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Monday
Aug192019

ABA resisting law to prevent money laundering?

The American Bar Association is apparently putting up a fight against proposed legislation that would help to prevent money laundering and a host of other crimes in the USA. At first glance, the story appears to defy logic: why would lawyers be against such meaningful and well-intentioned legislation?

The nub of the legislation under consideration is the old subject of companies disclosing their Ultimate Beneficial Owners (UBOs). As somebody who is a member of the legal profession, and who has himself entered the UBO debate and political fray on this very subject, I follow this debate with some interest.

Writing for digital outfit Quartz, Max de Haldevang says:

The legislation [in front of Congress now] would force the owners of U.S. companies to disclose their identities to the authorities. The move would make it much harder for criminals to hide their money in shell companies with anodyne names; something anti-corruption experts and law enforcement say is a crucial step in fighting financial crime and ending America’s status as the world’s biggest tax haven. It’s also relatively timid compared to what’s happening on the other side of the Atlantic, where the UK has set up a fully public registry of company owners, and the rest of the EU is following suit.

The fact that he appears to readily accept that the proposed legislation would "make it much harder" for criminals to hide their illicit assets in shell companies indicates that we may be viewing the scenario from different perspectives. Add to this that the UK’s much vaunted Companies House public register is also mentioned in the context of it being radical in comparison to the situation in the U.S., we are clearly singing from different hymn sheets.

The UK’s Companies House register may be public, but it is also seriously flawed. The information it holds is not verified, which means that in the context of crime prevention, it is effectively useless. The crooks have fed all manner of lies into the system unabated. Indeed, recently The Guardian newspaper ran an excellent article by Oliver Bullough, in which he outlined the porous nature of the UK public register.

Bullough said of the offshore service providers such as the British Virgin Islands (BVI): “They are no longer as useful as they used to be. So where is? This is where the UK comes in. When it comes to financial crime, Britain is your best friend.”

The point being, that the pressure that has been brought to bear on the offshore service providers such as the BVI and Cayman Islands, has seen them "up" their compliance game to a level other jurisdictions, including the UK and U.S., can only dream about.

This brings us back to the issue of the ABA and its resistance to change: it is where we part ways. You see, unlike the ABA I am all for a regulatory regime that does collect and verify UBO information. My position is that this information should be held securely and privately, available only to the competent authorities. My reading of the ABA position is that it mirrors the historical attitude of the UK’s Overseas Territories and Crown Dependencies as offshore service providers (but not anymore).

The ABA’s reluctance to engage with the notion of enhanced regulatory protocols is therefore completely at odds with my own. Its claim that disclosing the details of UBOs will impinge on clients’ privacy is valid. However, what those in the ABA should be saying is that they will step up to the plate and collect, verify and store the information, keeping it secure and private on behalf of their client, until it is requested by a competent authority.

The Overseas Territories and Crown Dependencies have learned that blanket denials and meaningless objections to increased regulation is not the answer. They, like all of us, must move with the times. Likewise, the ABA and its members must do the same. I have little doubt that ultimately the legislators will prevail, perhaps not under this administration, but eventually the lawyers will need to comply. But instead of simply sticking their heads in the sand, they must come out fighting, armed with a meaningful alternative

Verified UBO information held securely may not be the result that certain politicians and pressure groups are chasing, but it is a sensible option. Come what may, the ABA and its lawyers are slowly but surely being pressed back against the wall. The only way to resolve the situation is for all concerned to utilize common sense.

Make no mistake about it, the ABA deserves all the flak coming its way. Simply rejecting the notion of increased regulation plays into the hands of those with a political axe to grind. Those who advocate transparency will be able to utilize this position to their own ends. Conversely, the fact that the FBI has recently commended the Cayman Islands and its ability to provide law enforcement with verified UBO information, vindicates those of us who have said all along that “fully” public registers are not the answer here. When the FBI waxes lyrical about a jurisdiction which has been for many a year a target of politicians and NGOs alike, then we all should take note.

The ABA and its members need to accept that meaningful regulation is here to stay, and instead of dodging and weaving, they should embrace the change, but resist the concept of open public registers. 

With thanks to Tony McClements, Senior Investigator at Martin Kenney & Co, for his assistance with this post. He served for 33 years with UK police forces and has specialized in Fraud & Financial Investigation since 1998. He is also a lecturer in these subjects at the University of Central Lancashire (UCLAN).

_____

Martin Kenney, pictured above, is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset recovery practice based in the BVI, focused on multi-jurisdictional fraud and grand corruption cases www.martinkenney.com |@MKSolicitors. In 2014 he was the recipient of the ACFE’s highest honour: the Cressey Award for life-time achievement in the detection and deterrence of fraud. He was selected as one of the Top Thought Leaders of the Legal Profession in 2018 by Who's Who Legal International and as the number one offshore lawyer for asset recovery in 2018.

Reader Comments (3)

Two points about your article. First in the title there is no need for a question mark. Second, in the first line of your piece, you should delete the word "apparently". Otherwise excellent blog post.
August 19, 2019 | Unregistered CommenterThomas Fox
Regulations should create a level and fair playing field for commerce. UBO registries and most modern AML laws are about finding undisclosed wealth so it can be taxed, not as a disincentive to mischief makers, fraudsters and corrupt actors. The point is those who lie, cheat, and steal have a dozen or more work arounds for any UBO. Thus the UBO regulations punish the compliant with useless costs, lack of privacy often needed in highly competitive industries, and does nothing to stop the frauds or the corrupt actors. As for the ABA I do not know a lawyer that likes the ABA and their insular and destructive cartel practices. Speaking of change, the same lawyers know you cannot battle the ABA cartel because change is all you will have left.
August 21, 2019 | Unregistered CommenterL. Burke Files
According to the Danske Bank whistleblower, the flawed U.K. public registry nonetheless revealed the red flag - a dormant company status - that led to the uncovering of the $230 billion money laundering operation being run through the Danske branch in Estonia and its non-resident unit. You can say what you want about the weakness of the Danske AML program or the possibility that the scandal could have been uncovered in another way, but that the public registry served a valuable purpose here is in my opinion undeniable. In fact, if you look at how much the whistleblower paid just to look at that single company registry compared to the eventual cost in compliance which the bank is being forced to shell out, it is a veritable bargain. At the least perhaps money launderers in the future might be forced to pay a salary for a halfway decent office manager...
August 23, 2019 | Unregistered CommenterWilliam N. Weaver
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