Risk Update

Financial Risk — Anti-money Laundering Rules Advancing in Australia, AML Eyebrow Raise, Litigation Funding IP Concern

Consultation Opens for AML/CTF Regulation of Real Estate Agents, Lawyers, Accountants and other Professions” —

  • “The Commonwealth Attorney-General’s Department has opened a consultation process for the Tranche 2 reforms, expanding those industries and organisations regulated under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Act).”
  • “Organisations captured under the reforms will need to assess the legal and regulatory impact on their current operations and should engage in the consultation with Government. Proactive engagement with the consultation will be critical for organisations in shaping the implementation of Tranche 2 and the timing of when compliance obligations will commence.”
  • “These proposed reforms are particularly important as Australia remains one of the few countries in the Financial Action Task Force (FATF) Global Network (out of nearly 200 members) that has not regulated, or committed to regulating these sectors within its AML/CTF regime.”
  • “With no draft legislation currently provided, it is has been reported in the consultation that there will be a further round of consultation prior to the introduction of any reforms to Parliament. This provides an opportunity to engage with Government on the legislation, including a staged implementation of the reforms and a longer ‘assisted compliance’ period, which would enable sufficient time for newly reporting entities to meet their compliance obligations.”

Some Third-Party Litigation Funders Pose a Threat to US Security” —

  • “Third-party litigation funding and, more broadly, litigation investment entities, have become prominent fixtures in the US legal landscape. These funders—including hedge funds, private equity funds, and even sovereign wealth funds—either pay for plaintiffs’ litigation costs with an agreement that they will receive a large portion of any eventual payment, or own shell companies that exist only to profit through litigation.”
  • “Recent estimates put the US litigation funding market size at $13.5 billion with an additional $3.2 billion in new investments last year alone. Litigation investments disproportionately affect IP. Last year more than 20% of all new litigation financing capital commitments were directed toward patent litigation, following nearly 30% the prior year.”
  • “Even more troubling than the growth of an industry that monetizes IP litigation and the courts is that the vast majority of investments go undetected. A few courts have introduced funding transparency requirements, but by and large, investment entities are able to direct lawsuits from behind the curtain, without ever revealing themselves.”
  • “More specifically, by controlling litigation from overseas, foreign entities could damage the reputation of and drain resources from US competitors, while getting access to sensitive information during legal proceedings. The ILR report highlights TPLF in patent litigation as indicative of the litigation investment model’s risks, in general.”
  • “Lawmakers are only just beginning to prioritize addressing the threat that litigation investment entities pose. A group of state attorneys general raised concerns in a letter to the Department of Justice ‘that TPLF is being used to harm our States and threaten our country’s economic and national security,’ and ‘through strategic lending, foreign adversaries could threaten our economic and national security by weaponizing the U.S. judicial system.'”

Do Kwon’s Multi-Million Dollar Transfer To Law Firm Before Terra’s Collapse” —

  • “South Korean prosecutors have made a new revelation in the fraud case against Do Kwon, the co-founder, and CEO of Terraform Labs. According to a report by national broadcaster KBS, the blockchain company paid nearly $7 million to Kim & Chang, one of the country’s largest law firms, before the collapse of its digital currencies last year.”
  • “The payments were made in several transactions from Terraform’s Singapore headquarters and have raised suspicions that the company may have cashed out digital coins, which could lead to embezzlement charges. Prosecutors are cooperating with law enforcement in Singapore to confirm the source of the funds.”
  • “The report suggests that Kwon was aware of the impending collapse of Terraform’s digital currencies and may have made legal preparations to mitigate the risks. Investigators are now focusing on the payments made to the law firm, which could provide valuable insight into the company’s financial dealings before its downfall. If proven, these payments could be crucial evidence in the ongoing fraud case against Kwon.”
  • “Do Kwon, the founder of Terraform Labs, is facing extradition requests from both the United States and South Korea following his arrest in Montenegro.”