in 1990. Whether he truly committed these illegal acts or others is really of no significance. The real issue is that he should have seen that the world was on the cusp of change and accordingly altered his behaviors to minimize the risk of his past and future behaviors being criminalized with dire consequences.

The same can be said of foreign banks holding assets of U.S. citizens and certain long-term U.S. tax residents, and the U.S. taxpayers who owned these accounts. The failure to report income from offshore bank accounts was always illegal but for many years the Internal Revenue Service did little to regulate or enforce laws pertaining to offshore bank accounts. However, that policy was changed, and new laws were enacted to penalize banks and U.S. account holders of offshore accounts who did not comply.

Several large financial institutions were ultimately charged with helping Americans evade taxes, and hundreds of American taxpayers engaged in offshore banking with these institutions became the subject of grand jury investigations. Dozens of charges and convictions for tax evasion resulted, with many more cases in which individuals voluntarily agreed to pay delinquent taxes and sizable penalties rather than face criminal prosecution. Many bankers, accountants, and tax lawyers were also prosecuted for their roles in facilitating these transactions or advising clients as to how they could use offshore bank accounts to evade their reporting and tax obligations.

The consequences to these banks and account holders are another example of being caught on the cusp of change. Instead of mitigating the risks of past behaviors, many individuals instead sought to conceal their actions, transferring accounts to foreign entities, or moving accounts to other foreign financial institutions. Doing so only enhanced their exposures and made the consequences worse when they were ultimately discovered by the U.S. Government. The cover up is always penalized more than the base crime and knowledgeable counsel should have informed clients of this risk.

A Lesson From The Past
My primary strategic responsibility as an attorney who represents wealthy individuals and families is to identify, assess and mitigate legal risks. Of course, there are many types and varieties of risks such as income and estate tax, business, divorce, reputational, civil and criminal litigation exposures etc., and clients have their own personal risk quotient or their natural inclination of evaluating risk in the context of my advice and then choosing to accept, reject or mitigate these risks when they take certain actions or engage in certain activities. My job primarily is to give them a clear “look at the pitch” so that they can make an informed business decision about these risks.

I often say that my job is not to be their Priest or Rabbi, and I will do what they ask me to do, provided that their request is neither illegal nor unethical. But they must hear my views on the issue at hand.

It reminds me of the story of the lawyer and his client standing before the judge and the jury when the verdict is read by the foreman. The foreman says: “We find the defendant guilty” the client then turns to his lawyer and asks: “What happens next,” and the lawyer says: “I don’t know about you but I’m going to lunch.” The point is, once the lawyer identifies, assesses, and offers mitigation strategies to the client, it is the client who must then assume the responsibility for his or her actions or inaction.

Once I identify and assess a particular risk then it is also my job to address how to mitigate a particular risk; and then a similar type of assessment of these mitigation strategies needs to occur which ultimately results in my giving the client a menu of available alternatives which, again, assesses these mitigation strategies from a risk and reward stand point, along with the costs and complexities of each alternative.

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