LexisNexis

Legal and business news analysis - Global Insight April/May2022

Ukraine: Conflict triggers accelerated approach to tackling ‘dirty’ Russian money

Ruth Green, IBA Multimedia Journalist

The Ukraine crisis has attracted a sharp focus on the extent to which ‘dirty’ Russian money pervades the world’s financial centres. Now, after many years of delaying, countries are rushing to boost transparency mechanisms that will help crack down on this illicit wealth.

The UK rapidly re-introduced its shelved Economic Crime Bill in response to Russia’s invasion of Ukraine. The legislation, which received royal assent on 14 March, will establish a new register listing the ultimate owners of property or land in the UK that have been purchased by overseas entities.

Given how much UK property is linked to Russian corruption – Transparency International estimates around £1.5bn has been spent in the UK by Russians with alleged connections to the Kremlin since 2016 – the register has been welcomed as a step-change in the UK’s approach to tackling illicit financial flows (IFFs) from Russia and elsewhere.

The legislation also seeks to strengthen both the enforcement of Unexplained Wealth Orders and sanctions against corrupt individuals. A draft of the bill permitted the government to exempt individuals from registering their details if it was in ‘the interests of the economic wellbeing of the United Kingdom’.

However, this loophole was robustly contested by members of the opposition and was dropped before it was fast-tracked through parliament.

‘We've struggled with political will in the past to really get these measures through,’ says Rachel Davies Teka, Head of Advocacy at Transparency International UK. ‘What's happened has hammered home the link between dirty money and national security and that includes the UK's national security. That’s why it’s so important that we end the role of the UK as a safe haven for dirty money from around the world.’

What's happened has hammered home the link between dirty money and national security and that includes the UK's national security

Rachel Davies Teka
Head of Advocacy, Transparency International UK

The UK government also pledged to introduce further legislation, which includes new powers to seize crypto assets and empower businesses to report suspected money laundering offences. There will also be reforms to protect both limited partnerships and Companies House – the UK’s official corporate register – from being exploited for economic crimes.

Davies Teka says future measures must tackle outstanding gaps in the UK’s anti-money laundering (AML) regime. ‘We just hope the government will make the most of the opportunity,’ she says, ‘not only to reform Companies House, but to tackle the enablers problem and make sure we have effective supervision.’

Lawyers, accountants and estate agents are among those criticised for being so-called ‘enablers’ of money laundering. Bill Browder, CEO of Hermitage Capital Management and a long-time proponent of stronger sanctions against Russia, says global powers must place legal obligations on such individuals to disclose details of their clients and transactions. ‘This is a really crucial detail, which could be a game-changer in terms of how effective the oligarch sanctions programme is,’ he says.

For Browder, the Ukraine conflict is a ‘reaction to 20 years of inaction’ and the failure by Western nations – particularly the UK – to tackle the scourge of Russian ‘dirty’ money. ‘Now, all of a sudden, everybody in the world is seeing the price of this lax attitude, which has emboldened and financed Putin to do terrible, terrible things,’ he says.

EU countries have strong economic ties with Ukraine and Russia and outrage over the conflict has reignited calls for the EU to take action on beneficial ownership. All EU member states were required to establish registers by January 2020, but some have still not made them publicly accessible.

On 4 March, the Financial Action Task Force (FATF) – the global money laundering and terrorist financing watchdog – announced it would require all governments to establish beneficial ownership registries ‘to prevent the misuse of legal persons for money laundering or terrorist financing’.

In a statement, the Paris-based organisation said the revised requirements followed a two-year review designed to ‘strengthen the international standards on beneficial ownership’. FATF said it was reviewing Russia’s role as a member and expressed ‘grave concern’ about the ongoing impact of the conflict.

Nicola Bonucci is the former Director for Legal Affairs for the Organisation for Economic Co-operation and Development (OECD), a member of the IBA Anti-Corruption Committee Advisory Board and a litigation partner at Paul Hastings in Paris. He agrees the situation in Ukraine could provide the push that many countries need to stop dragging their feet on beneficial ownership.

However, Bonucci stresses that registers alone will not be sufficient to tackle the scale of the challenge worldwide. ‘This will be one part of the puzzle and if you do not tackle the overall issue of financial flows from dubious origin you will not address the roots of the problem,’ he says. ‘Beneficial ownership public registries and increased accountability of gatekeepers are fine measures if they are part of a global resolve to really fight against IFFs, including asset return and compensation of the victims.’

FATF has 37 member countries and two regional organisations – the European Commission and the Gulf Cooperation Council. Some member jurisdictions, like Australia, have historically resisted calls to commit significant resources to tackle money laundering or introduce ultimate beneficial ownership. ‘Australia has been poor in this regard for many years, with suspicious money flowing into the real estate sector with little regard for AML issues,’ says Rob Wyld, a consultant at Johnson, Winter & Slattery in Sydney, and member of the IBA Anti-Corruption Committee Advisory Board.

Despite this latest push by FATF and response by other governments to Russia’s aggression in Ukraine, Wyld doubts much will change in Australia, particularly ahead of the federal election in May. ‘They may be pushed on UBO registers, but I cannot see it happening any time soon,’ he says. ‘I am not convinced any UBO register will be popular or on the political radar of any politician.’

Image: Protest banner reading 'Stop the Corrupt Money' held by a protester outside Downing Street in support of more sanctions to help Ukraine. Westminster, London UK 26 February 2022. AmaniA/Shutterstock.com


Russia’s invasion of Ukraine – IBA reacts

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Unity march in Odessa against Russian invasion. Ukrainians in a square with the sign "United Ukraine", Odessa, Ukraine: 20 February 2022. Olga Evans/Shutterstock.com

The invasion of Ukraine by Russian forces on 24 February 2022 caused widespread outrage and condemnation around the world. As an organisation with the promotion and protection of the rule of law and human rights at the centre of its mission, the International Bar Association has a duty to speak out.

In a release from the IBA on 24 February denouncing the invasion, IBA President Sternford Moyo noted that Russian President Vladimir Putin’s actions had ‘indisputably violate[d] international law’. IBA Executive Director Mark Ellis continued, ‘A state is prohibited from the use or threat of force against another state. This is to ensure that the territorial integrity and political independence of the state are not violated […] This protective principle is inviolable and one of the most fundamental norms of international law. There are only two main exceptions to this principle – the state is acting in self-defence or acting pursuant to a United Nations Security Council resolution. Neither of these two exceptions is applicable to Russia’s actions against Ukraine.’

The IBA restated its position on 3 March, amid ongoing military operations and attacks on civilians in several locations, offering unconditional support for the International Criminal Court’s decision to initiate an investigation into alleged war crimes, and requesting united and visible support from member Bars in condemning Russia’s actions in the strongest manner.

Building on an established background covering related issues, the IBA has also published various articles on the lead-up to the conflict, its fallout and the ongoing international efforts to hold those in power to account, and a podcast explaining and analysing the situation, Russia’s hybrid warfare campaign and the role of sanctions.

Additionally, as part of its webinar programme, the IBA has organised events on harnessing law in times of war, the resultant refugee crisis and the legal profession’s response to the crisis.

Access all information on the IBA’s Russia–Ukraine page here – this page is updated on a frequent basis.


New IBA initiative: ‘Who am I?’

The International Bar Association’s Section on Public and Professional Interest (SPPI) has launched its ‘Who am I?’ initiative, starting with an interview with IBA Executive Director Mark Ellis. The initiative will comprise a series of candid interviews with some of the world’s leading legal professionals, influencers, change-makers and thought leaders from a range of backgrounds and experiences.

The aim of the initiative is to explore the interviewee’s life journey, looking at their work and what motivates them, and examining what it takes to become an exemplary role model in the legal profession.

The interview with Ellis was conducted by Jörg Menzer, Chair of the SPPI. They spoke about Ellis’ upbringing in Washington, DC, and certain experiences during his formative years – such as the American civil rights movement – and how those contributed to his involvement in politics and international affairs.

For more information about the ‘Who am I?’ initiative and to listen to the full interview, click here.

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Resilience in energy, infrastructure and natural resources law

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The IBA Energy, Environment, Natural Resources and Infrastructure Law Section (SEERIL) Academic Advisory Group (AAG) has partnered with Oxford University Press (OUP) to publish Resilience in Energy, Infrastructure, and Natural Resources Law: Examining Legal Pathways for Sustainability in Times of Disruption. Released in March, this book marks the latest collaboration between the IBA and OUP, following 2020’s Energy Justice and Energy Law.

Available as both a hard copy book and an eBook, this title examines, among other things, how and to what extent legal frameworks identify the issue of ‘resilience’ as a single concept, and addresses international, regional and national decision-making and collaboration from state, company and societal perspectives. It further equips the reader with the necessary knowledge to compare, contrast and critique national approaches to disruption across the globe.

IBA members are entitled to a 30 per cent discount off the price of the hard copy of the book by using the discount code ALAUTHC4 at checkout on the OUP website.


IBA launches its 2022 Annual Conference in Miami

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The International Bar Association has launched its first in-person Annual Conference since 2019, taking place in Miami on 30 October – 4 November.

Known as the ‘capital of Latin America’, Miami is home to the headquarters of Latin American operations for over a thousand multinational companies, and home to many national and international businesses. It is fast-becoming one of the world’s largest international business hubs, providing the perfect setting for the largest and most prestigious event for international lawyers.

The IBA Annual Conference is the leading conference for legal professionals around the world to meet, share knowledge and network. It is open to both members and non-members of the IBA alike, with lawyers from over 130 jurisdictions and all sectors of the legal profession including in-house counsel, judges, human rights advocates and many more. It frequently boasts over 6,000 attendees, with typically more than 2,700 law firms, companies and regulators being represented, and hundreds of working sessions and social programmes.

The IBA Annual Conference has been postponed for the last two years due to the Covid-19 pandemic, and was replaced by the Virtually Together conference in 2020 and the IBA Global Showcase sessions in 2021, both taking place online. This year will see the first in-person Annual Conference since 2019 when the event took place in Seoul, South Korea. There will be sessions from a host of IBA committees from across the IBA’s Legal Practice and Public and Professional Interest divisions. There will also be sessions involving the IBA’s Human Rights Institute, and the IBA Legal Policy & Research Unit.

Find out more about the Annual Conference and register here.


LPRU releases gender disparity in law report

The IBA’s Legal Policy & Research Unit (LPRU) has released the first interim report for its gender equality project, entitled ‘50:50 by 2030 - A Longitudinal Study into Gender Disparity in Law’. The report details the findings of the pilot study in England and Wales which took place between May and October 2021.

Almudena Arpón de Mendívil, IBA Vice-President, says: ‘Despite good intentions, despite the merits and talent of so many women, we still don’t reach the most senior positions across the legal sector mainly due to discriminatory obstacles placed in our paths.’

The aim of the report was to study the lack of gender parity at the most senior levels of the legal profession and to identify barriers and track the progress of achieving equal representation of women in the highest levels of private practice, in-house positions, the public sector and the judiciary. The report reveals that women in the law make up 51 per cent of the profession, but only occupy 32 per cent of senior roles.

‘The IBA is committed to developing solutions that will bring about lasting change to reflect the broader profession and society as a whole’, Arpón de Mendívil adds.

Further pilot studies are taking place in Spain, Uganda and other jurisdictions in 2022.

See here for more information.

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IBA events well underway for 2022

The IBA’s conference, webinar and virtual event programme has something to offer all international lawyers.

Recent conferences have included the 23rd Annual Arbitration Day in Istanbul and the 5th Mergers and Acquisitions in the Technology Sector Conference in Barcelona, with more than 20 further events planned for Europe, the Americas and Asia during the year.

Virtual events and webinars – well established in the IBA’s programme – will take place in the near future on improving wellness at law firms, women rainmakers, becoming the partner of the future and the principles for effective interviewing for investigations and information gathering, among other subjects.

The schedule of events both past and future can be accessed via this link.

Ukraine: A balancing act for the Middle East

Emad Mekay, IBA Middle East Correspondent, Cairo

As the Ukraine conflict continues into its second month, with no immediate resolution in sight, several Middle Eastern countries increasingly find themselves having to take sides and choosing among security, business agreements and, in some cases, keeping food staples on the table for many families.

As the Russian troops rolled into Ukraine on 24 February, most countries of the region initially saw the war as a distant conflict focused on unrelated security issues involving mainly NATO and Russia.

‘While the situation concerns the entire world, in the Middle East this is viewed by many as a conflict between Russia and Ukraine about NATO’s expansion to include the latter, which creates security concerns for Russia, a major trade partner for many countries in the region,’ says Nesrine Roudane, a Morocco-based officer of the IBA Arab Regional Forum.

Hasan Alhasan is a Research Fellow for Middle East Policy at the International Institute for Strategic Studies (IISS), based in Bahrain. He says the conflict lacks a direct fallout particularly for the oil-rich Gulf region. ‘Technically, as far as Gulf relations with NATO or EU partners go, this is a third-party conflict. (With) no direct bearing on bilateral relations,’ Alhasan said. ‘Seen from the Gulf, this is a regional conflict in Eastern Europe. If we were to see direct NATO involvement or real nuclear escalation, however, I suspect the Gulf states' diplomatic response may change. We haven't yet.’

But as the US and Europe were quick to impose crippling sanctions, limiting Russia’s ability to do business internationally, Western powers began to rally the world against Russia. Countries in the Middle East, who have financial and trade ties with both Ukraine or Russia, balked but many now realise they will not be spared the global fall-out and will soon have to take a side.

Food security

Collectively, countries of the Middle East rely on Russia for 50 per cent of their wheat imports. Grain prices leapt after the invasion and coupled with unstable oil prices will likely add more inflationary pressures in the region. For countries that do not enjoy major energy resources, such as Egypt, Tunisia, Lebanon, Jordan and Syria, there was hesitancy to jump on the Western sanctions bandwagon mainly for fear their already restless populations will be further impacted leading to more instability.

Egypt, the largest Arab country in terms of population, is reeling from a 10 per cent inflation rate, and is bracing for higher food, bread and energy prices as a result of the crisis all to a backdrop of public discontent. Cairo, the world’s largest wheat buyer, imports 30 per cent of its wheat from Ukraine and nearly 50 per cent from Russia. The country’s tourism industry is likely to take another hit on top of the long-running effects of Covid-19. Around 30 per cent of tourists to the country’s warm Red Sea resorts come from Ukraine and Russia.

While most Arab countries were reserved in their position mainly for economic reasons, Bashar al-Assad of Syria, who owes his survival to Iranian and Russian direct military intervention against a public uprising, was quick to express support for President Vladimir Putin. Reportedly, Russia is using Assad troops in Ukraine.

Other countries have expressed concern over the crisis but were likely to be affected in different ways. Algeria says its state-owned oil company can supply Europe with additional gas while Morocco says a pipeline for gas exports from Nigeria running through the country to Europe is well underway and may ease spiraling energy prices.

Energy security

But no country faces as much of a dilemma as the oil exporting countries. The six members of the Gulf Cooperation Council may be better insulated from trade disruptions but they have to balance special security relations with Washington on one hand and energy and financial commitments with Russia, another major energy powerhouse, on the other.

The US and Europe are already exerting pressure on Saudi Arabia and the United Arab Emirates (UAE), two main oil producers who have the capacity to ramp up oil production to tame prices at short notice. However, the two countries showed reluctance to embrace the full suite of sanctions on Russia or publicly censure Moscow and instead chose to publicly call for restraint. There are several reasons for this balancing act.

At a certain point each of us, including the Middle East countries, will need to consider affecting trade relationships and earning a bit less in an attempt to avoid World War III

Slawomir Uss
Officer, IBA European Regional Forum

For one, the two countries are genuinely worried about global economic uncertainty. They rely almost entirely on oil sales to balance their budgets and offer welfare services to their citizens. The Saudis were quick to announce they will honour their deals with Russia to stabilise oil prices. In 2017 and 2020, Saudi Arabia got a taste of what it’s like to get into a price war with Russia and live in budget deficits. The Saudi-led Organisation of the Petroleum Exporting Countries (OPEC) later reached a deal with Russia, one of the world’s largest producers, to prevent such a slide in oil prices again.

The Emiratis too feel they could be exposed not only in the energy sector but also because Dubai, one of the seven sheikhdoms that make up the UAE, is a major financial and commercial hub for Russian businesses. This doesn’t mean the UAE or Saudi Arabia will allow run-away prices. Their oil sale strategy is hinged upon prices designed to avoid discouraging demand. If prices were to continue to shoot up, they are likely to intervene and pump more oil to keep the price not much higher than a breakeven target of $65 a barrel.

But observers of the initial Gulf foot-dragging to back the sanctions say that the Middle East needs to look beyond sheer economic interests especially in such a major crisis that carries worldwide implications for global security. ‘Looking solely from the business perspective - though I do not believe one should do this - I think the Middle East could only benefit from supporting the rules-based world', said Slawomir Uss, an IBA European Regional Forum officer. 'There is no "must" in international politics. At a certain point each of us, including the Middle East countries, will need to consider affecting trade relationships and earning a bit less in an attempt to avoid World War III.'

Yemen and Iran

The Gulf area has its own security woes. The Ukraine conflict has so far proven to be an opportunity for both Saudi Arabian Crown Prince Mohammed bin Salman Al Saud (MBS) and the Crown Prince of the UAE, Mohammed bin Zayed Al Nahyan to press ahead with such grievances. The two regional allies have a litany of complaints against Washington.

The UAE complains that Washington didn’t give enough military support to help prevent the Iranian-backed Houthi fighters in Yemen from targeting the country, which has long worked to build a dearly-guarded image of stability. In January, the Houthis tried to shatter that perception through a surprise attack against a key oil facility in Abu Dhabi that killed three people.

The Saudis and the Emiratis are further dismayed because the Biden administration attached conditions to US arms sales and to their use in Yemen. MBS was reportedly personally offended after US President Joe Biden avoided dealing with him directly due to his suspected involvement in the gruesome murder of Saudi journalist Jamal Khashoggi in 2018 and, unlike his predecessor, Donald Trump, lifted an embargo on an intelligence report that implicated the Crown Prince.

The Saudis are also worried that talks reviving the Iran nuclear deal may unlock Iranian oil for export. This will not only push prices down, affecting Saudi Arabia's ability to pad profits, but also further empowering Tehran, Saudi Arabia's arch-foe in the region.

After the eruption of the Ukraine war, the Wall Street Journal reported, in early March, that both Arab leaders declined taking calls from the US President after he announced a ban on Russian oil imports intended to enlist them in the effort to ease energy prices. ‘The subliminal message: this isn't our war,’ says Alhasan. ‘A very similar message, by the way, to the one consistently sent by the US to the Gulf states on Yemen, Iran over the past several years.’

The energy producing countries however are unlikely to continue to resist Western pressure for long given their near total reliance on the US for security particularly if the White House, as it is widely expected, threatens repercussions. ‘The US response is a decisive factor,’ said Alhasan. ‘If the US applies substantial pressure on Gulf states to align against Russia, they may cave. But long-term, it’ll vindicate calls for greater strategic autonomy in the Gulf and less dependence on Western partners. Delicate balance.’

Roudane, however, says the region overall would prefer to see a diplomatic solution to the crisis rather than see a lingering war that complicates foreign relations. ‘As with the rest of the world, a de-escalation and the peaceful settlement of the conflict between Russia and Ukraine is certainly a priority for all countries in the region,’ she says.

Uss of the IBA European Regional Forum says a position in line with the West would actually benefit countries in the Middle East long-term and the region will have to stop the balancing act and make a decision. ‘Supporting the Western measures to impair Russia and the Russian economy would in the end benefit the Middle East. I do not believe one can remain neutral in such circumstances – you either support the aggressor or stand united against.’

Image: Building of the Organisation of the Petroleum Exporting Countries (OPEC). Vienna, Austria, July 2022. Sodel Vladyslav/Shutterstock.com