SPRING 2020 TODAY’S GENER AL COUNSEL
Compliance
Money Laundering and Anti-Terrorist Risk Management for Lawyers By Timothy C. Stone and Martin J. Foncello
I 24
n the world of anti-money laundering and counter-terrorist financing (AML/ CTF) compliance, U.S. lawyers are not held to the same exacting regulatory standards as bankers. Bankers must monitor clients for suspicious activity and file Suspicious Activity Reports with the Financial Crimes Enforcement Network when client activity engenders suspicion of financial crime. However, Congress has not seen fit to impose a comparable obligation on U.S. lawyers — who, after all, are bound by the duty of confidentiality and attorney-client privilege. Yet in the AML/CTF context at least, it sometimes behooves lawyers to act a bit more like bankers. Lawyers, of course, can be an important conduit to the financial system, and bad actors can misuse lawyers to move and hide illicit gains, which poses money laundering and terrorist financing risk comparable to banks and financial institutions. An attorney’s client accounts, for instance, can be used to place tainted money in the financial system or to layer funds and obscure their source. Lawyers create corporate structures such as shell and shelf companies, which can be exploited to retain control over illegally derived assets, and to prevent law enforcement from tracing the origin and ownership of assets. Attorneys play a central role in the transfer of real property, and criminals commonly invest the
proceeds of wrongdoing in real estate. Lawyers have strong reason to look at their money laundering and terrorist financing exposure. The risks of not doing so are many. For example, although not subject to the Bank Secrecy Act, attorneys are certainly bound by criminal money laundering laws, and want to protect themselves from imprisonment at worst and career-derailing criminal liability at best. Lawyers can also breach economic sanctions if they deliberately or even inadvertently handle funds coming from or going to comprehensively sanctioned countries, or facilitate transactions by individuals or entities designated pursuant to the Office of Foreign Asset Control’s sanctions programs. Ethical violations are yet another pitfall. The most recent and prominent cautionary tale was the Global Witness/60 Minutes sting case from 2016. Wearing a hidden camera while posing as a German adviser to a West African mining minister, a witness from the non-profit Global Witness met with lawyers from 13 New York law firms — including the then-president of the American Bar Association — asking the lawyers how to anonymously move large sums of money that he said derived from suspicious origins. In all but one case, the lawyers offered suggestions on how to get the money into the United States without detection. This fueled a stir in the New York legal community
and led to at least two instances of New York Bar authorities publicly censuring the attorneys involved. Overlapping with each of the above risks is the hit to their reputation that attorneys take if they don’t consider AML/CTF issues in their enterprise risk management, and establish controls appropriate to their practice. The notorious and long- running 1Malaysia Development Berhad (1MDB) scandal is a case in point. As investigators unpeeled the case like a rotten onion, news reports cited financial transactions performed by key players in conjunction with five major U.S. law firms. A fraudster allegedly used one of those firms, which the DOJ named in a civil asset forfeiture filing, to launder (unwittingly, by all accounts) hundreds of millions of dollars pilfered from a Malaysian sovereign wealth fund through a law firm’s pooled account. The firm wired tens of millions of dollars to, among other places, casinos well known for money laundering opportunities. Even assuming the legality of the attorneys’ conduct in that case, the firm found itself in the unenviable position of taking a blow to its reputation. The fact that a basic internet search for the name of a lawyer or firm yields news hits for money laundering is obviously something to be avoided at all costs. From solo practitioners to multinational megafirms, lawyers can therefore take a page from the playbook of banks and other financial institutions by considering how enterprise risk-management techniques — including risk assessments and technology-enabled AML/CTF controls — can help identify, assess and mitigate exposure to financial crime, and potentially crippling damage to their reputations. Nearly all banks and modern financial institutions use some form of enterprise risk management to identify and priori-
