Mind your client: law firms must choose to be responsible gatekeepers
President, TRACE, Annapolis, Maryland
On 4 March 2022, a week after the invasion of Ukraine, London-based law firm Linklaters announced it was shutting down its operations in Russia. Three days later, Norton Rose Fulbright followed suit. Within a week, eight additional major international law firms indicated that they were leaving Russia or dropping Russia-based clients.
The flight of top-tier legal capacity from Russia – and the Kremlin – was abrupt, although it mirrored the larger movement of Western companies out of country following Putin’s horrific invasion of Ukraine. The legal withdrawal from Russia nonetheless marks a major shift, as legal service providers have not historically been particularly discriminatory about their clientele, arguing that every client deserves representation. In today’s global market, however, law firms are re-examining their clients’ ethical standards and their moral standing.
Scandals such as the Panama Papers, which uncovered the inner working of Panamanian law firm Mossack Fonseca, or bad press, like coverage of strategic lawsuits against public participation (SLAPPs) filed at the behest of Russian oligarchs, have put shady legal practices under a spotlight. With now-regular leaks and increased media attention, scrutiny of gatekeeper professions in general – and lawyers specifically – has increased. Pressure is likely to grow.
In light of Russia’s invasion of Ukraine, tremendous global attention is suddenly being directed at how Russian oligarchs and other corrupt actors hide, launder and make use of their ill-gotten gains. Too frequently, lawyers are central enablers: establishing shell companies; facilitating laundering real estate and fine art transactions; filing spurious libel suits; and facilitating the evasion of taxes, sanctions or the rule of law. As the Organisation for Economic Co-operation and Development writes, ‘lawyers possess a range of specialized legal skills that enable them to transfer value obtained from criminal activity between parties and obscure ownership.’
In response to the widespread integration of corruptly gained wealth into Western economies, governments are asking how systemic failures are being exploited by the global elite. Regulators have already begun closing loopholes. The United Kingdom, for instance, has developed a beneficial ownership registry, and instituted unexplained wealth orders to force suspected criminals or corrupt officials to justify their ownership assets disproportionate to their income. The United States Treasury Department has also proposed comprehensive new beneficial ownership rules, and Canada has committed to fast-tracking its beneficial owner registry.
Even more robust legislation may be on the horizon. In the US, the proposed Enablers Act would require lawyers engaged in a financial activity or setting up a business for a client to conduct due diligence and, when circumstances warrant, file Suspicious Activity Reports with the government. The European Union, meanwhile, is considering a directive to provide procedural safeguards against SLAPP litigation. Some countries, such as Bulgaria, are eliminating or restricting golden visa programmes, a favourite tool of oligarchs and kleptocrats. Regulators in both the US and Europe are also being empowered with larger budgets and wider remits.
Most importantly, public sentiment is shifting. Citizens are increasingly outraged at the unscrupulous enablers of global corruption. Global investigative journalism collaborations are keeping attention focused on the mechanism of corruption. And law firm employees and clients are pushing back on the representation of the world’s kleptocrats.
In light of all this, law firms must be increasingly mindful of the clients they take on: ensuring that they are not furthering corruption, propping up authoritarian regimes or inadvertently assisting with money laundering.
As a first step, firms should conduct thorough due diligence on all clients and the source of their funds, verifying ultimate beneficial ownership and double checking purported account holders. In addition, firms should establish robust money laundering controls, develop internal ethical guidelines about the sort of work the firm will and will not take on, and routinely review clients and matters to confirm that its attorneys are not inadvertently furthering illegal or anti-democratic conduct.
In the past, law firms were loath to turn down lucrative work. That model is finished. Firms must take on the mantle of responsible gatekeeper. If law firms don’t impose ethical restrictions on themselves, it is increasingly likely that regulators will do it for them.
 James Davey and Jacqueline Thomsen, ‘Law firm Linklaters to wind down Russia operations’, Reuters, 4 March 2022 https://www.reuters.com/business/law-firm-linklaters-wind-down-russia-operations-2022-03-04 accessed 18 April 2022.
 Jacqueline Thomsen, ‘Law firm Norton Rose Fulbright to exit Russia over Ukraine invasion, 7 March 2022 https://www.reuters.com/legal/legalindustry/law-firm-norton-rose-fulbright-exit-russia-over-ukraine-invasion-2022-03-07 accessed 18 April 2022.
 David Thomas, ‘More law firms exit Moscow as Russia wages war in Ukraine’, Reuters, 9 March 2022 https://www.reuters.com/legal/legalindustry/eversheds-sutherland-is-latest-global-law-firm-exit-moscow-2022-03-09 accessed 18 April 2022.
 Martha M Hamilton, ‘Panamanian Law Firm Is Gatekeeper to Vast Flow of Murky Offshore Secrets’, ICIJ, 3 April 2016 https://www.icij.org/investigations/panama-papers/20160403-mossack-fonseca-offshore-secrets accessed 18 April 2022.
 David Segal, ‘Do Russian Oligarchs Have a Secret Weapon in London’s Libel Lawyers?’, New York Times, 29 March 2022 https://www.nytimes.com/2022/03/29/business/oligarchs-london-putin-russia.html accessed 18 April 2022.
 OECD, ‘Corporate Anti-Corruption Measures to Support Sustainable Business – Foreign bribery and the role of intermediaries, managers and gender’ https://www.oecd.org/corruption/Foreign-bribery-and-the-role-of-intermediaries-managers-and-gender.pdf accessed 18 April 2022.
 UK Parliament House of Commons Library, ‘Registers of beneficial ownership’, 6 April 2022, https://commonslibrary.parliament.uk/research-briefings/cbp-8259 accessed 18 April 2022.
 UK government policy paper, ‘Fact sheet: unexplained wealth order reforms’ 4 March 2022 https://www.gov.uk/government/publications/economic-crime-transparency-and-enforcement-bill-2022-overarching-documents/factsheet-unexplained-wealth-order-reforms-web-accessible#:~:text=An%20unexplained%20wealth%20order%20(UWO,the%20origins%20of%20their%20wealth accessed 18 April 2022.
 Federal Register ‘Beneficial Ownership Information Reporting Requirement’, Daily Journal of the US Government, 12 August 2021 https://www.federalregister.gov/documents/2021/12/08/2021-26548/beneficial-ownership-information-reporting-requirements accessed 18 April 2022.
 Government of Canada ‘Public consultations on strengthening corporate beneficial ownership transparency in Canada: What we heard’, 6 April 2021 https://www.ic.gc.ca/eic/site/142.nsf/eng/00002.html accessed 18 April 2022.
 The proposed US ‘ENABLERS Act’, https://malinowski.house.gov/sites/evo-subsites/malinowski.house.gov/files/ENABLERS%20Act%20FOR%20INTRO_SIGNED.pdf accessed 18 April 2022.
 European Commission EU action against abusive litigation (SLAPP) targeting journalists and rights defenders, 2021 https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13192-EU-action-against-abusive-litigation-SLAPP-targeting-journalists-and-rights-defenders_en accessed 18 April 2022.
 ‘Bulgaria Abolishes Its Golden Visa Program’, SchengenVisaInfo News, 25 March 2022 https://www.schengenvisainfo.com/news/bulgaria-abolishes-its-golden-visa-program accessed 18 April 2022.