Risk Update

AML and More — US Law Firm AML Rules on the Move, Anti-money Laundering Allegations Hit Prominent Firms, UK SC Nixes Litigation Funding

UIC School of Law, Chicago Professor Alberto Bernabe notes: “Breaking news: ABA House of Delegates approves changes to Model Rule 1.16” —

  • “Last February, the ABA House of Delegates, which is comprised of 597 delegates from ABA entities and state, local and specialty bar associations, adopted a measure that updates the ABA’s policy that endorsed for the first time ‘reasonable and appropriate’ federal government efforts aimed at combating money laundering. The policy seeks to balance the longstanding attorney-client privilege with the demands of governmental entities seeking access to information on criminal activities.”
  • “Following this policy, yesterday, the HoD adopted an amendment to Model Rule 1.16 ‘to protect lawyers from unwittingly becoming involved in a client’s or prospective client’s criminal and fraudulent activities.'”
  • “Reportedly, there was a lengthy debate on the proposal but it was eventually approved by a vote of 216-102.”
  • “The amendment creates a duty to ‘inquire into and assess the facts and circumstances of each representation to determine whether the lawyer may accept or continue the representation’ and adds a new (a fourth) case in which lawyers are obligated to refuse to represent a client or to withdraw from representing a current client.”
  • “This section of the amendment states that the a lawyer shall not accept the representation or shall withdraw from representation if ‘the client or prospective client seeks to use or persists in using the lawyer’s services to commit or further a crime or fraud, despite the lawyer’s discussion pursuant to Rules 1.2(d) and 1.4(a)(5) regarding the limitations on the lawyer assisting with the proposed conduct.”
  • “As you probably know, Model Rule 1.16(a) lists the circumstances when a lawyer is required to withdraw, while 1.16(b) lists the circumstances in which a lawyer may withdraw. Model Rule 1.16(b)(2) states that a lawyer may withdraw if ‘the client persists in a course of action involving the lawyer’s services that the lawyer reasonably believes is criminal or fraudulent.'”
  • “The original proposal before the House of Delegates eliminated this discretionary duty and essentially converted it to an obligation. But, at some point in the process it was decided to keep section 1.16(b)(2), so now we have a mandatory duty related to a client’s intent to engage in fraud, etc, and a separate discretionary duty.”
  • Read: Resolution and Full Report


Dentons accused of AML regulation breach” —

  • “Dentons has been accused of violating anti-money laundering (AML) regulations in a case set to go before the UK Solicitors Disciplinary Tribunal, reported the Law Society Gazette.”
  • “The firm allegedly failed to conduct an adequate check on a client’s source of wealth when it represented a ‘politically exposed person or his associated entities’ from May 2013 to June 2017, as per a notice published by the UK’s Solicitors Regulation Authority (SRA). The tribunal certified the validity of the case brought against Dentons.”
  • “In particular, the firm was accused of violating the Money Laundering Regulations 2007 with respect to compliance with legal and regulatory obligations, effective operation of the business in line with ‘proper governance and sound financial and risk management principles’ and compliance with AML legislation, the Gazette indicated.”
  • “The conduct, according to the allegations, broke the public’s trust in Dentons and its legal services.”
  • “Dentons confirmed in a statement that had ‘co-operated fully with the SRA throughout this investigation, which relates to a former client, and we will continue to do so.'”
  • “‘As a firm we are committed to strict compliance with all laws, regulations and professional standards of the jurisdictions we operate in’, the firm said.”
  • “The tribunal is set to hold a hearing later in the year.”

Clyde & Co to Face SDT Over Alleged Breach of Money Laundering Regulations” —

  • “Clyde & Co has been referred to the U.K.’s Solicitors Disciplinary Tribunal (SDT) for allegedly breaching money laundering regulations.”
  • “In a decision published on the Solicitors Regulation Authority (SRA) website, the regulator said that the allegations related Clydes’ handling of a number of matters on behalf of a client and companies used by the client involving a ‘failure to comply with anti-money laundering procedures and breach of Money Laundering Regulations’.”
  • “The SRA added that the alleged failures were ‘in relation to a number of matters spanning a period of over four years’.”
  • “In a separate decision, also published on Wednesday, the SRA also referred former Clydes’ partner Edward Mills-Webb to the SDT, after concluding there was a case to answer in respect of allegations which also relate to matters arising from the handling of a number of matters on behalf of a client.”
  • “In a statement, Clyde & Co commented: ‘In early 2019 we suspended a partner, Ed Mills-Webb and referred him to the Solicitors Regulation Authority of England & Wales in relation to matters concerning the application of the SRA Code of Conduct 2011 and the SRA Accounts Rules 2011. We assisted the SRA fully with its investigations and during that time Ed Mills-Webb resigned from the firm.”

‘Shockwaves’ as [UK] Supreme Court rules litigation funding deals unenforceable” —

  • “Litigation funders will have to redraft the terms of their agreements following a widely awaited ruling by the Supreme Court this morning. In PACCAR Inc & Ors v Competition Appeal Tribunal & Ors, four out of five justices ruled that such agreements fall within the statutory definition of damages-based agreements (DBAs). As they had been entered in to without satisfying conditions for DBAs, they were therefore unenforceable.”
  • “In lead judgment today, Lord Sales ruled that litigation funding falls within the express definition of ‘claims management services’ – which includes ‘the provision of financial services or assistance’ – in the Compensation Act 2006. Lord Reed, Lord Leggatt and Lord Stephens agreed.”
  • “Experts said the ruling would have significant implications for litigation funders. ‘The decision will send shockwaves through the funding industry and may lead to number of smaller operators going out of business,’ said Glenn Newberry, head of costs and litigation funding at international firm Eversheds Sutherland. ‘The decision is potentially a blow for the government as the collective funding of consumer claims has helped bridge the gap caused by the erosion of state funded legal assistance for civil claims. Funders themselves may well start to actively lobby to seek legislation which effectively reverses this decision.'”
  • “Alice Darling, senior associate at magic circle firm Clifford Chance, said the decision ‘has rendered many funding agreements currently in place unenforceable.'”
  • “Funders however said the industry would rapidly adapt. In a joint statement, the International Legal Finance Association and the Association of Litigation Funders of England and Wales said: ‘We are disappointed by this decision as it runs contrary to the accepted understanding that financing agreements are not damages based agreements.”