September 25, 2021

When a kleptocrat comes calling: Global money laundering and the ABA

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60 Minutes episode "Anonymous, Inc.," presented by Steve Kroft, and which aired on January 31, 2015.  Courtesy of CBS.

60 Minutes episode “Anonymous, Inc.,” presented by Steve Kroft, and which aired on January 31, 2015. Courtesy of CBS.

By Michael D. Goldhaber, From The American Lawyer

A prospective client walks into your office and tells you the following story in a bad German accent. He works for a West African mining minister who makes the salary of a teacher, but has amassed a fortune by collecting “facilitation payments” from mostly Canadian multinationals in return for access to his nation’s mineral wealth.

Mr. Kayser, as he calls himself, asks you to discreetly stash up to $330 million in U.S. assets. He assures you that no laws were broken. But he uses the terms “illicit money” and “black money,” and says that buying a brownstone, jet and yacht in the minister’s own name would be “very, very embarrassing,” because the minister sometimes gives speeches against corruption under pressure from civil society. (You don’t know it, but in meeting another lawyer, Mr. Kayser admits: “So, OK, bribe. Is actually bribe.”)

Isn’t it obvious you should cut short the meeting? Not to 15 of the 16 New York lawyers tested by the NGO Global Witness with a hidden camera in an expose that aired Jan. 31 on “60 Minutes.” Amazingly, one of the lawyers who failed the test was James Silkenat, a partner at the Am Law 200 firm Sullivan & Worcester, a former counsel to the World Bank’s International Finance Corp., a former chair of the American Bar Association international section, and, at the time of the sting in 2014, the sitting president of the ABA.

Silkenat and a partner spent a half hour with Mr. Kayser, sketching out how they might “insulate his ownership from public view” by using layers of anonymous shell companies in the U.S. and offshore jurisdictions and routing the money through “less rigorous” banking systems. While remaining cordial—”even a little enthusiastic,” in the view of Columbia ethicist William Simon—the partners noted a few times that they needed to learn more before taking him on as a client.

As Silkenat gingerly put it, if there were “quote unquote crimes committed someplace else, that starts to be an issue.” At the end they said forthrightly that they were obliged to report the breaking of any laws. Silkenat then added: “I’m happy to chat whenever it’s possible to move the ball forward on this.” The partners claim in a statement: “Had the camera followed us after the meeting, it would have shown us conferring and agreeing that we had each concluded that ‘Kayser’ was disreputable and that we would not deal with him again.”

Professor Simon, willing to say that three of the other lawyers went too far, opined to “60 Minutes” that Silkenat behaved regrettably but probably not unethically. NYU legal ethicist Stephen Gillers said on behalf of Silkenat and his partner that they had acted appropriately. As Silkenat and ABA president Paulette Brown each point out, even “60 Minutes” and Global Witness acknowledge that Silkenat acted “ethically and legally.”

I submit that ethics and legality are beside the point. That’s because the bar has for many years stymied changes to ethics and law urged by the intergovernmental Financial Action Task Force in favor of an “educational” approach against money laundering. What Global Witness exposed is the worthlessness of the ABA’s Voluntary Good Practices Guidance for Lawyers to Detect and Combat Money Laundering.

Under the Voluntary Good Practices, a lawyer is encouraged to conduct enhanced due diligence if a client displays certain red flags. For instance, if a senior foreign government official accumulates wealth from a suspicious source, and seeks to conceal asset ownership through anonymous shell companies, that shows at least four red flags, and you should check carefully if the official was engaged in corruption.

The guidance doesn’t say what to do if the client actually tells you the funds are corrupt, but I fail to see the need for more due diligence. The only response to pass the smell test is that of solo practitioner Jeffrey M. Herrmann, the one attorney out of 16 who stopped the meeting and said simply: “It’s not for me.”

“Corruption is among the greatest obstacles to economic and social development,” note Silkenat’s old bosses at the IFC, “so attacking corruption is critical to the achievement of IFC’s overarching mission of poverty reduction.”Corruption is also illegal. Everywhere. Most of the lawyers captured on “60 Minutes” seemed to care only about the Foreign Corrupt Practices Act.

As former chair of the ABA international section, Silkenat should have noted off the bat that Canada is a signatory to the even tougher OECD Convention on Combating Bribery. More fundamentally, he should not for a moment have accepted the suggestion that massive bribes might be permitted under local laws. “No country anywhere in the world expressly permits the bribery of its government officials,” writes the corporate compliance guru Alexandra Wrage in her book “Bribery and Corruption.”

Acting for Mr. Kayser would therefore have been illegal under the U.S. money laundering statute­, punishable by up to 20 years in prison. See 18 U.S.C. Section 1956(a)(3) (attempting to conduct a financial transaction involving the proceeds of unlawful activity, with intent to conceal ownership). Global Witness didn’t push the test that far. If they want the law to be taken seriously, prosecutors should conduct the next sting themselves.

Many of the tested lawyers seemed less concerned with what might be illegal than with what might be caught. All seemed to routinely disguise the origin of funds used to buy New York real estate, and most showed little regard for the origin of the funds. No wonder The New York Times last year found 16 foreigners under investigation among the owners of luxury condos in the Time Warner Center. This is what the world looks like when lawyers are held to voluntary good practices on money laundering.

What would mandatory good practices look like? The Financial Action Task Force urges member governments, including the U.S. and EU, to require due diligence and suspicious transaction reporting by financial gatekeepers, including lawyers; and the disclosure of ultimate owners by those (including lawyers) who incorporate new entities. Europe embraced mandatory due diligence and suspicious transaction reporting in its Third Money Laundering Directive of 2005. Last year, the EU embraced the disclosure of real owners in its Fourth Money Laundering Directive.

The ABA opposes all of the above, mainly on the rationale that it would imperil client confidentiality. In particular, the bar stands in the way of Congress following the EU’s lead on disclosing owners and passing the Incorporation Transparency Act—a bill that was reintroduced with bipartisan and executive support the week after “60 Minutes” aired its investigation, under the title “Anonymous, Inc.”

Finally passing incorporation transparency would be an apt response to this shameful scandal. “The creation and use of anonymous companies is the one thing that underlies all financial crime,” says Heather Lowe of the NGO Global Financial Integrity. “Stopping that is more important than your client’s desire for corporate secrecy.”

For more, see:

The 60-Minutes program Anonymous, Inc.

The Silkenat meeting

The American Lawyer on Equatorial Guinea, lawyers & money laundering

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