Russia: Firms dropped Russian clients overnight
The narrow focus of the anti-money laundering (AML) regime on criminality leaves solicitors “free to facilitate and legitimise the flow of corrupt capital while staying within the bounds of the law”, a major report has warned.
Campaign group Spotlight on Corruption also found “surprisingly little visibility” in Solicitors Regulation Authority (SRA) guidance, as well as individual law firms’ own codes, of “the overriding ethical commitment to safeguard the public interest”.
“Given the regulatory gap in the AML regime, there is an urgent need for guidance about how the SRA’s high-level principles should shape ethical decision-making by lawyers and law firms around kleptocratic wealth,” it said.
The report, Gatekeepers, Enablers or Technicians?, presents the findings of academic research exploring the role of solicitors in England and Wales in relation to kleptocracy, state capture (where illicit activities are legalised by a ruling elite) and “grand corruption”, and the question of whether lawyers should take on work which is “lawful but awful”.
The AML regime was a “vital safeguard” against illicit finance, “but its narrow focus on criminal activity means it does not adequately capture the proceeds of kleptocracy, state capture and grand corruption”, it said.
It was perfectly possible, for example, that a solicitor doing comprehensive AML checks on a foreign politically exposed person (PEP) seeking to buy a luxury London property using the profits from a lucrative state contract in a kleptocratic regime would find no evidence of criminality and no grounds to suspect money laundering.
Indeed, the PEP may well offer documentary evidence showing the contract was lawfully awarded through an official process that included sign-off at the highest levels of state power. “Their kleptocratic wealth is illicit, but not necessarily illegal.”
This gap was even more obvious on the reputational side of enabling, where lawyers provided reputation laundering tactics, from online reputation management, setting up philanthropic foundations and donating to political parties, to “lawfare tactics which aim to silence critics”.
This all meant “a major regulatory gap in the UK’s defences against dirty money, currently filled by the choices that lawyers and law firms make in accepting or refusing this work.”
But the report found a tendency among solicitors towards “ethical minimalism”, or viewing legality as the primary benchmark for professional conduct rather than broader moral considerations.
“This position has come under challenge from both those within the profession and those outside it, sparked by a range of ethical concerns relating to kleptocratic wealth, environmental harms and human rights issues.”
The challenge for policymakers, Spotlight said, was to ensure that the commercial interests of law firms were aligned – rather than competing – with the public interest.
It described the claim that solicitors could not refuse to act for a client based on the right to representation – at least outside of criminal defence and civil litigation – as “tenuous”; lawyers “do not have an obligation to provide commercial legal advice to every client who walks through the office door”.
This reflects the comments of former Allen & Overy senior partner Guy Beringer at a parliamentary event last week held to launch the Spotlight report.
Many lawyers defended decisions to act for clients with kleptocratic wealth by pointing out that if they turned it down, another firm would simply pick up that business, the report observed. This meant “systemic change requires a shift in professional norms”.
In the absence of a clear regulatory or ethical framework, firm culture, geopolitical developments and reputations concerns drove decision-making around client selection.
Spotlight’s review of 20 unnamed firms showed that their statements on responsible business practices addressed environmental, social and governance issues in broad terms, but had nothing on kleptocracy or grand corruption.
Interviews carried out for the research suggested that, in practice, the ‘ethics’ of client selection tended to be conflated with AML compliance.
“As one lawyer described it, the compliance department is the ‘ethical conscience’ of the firm. This also illustrates how compliance can easily be treated as separate layer of red tape rather than embedded processes which shape firm culture.
“Given the pecking order within hierarchical firm structures, concerns raised by compliance officers or junior lawyers can easily be disregarded or downplayed by senior partners who manage client relationships and bring in their business.”
Without client selection being based on a coherent ethical framework, it went on, there was “a lack of clarity and consistency” in how lines are drawn on kleptocratic wealth.
One senior lawyer commented: “We all dropped our Russian clients overnight – but no one asked us about the Gulf states.”
The interviews also revealed that reputation was often used “as a proxy for ethics”, shifting the focus from ethical complexities to a reputational challenge of justifying work for a particular client to the public – “or opportunistically marketing this high-risk appetite to prospective clients”.
Spotlight concluded that legislative reform, regulatory interventions and “initiatives to drive norm-based culture change across the legal profession” were possible solutions.
It added: “There is a need for practical guidance and training to help lawyers navigate potential conflicts between their client’s interests and the public interest in a principled, consistent way.
“Greater clarity and stronger accountability about how client selection should be shaped by professional ethics are also important for fostering public confidence and trust in the law as a public profession.”
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