U.S. Lawyers Are Foreign Kleptocrats’ Best Friends

How the United States’ legal com­mu­ni­ty became glob­al oli­garchs’ most use­ful enablers.

A pic­ture tak­en on September 19, 2017 at Rennes’ cour­t­house shows a stat­ue of the god­dess of Justice bal­anc­ing the scales. (Photo by LOIC VENANCE / AFP) (Photo by LOIC VENANCE/AFP via Getty Images)

The Biden admin­is­tra­tion has ele­vat­ed the fight against glob­al klep­toc­ra­cy to a for­eign-pol­i­cy pri­or­i­ty. National Security Advisor Jake Sullivan has open­ly calledfor the West to tight­en the rules and reg­u­la­tions that allow cor­rup­tion and author­i­tar­i­an cap­i­tal­ism to thrive while acknowl­edg­ing much of this trans­paren­cy must begin at home. With the recent pas­sage of the land­mark Corporate Transparency Act—which calls for increased dis­clo­sure of the actu­al own­ers of shell companies—the United States appears seri­ous not only about tack­ling for­eign klep­to­crats abroad but also about crack­ing down on pro­fes­sion­als in the United States who have abet­ted the laun­der­ing of mon­ey and rep­u­ta­tions on behalf of cor­rupt for­eign officials.

Despite such efforts, a key enabler of klep­to­crats has thus far escaped much scruti­ny: U.S.-based lawyers. For years, U.S. lawyers have enjoyed pro­tec­tions and exemp­tions from anti-mon­ey laun­der­ing and for­eign-lob­by­ing rules that allows them to become key fig­ures in the net­works that klep­to­crats use to laun­der both their finances and their rep­u­ta­tions in the West. Although oth­er U.S. indus­tries like hedge funds and real estate have enjoyed years-long exemp­tions from basic anti-mon­ey laun­der­ing reg­u­la­tions, U.S. lawyers don’t even need exemptions—primarily because they’ve nev­er been tar­get­ed by leg­is­la­tion aimed at clamp­ing down inflows of taint­ed money.

To under­stand how U.S. lawyers, unlike many of their coun­ter­parts over­seas, have trans­formed into key fig­ures in mod­ern klep­toc­ra­cy, you first have to under­stand the decen­tral­ized over­sight under which the legal indus­try oper­ates in the United States. Whereas European Union-based lawyers are sub­ject to basic anti-mon­ey laun­der­ing require­ments issued by Brussels, U.S. lawyers are licensed by the bar asso­ci­a­tions of indi­vid­ual states and are ulti­mate­ly pro­fes­sion­al­ly account­able to these state supreme courts. In turn, these states decide whether to enforce inter­na­tion­al trans­paren­cy rec­om­men­da­tions. Unfortunately, leg­is­la­tors and state exec­u­tives have avoid­ed imple­ment­ing the kinds of rec­om­men­da­tions put forth by lead­ing anti-mon­ey laun­der­ing groups like the Financial Action Task Force (FATF), which specif­i­cal­ly calls for trans­paren­cy mea­sures like due dili­gence and fil­ing sus­pi­cious activ­i­ty reports when­ev­er lawyers con­duct trans­ac­tions for clients. In 2016 the FATF itself not­edthat U.S. lawyers “are not sub­ject to com­pre­hen­sive [anti-mon­ey laun­der­ing] require­ments, and are not sys­tem­at­i­cal­ly apply­ing basic or enhanced due dili­gence process­es.” One 2020 analy­sis found “strong resis­tance to the FATF lawyer reg­u­la­tions” in the United States, a clear dis­tinc­tion to Europe, where the gov­ern­ments are “imple­ment­ing [them] aggressively.”

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Much of that unwill­ing­ness to imple­ment stricter anti-mon­ey laun­der­ing con­trols on U.S. lawyers stems from push­back with­in the orga­nized legal com­mu­ni­ty, led by groups like the American Bar Association (ABA). The ABA—a nation­al pro­fes­sion­al orga­ni­za­tion that issues mod­el rules and ethics guide­lines and lob­bies on behalf of the legal industry—has pub­licly spo­ken about mon­ey laun­der­ing con­cerns and has con­sis­tent­ly issued guid­ance regard­ing how U.S. lawyers should deal with anti-mon­ey laun­der­ing sit­u­a­tions. However, unlike juris­dic­tions else­where, this guid­ance remains vol­un­tary, as U.S. lawyers remain free to fol­low such rec­om­men­da­tions, or not, as they see fit.

Much of the ABA’s ratio­nale for lob­by­ing against fur­ther anti-mon­ey laun­der­ing checks rests on the prin­ci­ple of client con­fi­den­tial­i­ty and pre­serv­ing attor­ney-client priv­i­lege, lead­ing the group to direct­ly oppose pos­si­ble mea­sures like man­dat­ing more effec­tive dili­gence checks on the back­ground of their clients (not just their trans­ac­tions) or man­dat­ing with­draw­al from legal rep­re­sen­ta­tion should lawyers dis­cov­er that an ille­gal act has been com­mit­ted. These guid­ances don’t seem to have had much effect. As one analy­sis from Georgetown University Law Center read, “There exists no com­pelling evi­dence that attor­neys in the United States have an ade­quate under­stand­ing of the mon­ey laun­der­ing vul­ner­a­bil­i­ties in the legal indus­try or the need to mit­i­gate them.” Short of engag­ing in crim­i­nal actions them­selves, as cov­ered by the crime-fraud excep­tion, lawyers have broad lee­way under this reg­u­la­to­ry regime to offer a vari­ety of attrac­tive ser­vices to kleptocrats.

One recent case in par­tic­u­lar high­lights the role U.S. lawyers play in aid­ing the laun­der­ing of for­eign klep­to­crats’ finances. Equatorial Guinea Vice President Teodorin Obiang remains per­haps the clear­est case of a crooked for­eign offi­cial using U.S. finan­cial secre­cy tools to laun­der mas­sive amounts of mon­ey, immis­er­at­ing an entire coun­try under his father’s four-decade-long dictatorship.

One U.S. lawyer, Michael Berger, in par­tic­u­lar freely helped Obiang set up shell com­pa­nies to skirt U.S. banks’ anti-mon­ey laun­der­ing checks and set up Obiang’s pur­chase of one of the biggest man­sions in the United States, along­side Obiang’s splurges on an entire arma­da of high-end auto­mo­biles and celebri­ty mem­o­ra­bil­ia. As Senate inves­ti­ga­tors lat­er dis­cov­ered, the lawyer helped Obiang cre­ate an American shell com­pa­ny to open a num­ber of U.S. bank accounts, using the lawyer’s attor­ney-client account as an effec­tive pass-through for the dirty money—and leav­ing the U.S. banks none-the-wis­er about the source of the mil­lions of dol­lars sud­den­ly com­ing in. As one of the banks lat­er revealed, “The inves­ti­ga­tion found the use of mul­ti­ple cor­po­rate vehi­cles by [Obiang’s U.S. lawyer] … to dis­guise the iden­ti­ty of [Obiang] as well as lay­er and inte­grate funds derived via inter­na­tion­al wire trans­ac­tions from a high risk juris­dic­tion [Equatorial Guinea], which had the appear­ance of mon­ey laun­der­ing activ­i­ty.” In one instance, the lawyer even “lied that it was to help one of his clients pay a female employ­ee with­out the client’s wife know­ing about it.” And even after Obiang for­feit­ed tens of mil­lions of dol­lars’ worth of assets to the U.S. gov­ern­ment, this lawyer faced no sanc­tion for his role in his client’s transna­tion­al mon­ey laun­der­ing scheme, as he con­tin­ues to prac­tice law in California.

Even dra­mat­ic inves­ti­ga­tions by anti-cor­rup­tion watch­dogs that seem­ing­ly revealed U.S. lawyers read­i­ly will­ing to move what they knew to be taint­ed mon­ey has not moved the nee­dle for these pro­fes­sion­al asso­ci­a­tions. A few years ago, a video sting from the anti-cor­rup­tion watch­dog Global Witness revealed the will­ing­ness of U.S. lawyers to work with clients iden­ti­fied as high risk. Posing as an advi­sor to an African min­is­ter look­ing to move mil­lions of dol­lars in sus­pect funds, Global Witness was clear in its inten­tions. “We said we need­ed to get the mon­ey into the U.S. with­out detec­tion,” Global Witness wrote. Shockingly, all but one of the U.S. lawyers imme­di­ate­ly dove into the details of how best to laun­der the funds in the United States and how to obscure their links to the African min­is­ter in ques­tion. One of the lawyers, James Silkenat, for­mer­ly of the firm Sullivan and Worcester, even direct­ly offered to “look into” which banks offered the lax­est anti-mon­ey laun­der­ing over­sight. The kick­er? Silkenatwas then the head of the American Bar Association.

Nor is con­ceal­ing dirty mon­ey the only tool klep­to­crats use U.S. lawyers for. As recent years have illus­trat­ed, U.S. lawyers are also crit­i­cal for klep­to­crats who seek to white­wash their rep­u­ta­tions and present them­selves to the world as suc­cess­ful and upstand­ing glob­al cit­i­zens. Whereas U.S. lob­by­ists work­ing for for­eign gov­ern­ments are required to reg­is­ter their work with the Justice Department’s Foreign Agents Registration Act (FARA), U.S. lawyers are exempt from such reg­is­tra­tion and dis­clo­sure. While the exemp­tion only sup­pos­ed­ly applies to work that lawyers do in court­rooms or con­duct­ing press con­fer­ences, we’ve seen it increas­ing­ly cit­ed by lawyers clear­ly work­ing beyond the con­fines of the court­room. For instance, Ukrainian oli­garch Dmytro Firtash relied on a series of U.S. lawyers to inject dis­in­for­ma­tion into the American body politic, all in the hopes of lift­ing a U.S. extra­di­tion request to be tried in a cor­rup­tion case to return to his pre­vi­ous shady prac­tices. Firtash’s case roped in lawyers like Rudy Giuliani, as well as a pair of promi­nent con­spir­a­cy the­o­rists, none of whom ever reg­is­tered their for­eign client work with FARA and even man­aged to obtain a sit-down meet­ing with then-Attorney General William Barr. The meet­ing itself, accord­ing to experts, appeared to clear­ly fall out­side the scope of the FARA exemption’s legal proceedings.

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And the prob­lem appears to be get­ting worse as law firms expand the scope of their work, which the case of for­mer Ukrainian President and klep­to­crat Viktor Yanukovych illus­trates. In 2019, a series of DOJ fil­ings revealed the lengths to which Gregory Craig, a senior part­ner at a white-shoe U.S. law firm, would go to bol­ster the inter­na­tion­al image of a for­eign cor­rupt autocrat—and how many ser­vices these firms now pro­vide. The white-shoe firm in ques­tion (Skadden, Arps, Slate, Meagher & Flom—often short­ened to Skadden) ini­tial­ly inked an agree­ment with the Yanukovych government—widely con­sid­ered more sym­pa­thet­ic to the Kremlin than its predecessor—in ear­ly 2012, when the firm nom­i­nal­ly agreed to author a report ana­lyz­ing the crim­i­nal tri­al and con­vic­tion of Yanukovych’s main polit­i­cal rival, Yulia Tymoshenko, which she claimed was polit­i­cal­ly moti­vat­ed. But the Skadden report, pre­dictably, “seemed to side heav­i­ly” with Yanukovych’s gov­ern­ment, accord­ing to the New York Times. Skadden’s work resur­faced once more as part of Special Counsel Robert Mueller’s broad­er inves­ti­ga­tions into for­eign inter­fer­ence efforts in the 2016 U.S. pres­i­den­tial elec­tion. Craig, the senior Skadden part­ner, was indict­ed but in 2019 was found not guilty of mak­ing false state­ments to the Justice Department’s FARA unit about his Ukraine-relat­ed work. Skadden—which had failed to reg­is­ter much of its work the DOJ and whose efforts for their Ukrainian clients the new DOJ fil­ings detail—even­tu­al­ly set­tled for $4.6 mil­lion and agreed to reg­is­ter retroac­tive­ly as an agent of Ukraine.

What, then, can be done to encour­age more respon­si­ble rep­re­sen­ta­tion by U.S. lawyers impli­cat­ed in these transna­tion­al mon­ey- and rep­u­ta­tion-laun­der­ing schemes? We spy two need­ed reme­dies. First, there needs to be far more under­stand­ing and scruti­ny of the roles U.S. lawyers play in trans­ac­tions on behalf of clients. A good place to start would be the imple­men­ta­tion of the FATF rec­om­men­da­tions men­tioned above, which require both rea­son­able and mean­ing­ful due dili­gence oblig­a­tions and sus­pi­cious activ­i­ty fil­ings for lawyers regard­ing things like bank accounts, finan­cial trans­ac­tions, or even the pur­chase of real estate on behalf of their clients. This can, and should, be part of a far broad­er effort from Washington to expand anti-mon­ey laun­der­ing require­ments in the Bank Secrecy Act (recent­ly extend­ed to encom­pass vir­tu­al cur­ren­cy trans­ac­tions and antiq­ui­ties deal­ers as well as allow for the sub­poe­na of for­eign banks’ finan­cial records that hold cor­re­spon­dent accounts with U.S. insti­tu­tions) and to end, or at least lim­it, the two-decade-old anti-mon­ey laun­der­ing exemp­tions in the Patriot Act. In addi­tion, we should con­sid­er introducing—if not through leg­is­la­tion, then updat­ed eth­i­cal guidance—demands that attor­neys dis­close their sources of direct and indi­rect com­pen­sa­tion, in par­tic­u­lar when clients engage with any pub­lic author­i­ties or the media. In doing so, U.S. lawyers would hope­ful­ly begin to think twice before help­ing klep­to­crat­ic clients open secret bank accounts, pur­chase high-end real estate, or aid their clients in dodg­ing the United States’ patch­work anti-mon­ey laun­der­ing regime.

Fortunately, there’s rea­son for opti­mism on that front. Earlier this year, Washington final­ly moved to force shell com­pa­nies to dis­close their ben­e­fi­cial own­ers, and calls con­tin­ue to swell for sim­i­lar counter-klep­toc­ra­cy reg­u­la­tions to be applied to every­thing from real estate to hedge funds to, yes, lawyers. Clearly, apply­ing that momen­tum to U.S. attor­neys is long past due.

On the rep­u­ta­tion-laun­der­ing side, one solu­tion is clear: In addi­tion to beef­ing up FARA enforce­ment, the DOJ should con­sid­er end­ing its exemp­tion for lawyers. FARA reg­is­tra­tion isn’t exact­ly stren­u­ous, requir­ing lit­tle more than fil­ing basic paper­work with the depart­ment. The DOJ should issue clear guide­lines, such an exemp­tion permits—and should illus­trate a clear will­ing­ness to enforce such limitations.

The administration’s desire to shore up the United States’ counter-klep­toc­ra­cy efforts offers a clear win­dow of oppor­tu­ni­ty for end­ing U.S. lawyers’ key roles in enabling these klep­to­crat­ic net­works and shield­ing unscrupu­lous clients from account­abil­i­ty. But until these poli­cies are enact­ed, the legal com­mu­ni­ty will con­tin­ue to insist on inef­fec­tive, vol­un­tary self-regulation—and con­tin­ue expand­ing the ser­vices it pro­vides to all those who con­tin­ue to look to the United States for their dirty mon­ey needs.

This arti­cle was pro­duced by the Global Integrity Anti-Corruption Evidence Programme, which is fund­ed by the U.K. Government through its U.K. Aid pro­gram for the ben­e­fit of devel­op­ing coun­tries. The views expressed are not nec­es­sar­i­ly those of the U.K. government.

Correction, March 24, 2021: James Silkenat is a for­mer part­ner of the Sullivan and Worcester firm. The orig­i­nal ver­sion of this arti­cle mis­stat­ed his pro­fes­sion­al affiliation.

Alexander Cooley is the Director of Columbia University’s Harriman Institute and the Claire Tow Professor of Political Science at Barnard College. Twitter: @CooleyOnEurasia

Casey Michel is an inves­tiga­tive reporter based in New York.

Foreign Policy by Alexander Cooley, Casey Michel

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