By Stanley Foodman
The New Reality: Legal Risk = Compliance Risk
The July 2025 FATCA/CRS reporting cycle confirmed a new reality. legal risk is compliance risk. Regulators no longer treat AML, FATCA, and CRS as side issues. In-house counsel, trustees, and family office advisors are now on the compliance front line because enforcement has moved the liability line.
CRS 2.0 and new crypto reporting rules coming in2026 and 2027 will raise the bar. Lawyers advising complex wealth holders and institutional clients need to be ready.
Why Lawyers Are on the Front Lines
AML, FATCA, and CRS were once left to compliance teams, banks, or tax specialists. That separation is gone. Regulators now look at legal interpretation of entity classifications, controlling persons, and reporting obligations.
We see it in:
- Trust structures tested against CRS definitions of control.
- Family offices questioned on whether they qualify as financial institutions under FATCA.
- Cross-border legal opinions examined when enforcement targets structures later deemed non-compliant.
Lawyers are no longer outside the process. They are responsible for whether frameworks hold up under audit.
Enforcement Has Changed
The last 18 months have marked a decisive change. Regulators in Colombia, Mexico, and Brazil are aligning with European authorities to demand higher-quality CRS reporting and to cross-check FATCA data. Penalties have escalated and now extend beyond institutions to professionals, including lawyers and trustees, whose structuring contributed to gaps.
Enforcement actions increasingly test AML obligations, tax transparency rules, and beneficial ownership reporting together. Weakness in one area can now trigger exposure across all three.
Key changes:
- Regional alignment. LATAM regulators are coordinating with European counterparts to tighten enforcement.
- Higher penalties. Lawyers, trustees, and other advisors are now subject to direct enforcement, not only their institutions.
- Framework convergence. AML, FATCA, and CRS obligations are no longer siloed. They are reviewed together in audits.
Legal Gray Zones That Drive Risk
The pressure points are clear:
- Entity status. Whether a trust, family office, or partnership is a financial institution or a passive NFE.
- Controlling persons. CRS definitions often differ from legal concepts of control or influence.
- Disclosure and privilege. Reporting duties can conflict with confidentiality or attorney-client privilege.
- Digital assets. CRS 2.0 will introduce new reporting obligations around custody, valuation, and recognition across borders.
These gaps cannot be resolved by compliance alone. They require legal interpretation across jurisdictions.
Rising Professional Liability
Law firms face two levels of risks.
- Client exposure through penalties, forced disclosures, or reputational damage.
- Professional liability when regulators hold lawyers accountable for structures or advice that supported non-compliance.
Compliance is now part of risk management.
How Legal Teams Should Prepare
The first step is to review where legal and compliance frameworks meet. Key actions include:
- Auditing client structures against FATCA and CRS rules.
- Building partnerships with compliance and tax experts and investing in joint training.
- Preparing for CRS 2.0 by assessing exposure to digital assets.
- Review privilege protocols to align disclosure requirements.
- Firms that prepare now will reduce exposure and strengthen client trust.
What’s at Stake
Clients expect their lawyers to anticipate compliance gaps before regulators find them. Weak structuring will pull lawyers into investigations, even if reporting was managed by compliance teams.
Firms that cannot provide compliance-ready advice will lose ground as the profession shifts at the intersection of AML, FATCA, and CRS. Firms that adapt will lead. Firms that do not will end up answering to regulators and insurers.
The Strategic Imperative
For lawyers advising cross-border clients, AML, FATCA, and CRS now define legal exposure. These frameworks are as critical as tax and fiduciary law.
Law firms that embed compliance into their strategy will protect clients, reduce liability, and strengthen their role in governance. Those that delay will be left explaining gaps.
Next Steps for Legal Teams
Now is the time for legal teams to raise their compliance readiness.
- Conduct a FATCA and CRS legal risk audit
- Invest in training with compliance and tax professionals.
- Prepare for CRS 2.0 and crypto reporting before they take effect.
Compliance has become part of legal strategy. The firms that prepare now will be ready for CRS 2.0 and crypto reporting. The ones that don’t will face regulators on their terms, not yours.
At Foodman CPAs & Advisors, we position legal teams and their clients ahead of enforcement. We connect legal structuring with FATCA, CRS, and AML requirements so frameworks stand up to forensic scrutiny. Our approach strengthens disclosure protocols, reduces liability, and prepares institutions for CRS 2.0 and crypto reporting before regulators test them.
