Risk Update

FinCEN Files Leak & AML Implications — Looking for Law Firms in the Mix

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Hat tip to my wife, who texted me yesterday (from the passenger seat of our car, as we drove back from a bit of safe, secluded outdoor time with the little ones) as news broke about the FinCEN leak. For general detail, see Buzzfeed’s original reporting: “Dirty money pours into the world’s most powerful banks.”

While the meat of the story to date focuses on banks, I was curious about any mentions of law firms finding their names in print, and discovered at least a few passing references (text checked and searches conducted all from safer confines, not in motion): “The FinCEN files: The billion dollar a month money trail” —

  • “Up to a billion dollars a month went through an international money-laundering network whose Russian operators charged those using the service a 5 per cent fee, according to a classified US report seen by The Irish Times.”
  • “The network of bank accounts was used over a number of years to move enormous amounts of capital out of Russia and into the West, and the banks involved included one near Moscow that had a cousin of the Russian president, Vladimir Putin, as one of its directors.”
  • “The leaked report from the Financial Crimes Enforcement Network (FinCEN), an agency in the US Department of the Treasury, lists 54 “network controlled shell entities” that were the nominal owners of core bank accounts through which the billions of dollars flowed.”
  • “The money laundering network was operated by four named Russian businessmen and may have existed from as early as 2011, according to the undated FinCENreport, which appears to have been written in late 2016 or early 2017.”
  • “Another document in the Lota Sales file, dated June 2008, stated that a London solicitor, James Pearson, of Pearson Lowe solicitors, 48 Queen Anne St, London, had certified the Lota Sales documents that had been sent to the bank. The law firm has since been sold and efforts to contact Pearson, who is now believed to be retired, were not successful.”
  • “The [Quinn] family said that it had put in train a scheme to prevent the IBRC seizing the portfolio, but that it had in turn been double-crossed by those it had engaged to frustrate the State-owned entity’s efforts. The IBRC told the courts it did not accept what the family was claiming.”
  • “In 2013, it emerged that two payments totalling €265,527 that had been made in 2011 to the Dublin law firm Eversheds, which was acting for the family in the case, had come from a company in New Zealand called Corlex Sales LLP.”
  • “In an affidavit in June 2016, one of the IBRC liquidators, Kieran Wallace, said the payments from Corlex were among a number made to the Quinn children that had come from ‘unusual sources’.”
  • “‘The plaintiffs [the IBRC] have been unable to identify who the beneficial owners of the company are,’ he told the court, three years after the payments from Corlex had first been disclosed to the IBRC.”
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Risk Update

IP / PTAB Conflicts Allegation — An Innovative, Novel Conflicts/DQ Attempt

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Does your Heart Break for this Patentee?” —

  • “In its argument, Snyders suggested that it should receive some particular treatment from the court because of a potential conflict of interest with Dir. Iancu. Prior to joining the USPTO, Iancu was in private practice and represented St. Jude in a parallel proceedings. Although Dir. Iancu has recused himself from the case, Snyders argues that the Director’s conflicts are not so easily erased.”
  • “Rather, an attorneys conflicts regularly extend to subordinate employees as well. Here, the Arthrex remedy comes into play because the court in that case gave more direct authority supervisory to the PTO Director. The following argument comes from Snyders’ brief:
    • The concept that disqualification of an attorney may extend to that attorney’s subordinate employees is well established. For example, the American Bar Association’s Model Rules of Professional Conduct recognize a conflict where representation of a client is materially limited by an attorney’s personal interest. See Model Rules of Prof’l Conduct R. 1.7(a)(2) (2016). Those rules also recognize that disqualification of an attorney due to a personal conflict may be imputed to fellow employees where the employees would be materially limited due to their loyalty to the attorney.”
  • “The Federal Circuit found the argument here ‘without merit . . . the Deputy Director’s role sufficiently removes any potential taint of the Director’s conflict.’ The Court did not address the particular issue here regarding the heightened supervisory authority of PTAB judges coming-out-of Arthrex.”

I was curious about “Arthrex” and found: “Arthrex Update: New Amicus Briefs and USPTO Petition” —

  • “The petition sets forth US Inventor’s position that the CAFC was correct in holding that Administrative Patent Judges (APJs) are unconstitutionally appointed, but incorrect in its remedy, i.e. ‘abolition of APJ tenure protection’, because it does not ‘change anything about the character of APJ validity decisions that might downgrade APJ employment status from principal officer to that of inferior or non-officer.'”
  • “US Inventor suggested an alternate remedy for consideration by the Supreme Court: “sever[ing] the statute so that patentability determinations continue as Congress intended, only with APJs downgraded to making advisory patentability decisions”, thereby making APJs inferior or non-officers. According to US Inventor, “all that would need to happen under this alternative remedy…is severance of the part of the statute that makes final written decisions on patentability binding.” In conclusion, US inventor requested that the Supreme Court grant certiorari to consider the correct remedy and at least retroactively convert APJ decisions into advisory and non-binding decisions.

If this is up your risk alley, see also: “One Way or Another, Arthrex Promises to Put the PTAB on Trial


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Risk Update

Anti-money Laundering News — SRA Probing Major UK Law Firm (Including Allegation of “Secret Transfer” of Money)

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Regulators investigate elite London law firm Mishcon de Reya” —

  • “One of the UK’s most prestigious law firms is being investigated by regulators who have spent at least two years examining it, sending investigators into its central London offices.”
  • “The Guardian has established that the Solicitors Regulation Authority (SRA) is conducting a complex investigation into Mishcon de Reya, involving forensic and anti-money laundering investigators.”
  • “One of the reports is understood to have related to an HM Revenue and Customs investigation into transfers of Premier League football players, while the second detailed allegations about the firm’s work for clients connected to an elaborate €100m (£89m) fraud.”
  • “The ongoing investigation into Mishcon de Reya is understood not to have reached any conclusions or made any adverse findings against the firm or any of its partners or solicitors.”

For those curious about the Premier Leage football matter: “Newcastle United investigated over ‘systemic abuse of tax system‘” —

  • “Newcastle United are under investigation over alleged ‘extensive’ tax evasion on player transfers, court papers have shown.”
  • “Details of the allegations have emerged as the club failed in a legal challenge against search warrants issued to HM Revenue and Customs during Operation Loom, which saw dawn raids by HMRC on premises including St James’ Park as part of a £5m tax investigation involving Premier League and French clubs. The papers show HMRC investigators suspect Newcastle, owned by the billionaire Sports Direct tycoon Mike Ashley, of involvement in an elaborate scheme to evade income tax, VAT and national insurance.”
  • “The vast majority of that money was then allegedly ‘secretly transferred’ via a law firm to companies linked to Ba and unlicensed agents. The companies named are Sarl Ba Corporation, France-based Quatorze Management, Silkee Management in Enfield, north London, and Panama-based Zumbada Ventures Corporation.”


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Risk Update

ABA on Audit Letter Response + New OCG Data — Recently Published (August 2020) ABA Statement

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One more on the theme of audit letter responses. Turns out the ABA Business of Law Section published an update just last month, probably most of interest to those who really want to go deep on this particular issue: “The ABA Statement on Audit Responses: A Framework that Has Stood the Test of Time” —

  • “This article summarizes key developments in the preparation of audit response letters concerning loss contingencies since the American Bar Association Statement of Policy Regarding Lawyers’ Responses to Auditors’ Requests for Information was published in 1976. These developments illustrate both the utility of the framework set forth in the ABA Statement and the responsiveness of the American Bar Association through the Business Law Section Audit Responses Committee (and predecessor committees) to issues arising under the ABA Statement and changes in accounting and auditing standards and practice.”
  • “Since adoption of the ABA Statement and SAS 12 over forty years ago, we have seen an increased emphasis on the quality of loss contingency disclosure, an expansion of private litigation and SEC enforcement actions against accountants and other professionals, a new regulatory regime for the accounting profession established by the Sarbanes-Oxley Act of 2002, the development of new technologies to facilitate the audit letter process, and a substantial change in the standard auditor’s report to require disclosure of critical audit matters.”

Hat tip to Simon Chester at Gowling WLG for writing in with some additional data as well. He reports:

  • “In my Outside Counsel Guidelines database, fully 31% of the clients say that they will not accept any charges for preparation of audit response letters – even though if one is aware of a contingent liability that meets the test, it may take many hours to settle how to report that so that it can be disclosed properly”
  • “My experience has been that all too often CPAs tend not to mention law firms’ reports, I assume on the basis that the amounts are not material or too contingent.”
  • And he notes
    The Texas recommended process is significantly complex.
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Risk Update

Audit Letter Response — ABA Opinion, AICPA Rules & Ex-Partner’s Provocative Perspective

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I found myself going a bit deeper on audit letters, and thought I’d share some of the interesting resources discovered through that effort, starting with: “Beware The Belief Your Response To Auditor A Colossal Waste Of Time” —

  • “Some lawyers may create more potential professional liability over the coming months by drafting a single letter in response to their client’s independent auditor’s request for information than they will throughout the entire rest of the year.”
  • “The problem arises primarily because after 40 years of writing these letters to independent auditors, too many attorneys and auditors have concluded the entire process is a colossal waste of time.”
    “And yet, outside of a very few attorneys in the large, downtown corporate law firms, few attorneys responding to these requests have ever read the ABA Statement of Policy, much less the American Institute of Certified Public Accountant (AICPA) rules.”
  • “It should be noted, however, that the accounting profession continues to insist that the ABA Statement of Policy does not control, and it is the AICPA standards that govern the auditor’s request for information.”
  • “The ABA Statement provides different illustrative examples of response letters for ‘inside’ and ‘outside’ counsel. In general, the outside counsel may limit its response to particular matters to which it provided substantive attention or representation; whereas the inside general counsel represents he has general supervision for the company’s legal affairs and has ‘reviewed litigation and claims threatened or asserted involving the Company and [has] consulted with outside legal counsel’ where appropriate.”

That article pointed to this one, which was an interesting and provocative opinion piece on the whole matter: “Inside Straight: Stop The Audit Letter Lunacy!” —

  • “When I worked at a law firm, I knew that lawyers’ responses to audit letters — in which the firm confirms to auditors the status of litigation pending against a client — were a massive waste of time.”
  • “Firm policy dictated that we would speak only pablum in response to audit letters. We would identify each case by name, court, and number; explain that a complaint had been filed; list the causes of action; say where we stood in discovery and whether a trial date had been set; and then say that we didn’t have a clue who would win. (If we thought that the client’s chance of losing was either ‘probable’ or ‘remote,’ we were required to say so. I’m not sure we ever saw such a case.)”
  • “Every once in a while, a junior associate would receive an audit letter and write a real response to it — analyzing the lawsuit, the tactics, and who would win. When the powers that be learned about that mistake, there’d be hell to pay: ‘How could you write those things? Didn’t you run this past an audit letter review partner? We don’t actually provide information in those responses, you fool! Never do this again!'”
  • “As a partner at a firm, I knew that responding to audit letters was an expensive nuisance: A full-time audit letter assistant cranked out first drafts of responses to the letters. (That’s all she did, eight hours per day, 52 weeks per year — honest.) The appropriate client relationship partner reviewed each draft. An ‘audit letter review partner’ (I had the misfortune to be one of those for four or five years) took another pass at the thing. Only then — after the letter had been stripped of all content — did the response go out the door. That was an awful lot of time and money invested to insure that the firm didn’t accidentally say something.”


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Risk Update

Audit Letter Response — WilmerHale Shares Its Automation “Saga” and Success at ILTA Conference (Case Study Summary)

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I’ve seen growing chatter about streamlining audit letter response workflow management. So with it was with great interest that I tuned in to WilmerHale’s case study presentation at the recent ILTA>ON conference. And I wasn’t the only one taking note — the firm was a finalist for ILTA’s “Transformative Project of the Year” award.

It was a great presentation (I confess their thematic “Star Wars” introduction didn’t hurt at all, in my book). And I found myself motivated to generate a summary of their particular solution story, with some highlights below of the complete version you here: “Audit Response Letters, Rebels & Risk Management: A Compliance Saga” —

At the session, Miranda Perkins (Knowledge Manager) and Mary Goldsmith (Business Relationship Manager) started things off just my speed…

The Wilmer team provided a very clear and concise overview of the audit letter risk management problem:

  • “When a client prepares audited financial statements, they are required to disclose any event that may affect their financial status, including pending and potential litigation.”
  • “The auditor confirms management’s assessment of these risks by reaching out to their lawyers.”
  • “The audit letter process is the means by which the accountant obtains that confirmation from us [the law firm].”

The Wilmer team shares how they designed and implemented a solution to automate this, with software-driven document creation and process workflow management (notifications, reminders, tracking, and reporting).

  • The Wilmer team reports that the new system slashed manual and repetitive work, making the process 36% more efficient by their metrics. That translated into saving hundreds of hours in short order, and earning significant kudos from lawyers and cheers from paralegals.
  • Seriously — partners on the audit committee called the new solution “magical” and “revolutionary” — quite the reviews indeed.
  • In the case of conflicts staff, the time they spend responding to audit letter request tasks has been slashed by 85%.

There’s more to the story, so see my complete article at: “Audit Response Letters, Rebels & Risk Management: A Compliance Saga” and give it a “like” on LinkedIn, if you’re so inclined.

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Risk Update

A “Messi” Conflict Allegation — Professional Football (Soccer) Club (Team) Fires Law Firm

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Barcelona sack their own law firm for advising Lionel Messi on exit strategy” —

  • “According to a report in Marca which cites an initial Crónica Global story, the law firm had in the past represented both club and player, but that the longstanding relationship with Barcelona is now at an end.”
  • “It was revealed last week that Messi had signalled his intention to leave Camp Nou by sending Barca a burofax, a legal document that requires confirmation of receipt by the recipient and is commonly used in Spanish business.
  • “Messi’s departure from the club will likely remain a protracted affair, due to the lack of agreement between the club and himself over the break clause in his contract.”
  • “The clause states that Messi can leave for free providing he notifies Barcelona before the end of the season. The end of the season would generally be the end of May but, Messi’s lawyers are expected to argue, due to the delay and subsequent extension of the season due to coronavirus, the end of the season was pushed back to August.”

Messi Transfer: Barcelona Fire Law Firm For ‘disloyalty’ And ‘conflict Of Interest’“–

“The report states that Barcelona have blamed the law firm for disloyalty and conflict of interest.”

But looks like the actual exit has been called off: “Lionel Messi to Stay at Barcelona to Avoid Legal Conflict with Club: Report” —

  • “Lionel Messi has decided to stay at FC Barcelona to fulfill his current contractual obligations as the legal proceedings of the matter proved to be too much to go ahead with. Messi, who sent a burofax to the club to formally intimate them of his wish to leave on August 26, has been having discussion with the board after his father landed in the city.”
  • “After 10 days of discussion, the Messi camp has come to the conclusion that the legal conflict that will come into place if the player pushes to leave is too much and has decided to honour his current contract, according to TyC Sports. Even though Messi has been unhappy with the board of the club, he doesn’t want to leave the club on bad terms and amid the current situations, the parting is likely to get messy.”


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Risk Update

Law Firm Risk Webinar Panel — “Inside the Minds of Clients & Firm Management” (Conflicts Complexities, Staffing, Communication & More)

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I was pleased to be asked by my friends at Wilson Allen to moderate an upcoming risk webinar.

  • Discussion is focused on a great theme: “Evolving Law Firm Risk: Inside the Minds of Clients & Firm Management.”
  • There’s a great panel on deck, featuring two consultants who have been around the risk block more than once, and the Assistant General Counsel, Global Head of Legal Ethics & Professional Responsibility at JPMorgan Chase & Co. (Michael Misiewicz, who previously worked in-firm as a conflicts lawyer with WilmerHale, and prior to that Hogan Lovells)
  • And I expect moderation will be satisfactory

As with these sorts of things the panel prep sessions are typically worth broadcasting in and of themselves. And this group’s experience was no exception. We’ve developed an agenda designed to address some expected and some fresh topics for the law firm risk audience:

  • Exploring the Mindset of the “Risk Reviewers” (External Clients & Firm Laywers)
  • How firm management and client leaders consider the policies, practices, and priorities of law firms
  • Considering Conflicts Complexities (Ethical conflicts, Business conflicts, Positional, and “fuzzy scenarios”)
  • Evolving Staffing Models (Why and How Centralization Matters)
  • Making the Case for Investment and Change (And Communicate Effectively with Firm Management)

The floor will also be open for attendee Q&A, commentary and discussion. So don’t be shy…

You can read more about what the panel plans to cover, so you can bring your most interesting questions and examples to share, and register here: “Evolving Law Firm Risk: Inside the Minds of Clients & Firm Management.”

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Risk Update

Playbook Conflict Checked — (Or: 14 Years Ago is a Long Time…)

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MehaffyWeber Attys Beat DQ Bid In Texas Geological Data Suit” —

  • “U.S. District Judge Marcia A. Crone on Monday denied a request from Cinco Bayous LLC, Jim Wingate, Tanya Wingate and William Wingate to disqualify MehaffyWeber attorneys Morris C. Carrington and Corey Jacob Seel, whom they argued had gained access to their litigation ‘playbook’ through representation of them in an unrelated dispute from 2004 to 2006.”
  • “That means Carrington and Seel — as well as their colleague Jesse Franklin Beck, who was not involved in the earlier dispute — can continue working on the lawsuit Cinco Bayous and the Wingates brought against their client in August 2019.”
  • “Judge Crone wrote that it was ‘unclear’ how information gleaned from 14-year-old litigation could be used to Samson’s advantage here, saying it ‘is difficult to conclude’ that two years of work on a case would yield the MehaffyWeber team a ”playbook’ of substance or complexity that is still relevant” or applicable. The present lawsuit, she held, involves “different issues, properties, and parties.'”
  • Cinco Bayous and the Wingates alleged that both cases concerned the failure to ‘provide and transfer seismic information in relation to an oil and gas lease,’ and that the claims in both sets of lawsuits — breach of contract, fraudulent inducement and conversion — are also similar, the judge noted.
  • “‘Despite the overlap in the generic subject matter … plaintiffs do not delineate any other similarities,’ the judge held. ‘The mere fact that plaintiffs mention the term ‘seismic data’ in both lawsuits does not create a substantial relationship between the two suits when the seismic data in dispute is derived from different tracts of land and is offered for dissimilar reasons and context.'”


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Risk Update

Judicial Disqualification Attempts — Brad, Angelina & Iran

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(I’m sure no one is going to click…) “Angelina Jolie ‘Clearly Failed’ Trying to Disqualify Me in Brad Pitt Custody Battle, Judge Says” —

  • “Fighting for fair trial. Judge John W. Ouderkirk asserted that he “can and will remain impartial” in Angelina Jolie and Brad Pitt‘s divorce case, despite his personal history with each party.”
  • “According to court documents obtained by Us Weekly earlier this month, Jolie, 45, alleged that the judge failed to disclose “ongoing business and professional relationships” between him and the team representing Pitt, 56, who noted that the judge had a “well-documented history” with the actors. In a response filed on Tuesday, August 18, Ouderkirk, who officiated the former couple’s 2014 wedding, fired back at the Salt star’s claims.”
  • “‘The Objection to my continued service does not change my ability to objectively view and evaluate the evidence presented by both sides and apply the law impartially,’ Ouderkirk explained, noting that Jolie had ‘clearly failed’ to prove any kind of bias in Pitt’s favor. ‘Thank you for considering the issues presented affecting the lives of these parties and their children.'”
  • “Though the Maleficent actress requested that the court disqualify Ouderkirk as the private judge presiding over her divorce, he claimed that he had continuously made both Jolie and Pitt aware of his involvement in other cases since he was hired to oversee their case — and that those cases ‘might involve a party, lawyer, law firm and/or witness involved in the Jolie/Pitt matter.'”

Angelina Jolie asks judge in Brad Pitt divorce proceedings to be removed” —

  • “The filing said that during the Jolie-Pitt proceedings, Ouderkirk has ‘failed to disclose the cases that demonstrated the current, ongoing, repeat-customer relationship between the judge and Respondent’s counsel.'”
  • “It goes on to say that Pitt’s attorney ‘actively advocated for Judge Ouderkirk’s financial interests in moving — over the opposing party’s opposition — to have his appointment (and his ability to continue to receive fees) extended in a high profile case.'”
  • “Pitt and Jolie, like other high-profile couples, are paying for a private judge in their divorce case to keep many of its filings and the personal and financial details within them sealed, though some legal moves must be made within standard court procedure.”

Halkbank Loses Bid To Recuse Judge In Iran Sanctions Case” —

  • “A federal judge in Manhattan said Monday he won’t recuse himself from overseeing an Iran sanctions case against Turkey’s Halkbank, calling “speculative, tenuous and false” the claim that the judge sided with a group deemed a terrorist organization by the country’s government.”
  • “U.S. District Judge Richard M. Berman said the bank had taken out of context remarks he made at a legal symposium in Istanbul in 2014. Halkbank, which is accused of taking part in a conspiracy to help get billions of dollars into Iran in violation of U.S. sanctions, had argued the judge appeared to be biased because his remarks could be read as siding with followers of Fethullah Gülen, an Islamic cleric accused of a coup attempt in Turkey.”
  • “When the judge, who moderated a panel at the event, said, ‘It is no secret that the rule of law as contrasted with the rule of man is under some attack in Turkey,’ Halkbank claimed he was referring to the Turkish government’s efforts to shutdown a corruption investigation the bank says is the basis for the U.S. case.”
  • “Ruling on the motion Monday, the judge called those claims ‘a belated rerun’ of arguments he already rejected when they were made by former Halkbank co-defendant Reza Zarrab in 2016. Having rejected the argument once, the judge said he would not revisit the issue.”
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