By Robert Barrington, Professor of Anti-Corruption Practice, and Georgia Garrod, Research Assistant, Centre for the Study of Corruption, University of Sussex
The latest suite of economic sanctions1 against Russia sent a pointed message to the so-called “professional enablers” of corruption. This time around, the sanctions extend to those providing “legal advisory services”. The United Kingdom swiftly indicated that it would follow suit, denying Russia access to transactional legal advisory services (described by the European Union [EU] as “non-contentious matters”). Anti-corruption campaigners feel vindicated: They have long argued that London’s professional-services sectors play a facilitatory role in supporting the wealth and power of kleptocratic regimes around the world and, therefore, should be a key focus of regulatory and enforcement actions.
The roots of this approach lie in the anti-money laundering (AML) and counter-terrorist financing (CTF) regimes, which were originally focused on organised crime and—post 9/11—terrorism. The principle was to “follow the money” and prevent criminals from using the proceeds of crime, even if the original crime had not been prevented. The most obvious place to choke off such activity was initially seen as the bank. It was, therefore, banks and banking systems that for many years commanded the attention of the Financial Action Task Force (FATF) and the Suspicious Activity Reports (SARs)-style approach that underpinned the AML system.
But this has not seemed to stop corrupt oligarchs and kleptocrats from sending their wealth through the global financial system—buying property; educating their children at prestigious institutions; making donations to universities, charities and political parties; buying sports clubs and other businesses; and bidding eye-watering sums on the world’s finest art.
New anti-money-laundering focus on “professional enablers”
Faced with the continuing stream of corrupt capital flowing through the global financial system, the focus of governmental anti-corruption strategies and campaigners has expanded to encompass the ecosystem of “enablers” that complement the services provided by banks and other financial institutions. The FATF describes those who provide such services as Designated Non-Financial Businesses and Professions (DNFBPs). Both the U.S. Strategy on Countering Corruption2 and the UK Anti-Corruption Strategy3 reference lawyers as a focus area—described in the UK strategy as “enablers” and marginally more politely by the US strategy as “gatekeepers/facilitators”.
Lawyers have a uniquely important place in the world of enablers. Estate agents and art dealers are of specific and limited use to a kleptocrat, but lawyers possess myriad specialised skills that can be turned to the client’s benefit. These can range from representing an oligarch’s privatised steel company in M&A (mergers and acquisitions) activity, to setting up family wealth-management offices, to property transactions and to launching defamation suits against troublesome journalists.
Lawyers are now feeling the heat. Like most international companies, law firms with offices in Moscow closed or scaled back their operations after the Russian invasion of Ukraine. But there is also an increased awareness amongst the media and wider public of the role lawyers have played in acting for supporters and financial beneficiaries of Russian President Vladimir Putin’s regime. This has been reinforced by a number of oligarchs, including Roman Abramovich, employing London law firms to sue journalists and publishers they consider to have defamed them. These high-profile cases have caused a backlash, with many British parliamentarians calling for reform.
Who is my client?
Of course, the key question is whether those law firms should have had corrupt oligarchs and/or kleptocrats as clients in the first place. Their very presence on the client lists of large law firms has exposed a glaring loophole in the AML regime, which also touches on banks, law firms and other DNFBPs. AML laws kick in when a crime occurs in the country of origin. But whatever crimes may have been committed to enrich those kleptocrats and oligarchs will have been well hidden. They have taken place in jurisdictions in which the rule of law and law enforcement have little meaning for those in power so that no crime will be proved to the evidential threshold required in the UK.
Moreover, in situations of state capture, the laws themselves have been changed, sometimes retrospectively, to ensure that what was illegal becomes legal for those who hold power. At a minimum, enforcement agencies will not cooperate with overseas jurisdictions trying to investigate those in power. In other words, AML rules do not apply when there is no predicate crime in the country of origin; law firms can, therefore, persuade themselves that since no laws have been broken, they are doing the right thing in representing these clients.
The U.S. Strategy on Countering Corruption captures this nuance: “It is both difficult to prove ‘intent and knowledge’ that a facilitator was dealing with illicit funds or bad actors, or that they should have known the same. Cognizant of such constraints… Departments and agencies will also consider ways to increase penalties on gatekeepers who facilitate corruption and money laundering, including by working with states to levy professional sanctions.”
Although the sanctions regime has forced decisions about Russian clients, this merely highlights rather than resolves the underlying question of when a law firm should take on a client whose wealth is suspicious but not provably of corrupt origin. While Russia has been the focus this year, the question might equally apply to clients from many other countries; although the focus has been on those who support the Putin regime, it might equally be on a government’s record on human rights or other areas of noncompliance with international standards.
So, where should law firms—and, indeed, others—draw the line in deciding for whom they should act? Before even getting to that point, the legal profession has tended to argue that no line needs to be drawn. If it is legal, it is acceptable. The debate, therefore, becomes about legal ethics. It may be legal, but does that mean it is always acceptable? In the language of legal theory, the question is whether lawyers have a duty to the court (or the public interest) that outweighs the duty to their clients. Two arguments have stood out, and they are worth examining in detail.
Blame the law, not the lawyers.
There is a reasonable argument that if something (like acting for kleptocrats) becomes socially unacceptable, it is up to legislators to alter the rules that dictate how lawyers practice. This positions lawyers as formalistic technicians who apply the law procedurally to achieve what is in their clients’ best interests. As Professor Steven Vaughan, one of the UK’s few professors of legal ethics, has pointed out,4 “This is one thing when the law is settled and clear” but is hard to apply when there is scope for interpretation or where “we do not (yet) have law[s] on a particular topic and instead have soft norms or international laws not translated into local commitments”.
Is there such an international norm that would cover this subject, giving lawyers grounds for second thoughts about for whom they act? Cambridge Professor Jason Sharman refers to the “global anti-kleptocracy” norm that has been institutionalised through both hard and soft laws at the domestic and international levels. Broadly speaking, this is evidenced by the United Nations Convention against Corruption (UNCAC), as well as other global initiatives aimed at the development of asset “freeze and seize” apparatuses and the steady global adoption of Magnitsky legislation targeting sanctions of individuals responsible for corruption or violations of human rights. Unless you are a hard-and-fast believer in lawyers as technicians, there is much scope here for law firms to exercise judgements about whom they represent based on international norms.
Doesn’t everyone have the right to legal representation?
Another response commonly offered by the legal profession is that everyone has the right of access to justice and the right to representation. Criticisms of choices to act for unpopular clients are thus effectively criticisms of the right of access to justice and the right to representation. Lawyers do not judge their clients and should not be associated with their actions. The lawyer’s role is to defend his or her client’s interests.
However, there are some contradictions in this argument that need unpicking. First, while there are clearly areas in which these core rights should be ringfenced and protected, the absolute right to a lawyer does not apply in civil disputes5 nor in commercial transactions, a fact that has been confirmed by the European Court of Human Rights (ECHR) and is echoed by the EU’s extension of economic sanctions to commercial and transactional legal services. The inclusion of these services in the latest package of sanctions also points to a recognition of the facilitatory role they can play in upholding power structures around the regime in question. Moreover, solicitors (to some extent unlike barristers) are already making choices about which clients to take on, not least based on who can afford to pay their fee rates.
It is simply disingenuous to argue that a decision to act for a corrupt oligarch or kleptocrat somehow supports the rule of law or upholds justice. The very limited exceptions might include representation in criminal courts. The campaign group Transparency International has pointed out that, in such circumstances, if a law firm is genuinely concerned about access to justice, the oligarchs should be represented at legal-aid rates. The risk to the legal profession is that if law firms apply the very important principle of the right to a legal defence to situations in which it means the right to act for any kleptocrat on any matter and put the kleptocrat’s interests above the public’s interest, they will debase the very concept they are claiming to defend.
Are these principles fixed or flexible?
Where you stand in this debate is likely to result from how you conceptualise justice and the rule of law. Both of these terms are complex, fluid and ultimately contested. Sometimes, one person’s rights (such as the kleptocrat’s right to own a property in Kensington) compete with another person’s rights (such as the rights of the victims overseas from whom the funds to buy the Kensington property were expropriated). These questions are not unique to anti-corruption campaigners—for example, they have become a feature of debates over environmental harms. Should we strictly follow the letter of the law and act for anyone, or should we aim to apply the principles on which the law was founded?
One thing is certain: Within the workplace, particularly larger firms, the space for individuals to air these questions is very restricted. The culture of law firms does not welcome such discussions, especially about very lucrative clients who fall under the wings of powerful partners. That means the pressure for change has to come from the outside. Meanwhile, the legal profession has been fighting a rearguard action to defend the principle that law firms should be allowed to take large sums of money, usually of unexplained origin, to provide legal services to those who, by most definitions, are corrupt.
Where next for AML?
It is clear that the legal profession faces a self-inflicted crisis of ethics and reputation. The uncomfortable reality is that many of those defending the legal profession’s stance on apparent matters of principle are, at the same time, significant financial beneficiaries of the status quo they are defending.
Of course, the vast majority of lawyers in the UK do not act for corrupt oligarchs and kleptocrats. But the larger firms and highly aggressive boutique practices that act for such clients have forced this crisis on the smaller firms and regional practitioners that form the bulk of the legal profession.
What happens in the legal profession should be the subject of the close attention of banks, financial institutions and other DNFBPs. The AML debate is moving beyond the dysfunctional SARs regime into the territory that should always have been covered: Institutions should judge which clients they will take on. As the U.S. Strategy on Countering Corruption intimates, lawmakers and regulators can be expected to codify this in due course and extend those principles beyond the legal profession. Any institution covered by existing AML regulations should use the crisis facing the legal profession to glimpse its future.
References
1 The Law Society Gazette: “Russian sanctions move further into legal services,” by Jonathan Goldsmith, October 11, 2022.
2 The White House: “United States Strategy on Countering Corruption,” December 2021.
3 HM Government: “United Kingdom Anti-Corruption Strategy 2017-2022,” 2017.
4 SSRN: “Climate Change and the Rule of Law (Yers): What Thinner and Thicker Accounts Might Require of Those in Practice,” Steven Vaughan, Faculty of Laws University College London Law Research Paper No. 11/22, August 24, 2022.
5 The Law Society Gazette: “Russian sanctions move further into legal services,” Jonathan Goldsmith, October 11, 2022.
Georgia Garrod is a Research Assistant at the Centre for the Study of Corruption, University of Sussex. She has a research interest in the UK’s role in facilitating corrupt capital flows and previously worked with Transparency International UK, where she supported the Investigations team looking at UK money-laundering risks.