Bressler Risk Blog

Mark Hinderks, Stinson LLP’s legal ethics and professional responsibility practice writes: “Is It a Conflict of Interest to Be Adverse to a Former Firm Client Who Has Left With a Departing Lawyer?” —

• “Question: I am a lawyer with a midsized firm. With the mobility of lawyers moving laterally in recent years, it is not uncommon for a lawyer to join us as a new partner with their own set of clients whose matters they bring with them to the firm. Regrettably, we also sometimes lose partners to other firms, who then depart with some or all of the clients with whom they have built relationships. This type of movement seems to be a part of the modern practice of law but creates sometimes confusing conflict of interest issues.”
• “Recently, one of our partners left the firm to join another firm. We were able to amicably and jointly communicate to clients for which she was responsible about her departure, some of which chose to stay with our firm and some of which determined to transfer their files and matters to the exiting partner’s new firm. X Company, a client that the partner had earlier brought to the firm chose to move all their matters with her to her new firm. She took all of the client files (paper and electronic), and also took with her the only associate who had worked on any of X Company’s matters. “
• “Now, a couple of months later, a dispute has erupted between one of my clients and X Company, and they want me to represent them in a suit against X Company. I am concerned that the company was also a client of our firm only about 60 days ago. Does this create a conflict issue for us either under the former client Rule 1.9, or the imputation of conflicts Rule 1.10?”
• “Answer: These facts present an interesting twist on the Model Rules’ protection of the interests of ‘former clients.’ Rule 1.9 duties to former clients seek to prevent a lawyer from using confidential information gained in a previous representation from being used to the former client’s disadvantage when representing a different client, and to prevent a changing of sides. The rule accomplishes this by limiting adversity in the ‘same or substantially related’ matters. See Rule 1.9, Comments 1-2.”
• “In your situation, however, these interests are not implicated because your firm no longer has in its possession any confidential information relating to the matters of the former client X Company; there is no lawyer remaining at the firm who was exposed to X Company’s confidential information, and there is no lawyer remaining at the firm who would be ‘switching sides’ if you or another lawyer at the firm were to now be adverse to X Company.”
• “This situation is expressly accounted for in Rule 1.10(b), which provides that when a lawyer has terminated their association with a firm, the firm is not thereafter prohibited from being adverse to a client represented by that formerly associated lawyer, and not currently represented by the firm, unless it is the same matter or substantially related to that in which the formerly associated lawyer represented the client while at the firm; or any lawyer remaining in the firm has confidential information protected by Rules 1.6 and 1.9(c) that is material to the matter, in any form, paper, electronic or in their head.”
• “Here, all the records are gone, and the only lawyers who had knowledge of the former client’s confidential information in their heads are also gone. Therefore, provided the new matter is not the same or substantially related to a matter for X Company while the partner who left represented them at your firm, neither you nor your firm have a conflict of interest that precludes current adversity. Good luck with the new matter.”

“Law firm conflicts ‘permeated FTX’s bankruptcy’, professors allege” —

• “Two law professors have claimed that Sullivan & Cromwell put its own interests before that of FTX’s stakeholders, reviving criticism over the law firm’s role in the bankrupt cryptocurrency exchange’s rise, collapse and unwinding.”
• “The firm’s ‘apparent conflicts of interest permeated FTX’s bankruptcy filing and every aspect of the case,’ Jonathan Lipson of Temple University and David Skeel of the University of Pennsylvania wrote in a paper published online earlier this month.”
• “The two academics focused on the 20 M&A and regulatory assignments that S&C worked on for FTX, for which it earned just under $10mn in the months leading up to the exchange’s November 2022 bankruptcy filing. “
• “Through that work, ‘S&C knew, or was in a position to know, that FTX was co-mingling customer assets,’ the professors contended, referring to FTX founder Sam Bankman-Fried’s misuse of account holder funds. “
• “John Ray, the chief executive appointed to oversee FTX, said in a statement on behalf of the company and its advisers: ‘The paper is simply not research but uninformed and unsupported allegations’ that ‘grossly mischaracterises the facts.'”
• “The office of the US Trustee, a part of the Department of Justice that represents the public interest in bankruptcy cases, initially objected to S&C’s retention, arguing that the law firm had failed to properly disclose the full extent of its connections to FTX. Several US senators also voiced concern.
• “But the trustee eventually lifted its objection after the law firm provided more details of its previous work, and the court approved S&C’s hiring. According to court filings, S&C has reaped $184mn in fees, including billings and reimbursements, between November 2022 and January 2024.”
• “The professors further contended that ‘S&C may have violated ethical duties of confidentiality, candour, and loyalty by reporting allegations of these crimes to prosecutors . . . by duping Bankman-Fried into giving control of FTX to Ray.'”
• “‘For well over a year, S&C and Ray had free rein to marshal and manage conflicting claims about the public and private interests at stake as they saw fit,’” the professors wrote. ‘These conflicts appear to have reduced recoveries, even as they have enriched S&C.'”
• “People close to S&C and FTX noted that all the company’s actions had to be approved by the bankruptcy court with the consent of the US Trustee and creditors, and pointed out that Bankman-Fried had several lawyers personally representing him in November 2022. Moreover, they said account holders could potentially receive the full amount of their claims by the time the bankruptcy was finished.”
• “Lipson and Skeel said they ran into each other last autumn during oral arguments before an appeals court over the examiner’s appointment. They decided afterwards to collaborate on the article about the duties of lawyers, which is to be published in the Stanford Law Review.”
• “They said there was a ‘firewall’ in place so Bankman-Fried’s parents, who are Stanford law professors, had no knowledge of the article prior to submission. Skeel said he had no interaction with the Bankman-Frieds and handled all interactions with the Stanford publication. The pair did not call S&C or FTX prior to publication but said they welcomed any feedback. “

“In public, Suarez says he’s not Ken Griffin’s attorney. Under oath, he said differently” —

• “Miami Mayor Francis Suarez has long said that he has no conflict of interest when it comes to his public support for billionaire hedge funder Ken Griffin, a major client of the law firm where Suarez is employed.”
• “But in an interview conducted under oath in December, Suarez contradicted previous public statements and said he is one of Griffin’s attorneys — a potential violation of ethics laws prohibiting elected officials from working for anyone who has business before their government.”
• “In his sworn statement to a state ethics investigator, Suarez said Griffin was not just a client of the law firm where he works, but his own personal client. The mayor made that point as part of a successful effort to get the Florida Commission on Ethics to dismiss an unrelated complaint against him.”
• “But in calling Griffin “my client,” Suarez also raised a possible conflict of interest under Florida law, given that Griffin is lobbying the city for various permissions as he moves his personal residence and company headquarters to South Florida.”
• “While Florida laws governing outside employment would not prevent the mayor from working for a firm whose clients have official business with the city of Miami, the law prohibits Suarez from doing legal work for those clients, according to a formal ethics opinion issued to Suarez in 2021.”
• “And Suarez would be in violation of state ethics laws, the letter warned, if ‘any client for whom he is performing legal services is conducting business with [not just the City Commission, but] any subordinate city board or staff.’ The restriction would apply, the ethics officials wrote, regardless of whether Suarez recused himself from any related city matters.”
• “The mayor’s office is now walking back Suarez’s sworn statement. In response to the Herald’s latest questions, the mayor’s director of communications, Stephanie Severino, said Griffin ‘is not and has never been a personal client of Mayor Suarez.’ Nor, she said, is Suarez on Griffin’s account at the law firm where Suarez works.”
• “When the Herald asked Florida Commission on Ethics spokesperson Lynn Blais about Suarez’s comment and whether it presented a conflict of interest for him if Griffin were in fact his direct client, she wrote by email: ‘We cannot give an opinion about a person’s conduct… a public officer or public employee who is in doubt about the applicability of the standards conduct to himself or herself may seek an advisory opinion from the Commission'”

“Whitestone Law Disqualified from Dual Representation in Netflix Patent Infringement Battle” —

• “In an unfolding patent infringement dispute against Netflix, California federal judge has ruled that Whitestone Law is unable to simultaneously represent both the plaintiff, a Finnish inventor, and the nonparty that footed part of the inventor’s legal bills. The decision was made on the basis that interests of the two parties have diverged following certain allegations made by Netflix against them both.”
• “This ruling was a result of the determination that the potentially conflicting interests between the inventor and the financial backer could not be justifiably represented by a single law firm. While the precise nature of Netflix’s accusations remains undisclosed, the ruling underscores the crucial role of legal ethics in managing client representation particularly in patent infringement cases.”

“ORDER GRANTING PLAINTIFF’S MOTION TO DISQUALIFY WHITESTONE LAW FROM REPRESENTING AIPI, LLC” —

• “Whitestone Law has represented Valjakka in this matter at various times, including by defending his deposition on October 12, 2023.”
• “It has also represented AiPi… Recently, however, as Whitestone Law attorney Joseph Zito conceded at the hearing on this motion, Netflix has made allegations concerning AiPi that render AiPi adverse to Valjakka. Specifically, Netflix accuses both AiPi and Valjakka of transferring and using litigation settlement proceeds in a manner that violated the California Uniform Voidable Transactions Act (“CUVTA”) and this Court’s September 21, 2023 injunction.”
• “Thus, both Valjakka and AiPi ‘have been accused of things by Netflix,’ where they ‘acted together . . . to some extent and not together in other extents,’ and consequently, both Valjakka and AiPi “will have an incentive to point the finger at each other.”
• “The facts before the Court demonstrate a significant violation of the duty of loyalty by Whitestone Law. Going forward, vigorously representing either AiPi or Valjakka will require attempting to damage the other one’s interests, both as to the responsibility for any CUVTA violation and as to any claim Valjakka might make concerning alleged misrepresentations by AiPi. That is a direct conflict of interest.”
• “Accordingly, Whitestone Law cannot represent both Valjakka and AiPi without violating the duty of loyalty.”

“Music executive sues industry lawyer Joel Katz, Greenberg Traurig firm” —

• “A music executive has filed a legal malpractice lawsuit, opens new tab against U.S. law firm Greenberg Traurig and Joel Katz, a former shareholder at the firm and longtime recording industry adviser, accusing them of botching contract negotiations for a job with Warner Music Group.”
• “Michael Flynn, a former music executive for Sony Music’s Epic Records and Universal Music’s Capitol Records, said Katz and current Greenberg Traurig shareholder Duane Sitar ‘actively used their positions of trust to benefit Warner, themselves, and others’ while he was their client.”
• “The lawsuit, filed Tuesday in Fulton County, Georgia, Superior Court, said Katz and Sitar helped Warner ‘devise a pretext for breaking its promise of employment’ to Flynn.”
• “Warner was trying to avoid legal action from a competitor, which stood to lose one of its key executives who wanted to join Warner and work with Flynn, the lawsuit said.”
• “A spokesperson for Greenberg Traurig and Sitar said Flynn’s lawsuit is ‘an old, previously dismissed claim which we consider meritless and will be contesting.'”

“Opioid Judge Rejects DQ Motion, But Cautions Motley Rice: ‘The Court Frowns’” —

• “A federal judge on Monday declined to disqualify Motley Rice from dozens of opioid cases, but said he was ‘very uncomfortable’ with its government client arrangements.”
• “U.S. District Judge Dan Polster, in the Northern District of Ohio, found the timing of pharmacy benefit manager OptumRx’s Dec. 15 disqualification motion to be suspect, particularly since it could have raised its concerns as early as 2018, when the judge appointed Motley Rice member Joe Rice to the plaintiffs’ executive committee in the opioid multidistrict litigation.”
• “‘If OptumRx always intended to move to disqualify Motley Rice as MDL co-lead counsel, then the court finds the timing of OptumRx’s motion somewhat troubling,’ he held.”
• “OptumRx, owned by United HealthCare, alleged that Motley Rice used its subpoena power in prior government cases to obtain confidential information, which it could use in the opioid cases against pharmacy benefit managers. Motley Rice represented Hawaii, the District of Columbia and Chicago in separate cases against OptumRx and other pharmacy benefit managers over insulin pricing.”
• “But Polster questioned OptumRx’s claim that Motley Rice obtained confidential documents while representing Chicago in a previous government case given that those materials should have been provided in the multidistrict litigation.”
• “Polster agreed with OptumRx, however, that Motley Rice was, in fact, acting as a ‘public officer’ in its prior government cases and is now representing private clients, even though they are cities and counties.”
• “‘The language of the retainer agreement cannot change what Motley Rice actually did,’ the judge, who held a hearing last month, ruled. ‘The unavoidable fact is that, when Motley Rice served government subpoenas and received documents in response—even if it was acting on behalf of those governmental entities under a contingent fee, independent contractor agreement—it had been granted authority to wield the power of the government.'”
• “He cautioned members of the plaintiffs bar about potential conflicts in similar circumstances.”
• “‘The court is very uncomfortable with the malleability of this quasi-government-employment configuration,’ he wrote. ‘If private outside counsel, like Motley Rice, intends to enter agreements where it has the power to wield (and potentially abuse) government power, then it needs to adhere to all the same rules to which government lawyers are subject. Motley Rice and all other law firms should carefully take this into account going forward.'”
• “‘There is a real difference between a law firm’s representations of a governmental entity as a private client and a law firm’s wielding the authority of that government. The facts happen to work in favor of Motley Rice in this case: were it not for the standing repository obligations, and the nature of the investigation materials OptumRx produced, the court’s discussion and analysis in this order might have been different.'”

“Prosecutors may call on Nadine Menendez lawyers as witnesses in bribery case” —

• “Despite a recent change in representation, Nadine Arslanian Menendez may soon be on the hunt for another lawyer. Recent court filings show that the government may bring David Schertler and other members of his law firm to the stand as witnesses against her and her co-defendants in a federal corruption and bribery case.”
• “Her co-defendants include her husband, Sen. Bob Menendez, and three New Jersey businessmen, including Wael Hana and North Jersey developer Fred Daibes. The third, Jose Uribe, recently flipped his not guilty plea to guilty.”
• “The United States attorney for the Southern District of New York requested a hearing to ensure Nadine Menendez ‘understands and knowingly waives the multiple issues arising from her continued retention of Mr. Schertler and his law firm,’ U.S. Attorney Damian Williams wrote in a letter to Judge Sidney Stein on Sunday.”
• “A proposed list of questions was included in the court document and outlined whether there is a conflict of interest or other potential problems related to Schertler, as well as Danny Onorato and Paola Pinto, who also represent Nadine Menendez, due to their personal knowledge of certain facts that the government has alleged are relevant.”
• “‘The Government believes that Schertler participated in, among other things, relevant conversations with you and counsel for your co-defendants Robert Menendez and Wael Hana,’ court documents said.”
• “The conversations included such topics as the nature and purpose of the payments co-defendant Uribe made for a Mercedes-Benz that Nadine Menendez received, the nature of payments Hana made towards Nadine Menendez’s mortgage, and the purpose of repayment for both.”
• “There is also a question of communications Nadine Menendez had with Schertler regarding a presentation he made to the United States Attorney’s Office on Aug. 11, 2023, the purpose of that presentation, and communication he had with counsel for Nadine and Bob Menendez.”

“What are ‘reasonable measures’ to prevent law firm conflicts? New ABA ethics opinion explores” —

• “An ethics opinion released Wednesday by the ABA’s Standing Committee on Ethics and Professional Responsibility addresses what constitutes ‘reasonable measures’ personally disqualified lawyers can take to ensure that the conflicts of interest are not imputed to their law firms.”
• “Formal Opinion 510 focuses on when a lawyer considers a matter from ‘a prospective client’ but is “not retained.” The crux of the ethics opinion addresses limiting exposure to obtaining more ‘disqualifying information’ than ‘reasonably necessary.'”
• “For example, one should ‘warn the prospective client that the lawyer has not yet agreed to take on the matter and that information should be limited only to what is necessary for the lawyer and client to determine whether to move forward with an engagement,’ according to the opinion.”
• “If the lawyer does not take such reasonable measures to minimize the risk of receiving additional disqualifying information, then the lawyer’s conflict will be imputed to the entire firm, according to the opinion.”
• “It centers on Model Rule 1.18 of the ABA Model Rules of Professional Conduct, which covers lawyers’ duties to prospective clients. A lawyer is disqualified from representing a prospective client in the same or substantially related matter against them only if the lawyer receives disqualifying information that could be harmful, according to the rule.”
• “But even if a lawyer possesses disqualifying information, when is the lawyer’s conflict imputed to the entire firm?”
• “Under the rule, the conflict of interest of the individual lawyer is not imputed to the person’s firm in two situations: when the prospective and impacted clients provide informed consent or the disqualified lawyer takes reasonable measures to avoid hearing details that are not necessary for client intake determinations.”
• “‘Once a lawyer has sufficient information to decide whether to represent the prospective client, further inquiry may be permissible, but it will no longer be ‘necessary.’ That means once a lawyer has decided there is any basis on which the lawyer would or must decline the representation, stopping inquiry on all subjects would place the lawyer in the best position to avoid potential imputation of a conflict to other lawyers in their firm,’ according to the opinion.”
• “If the lawyer is disqualified, then the firm must timely screen the disqualified lawyer, according to the opinion. Such screening is ‘timely when it takes place once a law firm becomes aware there is a potential conflict in representing someone adverse to the former potential client.'”

PDF of the full opinion: “Formal Opinion 501: Avoiding the Imputation of a Conflict of Interest When a Law Firm is Adverse to One of its Lawyer’s Prospective Clients”

“Mass tort attorneys must ensure compliance with new ABA guidance” —

• “True to their name, mass torts involve thousands, sometimes hundreds of thousands, of claims, myriad data points, and numerous steps from intake to resolution. The management of such legal endeavors requires nonlawyer staff and solutions capable of organizing, analyzing, and securely maintaining vast amounts of client information.”
• “In mass torts and class actions, it is common to delegate initial client intake to nonlawyers, whether that is support staff or technology platforms. When delegating tasks in that way, it is imperative that mass tort attorneys comply with all relevant ethical rules, opinions and laws, including the recent guidance from the American Bar Association (ABA).”
• “The ABA’s recently released Formal Opinion 506, opens new tab addresses a lawyer’s ethical obligations when delegating specific prospective client intake tasks to a nonlawyer… For mass tort attorneys seeking to retain clients and avoid potential legal pitfalls, a comprehensive understanding of Formal Opinion 506 is crucial. In order to remain in compliance with this guidance, there are a few crucial steps mass torts attorneys must take.”
• “Delegating prospective client intake tasks to nonlawyer assistants, whether that is staff or technology, requires establishing clear and comprehensive policies within a law firm. These policies should outline the specific tasks that can be delegated, emphasizing the importance of following ethical standards.”
• “Training should be designed to instruct nonlawyer staff on the ethical aspects of their responsibilities and ensure they have a comprehensive understanding of the limitations imposed by ABA Model Rule 5.3 and Formal Opinion 506.”
• “For example, Formal Opinion 506 states, “trained intake personnel may check for conflicts of interest, collect basic information from prospective plaintiffs or class members for lawyers to ascertain their eligibility to make a claim, and explain how fees and costs are charged in such cases.” But as detailed below, there are certain questions to which only a lawyer can respond.”
• “Continuous supervision is important to monitor the performance of nonlawyer assistants and address any issues promptly, maintaining the integrity of client interactions.”
• “At intake, always provide the option for a potential client to speak with the attorney handling their case. Confirming that prospective clients have the opportunity to communicate directly with the attorney who will be handling the case is fundamental to adhering to Formal Opinion 506. Lawyers must take steps to guarantee that prospective clients have the opportunity to discuss fee agreements and the scope of representation with the specific lawyer that would be representing them, prior to signing an engagement letter — not just an attorney employed by an intake center or marketing firm.”
• “Additionally, the Opinion discusses the application of Model Rule 5.5, opens new tab, which determines whether nonlawyers can answer specific legal questions based on jurisdictional definitions. As the Opinion states, ‘If the prospective client asks about what legal services the client should obtain from the lawyer, wants to negotiate the fees or expenses, or asks for interpretation of the engagement agreement, the lawyer is required to respond to ensure that the non-lawyer does not engage in the unauthorized practice of law…'”
• “Therefore, the intake process should be designed to facilitate attorney-client communication, allowing clients to discuss their matters, ask questions, and seek clarification on legal aspects, fees, the scope of representation, and objectives. In offering this option, attorneys not only comply with this new guidance but also create transparency and trust in the attorney-client relationship.”
• “Nonlawyers can perform an initial screening of prospective clients by checking for conflicts of interest, utilizing website intake questions, and employing conflict-checking algorithms. By checking for conflicts at the outset, law firms can ethically represent the prospective client without fear of conflicting with existing clients or other obligations.”
• “Ensuring compliance with ABA guidelines at every stage of client intake is crucial, especially for mass tort attorneys who are often representing thousands of plaintiffs. By performing the necessary work at the beginning of a client relationship, firms can avoid ethical pitfalls and focus on their important work seeking justice for their clients.”

“SRA tells employers what they cannot ask in-house lawyers to do” —

• “Draft guidance for employers of in-house solicitors, which aims to establish a mutual understanding of what lawyers can and cannot do, has been published by the Solicitors Regulation Authority (SRA).”
• “Among other things, it says employers should not put in place personal objectives, performance rewards and incentives that create an ‘inherent risk of conflict’ between the regulatory and legal objectives of the role.”
• “An example of this would be a bonus focused solely on completing a deal rather than completing it ‘in a way that aligns to your agreed legal and regulatory risk appetite.'”
• “The regulator has issued three other pieces of draft guidance to support in-house solicitors, covering identifying the client when working in-house, handling internal investigations, and reporting wrongdoing by an employer.”
• “The SRA is seeking views on the drafts before it formally adopts them.”
• “They are a response to an SRA review which found last year that in-house lawyers were generally able to withstand pressures on their independence but a minority reported demands to act unethically.”
• “The draft guidance for employers stresses that in-house lawyers ‘should be empowered and supported to raise concerns,’ and not disciplined or punished for doing so.”
• “Employers should ‘provide systems and processes to allow solicitors to meet their obligations to provide independent and impartial advice, avoid conflicts of interest and act in the best interest of their client.'”
• “This included allowing the legal function to be able to participate in leadership and operational roles/decisions across the business, and helping the board and executive to set their legal and regulatory risk appetite and deliver against this.”
• “‘However, solicitors should not be penalised for declining to participate in an activity or role where there a real likelihood of conflict of roles or of infringing regulatory obligations would arise from this participation. For example, acting as the director of a subsidiary or leading a sales initiative.'”
• “In-house lawyers are told that, where wrongdoing persists despite their reporting concerns, ‘you should carefully consider whether you can meet your regulatory obligations and continue working for your organisation.'”

For more, see the SRA guidance: “Working in-house” —

• “Following on from our thematic review, and our wider programme of activity directly engaging with in-house solicitors, we have developed a range of draft resources and guidance materials, specifically tailored to the in-house sector.”
• “We are publishing these materials in draft form to give the wider in-house community an opportunity to consider the content, and provide us with any feedback ahead of them being finalised. Please provide any feedback, via our online form, by 19 April 2024.”
• “The materials include:
  • Guidance for employers on a solicitor’s professional obligations
  • Key points for governing boards and chief executives
  • Guidance and case studies on identifying your client when working in-house
  • Guidance and cases studies on reporting concerns about wrongdoing when working in-house
  • Guidance on running internal investigations”

“Banker’s Lawyer Accused of Being Too Polite to Vet His Funds” —

• “A top law firm faced allegations that it broke UK money-laundering rules by being too polite to ask a politically connected banker from a former Soviet republic how he got his cash.”
• “Dentons overrode an internal warning urging ‘extreme caution’ in dealing with him as a client and failed to ask the banker where his wealth came from in case it might be ‘impertinent or impolite,’ legal regulators had alleged at a London court. While the tribunal dismissed the case Monday, finding no breach of the industry watchdog’s principles, it did find proof of shortcomings regarding money-laundering rules.”
• “The banker, who can’t be identified due to a court order, had spent tens of millions of pounds on London property and a family member is now the subject of a separate police probe. Dentons fought the case at the tribunal, arguing that it took ‘adequate measures’ to establish the banker’s source of funds. Lawyers for the firm said it knew that the client held a ‘substantial shareholding’ in a state-controlled bank. “
• “The regulator’s lawsuit is one of just a small number of cases scrutinizing the role of professional services in enabling the flow of illicit finance into Britain. Few cases go to trial in the UK despite the police estimating that hundreds of billions of pounds are laundered through the UK annually.”
• “The banker became a client of Dentons in 2013 after an acquisition of a smaller firm, and was immediately identified as a ‘politically exposed person’ — a term used to ascribe a higher level of risk and one that puts the onus on the firm to scrutinize transactions. But Dentons never asked the banker for his salary or the the size of his shareholding in the bank.”
• “Dentons lawyer Francois Chateau, now based in New York, told the Solicitors Regulation Authority in an interview that he never asked the banker how much he earned. ‘In Europe, in my culture, we don’t do that. You don’t ask err, how much do you make?’ according to Chateau. He said he’d never asked anybody to show him their bank account and to give evidence of what they own that would be ‘visible for everybody to see.'”
• “The regulator called Chateau’s answers ‘astonishing,’ saying that he adopted an ‘extraordinarily credulous attitude towards individuals of apparently spectacular wealth.'”
• “Dentons persisted with keeping the banker as a client even after the firm’s general counsel said in 2014 that it shouldn’t continue working for him.”
• “Dentons’ lawyers said even if the firm had breached money-laundering rules then its conduct wasn’t sufficiently serious to merit any kind of penalty.”

“SDT dismisses case against Dentons as SRA left with massive costs bill” —

• “The solicitors’ regulator has suffered a major setback after its prosecution of the world’s biggest firm by headcount effectively failed.”
• “Following a six-day hearing at the Solicitors Disciplinary Tribunal, the panel dismissed all allegations against Dentons and directed the Solicitors Regulation Authority to shoulder its own costs. The SRA has since revealed its costs came to £189,000 inclusive of disbursements and VAT.”
• “In its prosecution, the SRA alleged that the firm had breached money laundering regulations through its retention of a client from 2013 to 2017. The client, who by an order of the tribunal cannot be identified, had been chairman of a bank owned by a former Soviet state with a poor record for corruption and transparency.”
• “The SRA sought to argue that Dentons made insufficient checks on the client’s source of wealth and funds, while the firm insisted that the regulator was not basing its prosecution on money laundering regulations that were in place at the time.”
• “The tribunal deliberated at the end of the week and returned on Monday morning to say that one allegation relating to checks on the client’s source of wealth had been found proved, while the rest were not proved. After an intervention from Dentons to say that this allegation was dependent on the others and there was no jurisdiction to find it proved, the tribunal came back an hour later and dismissed the one remaining allegation.”
• “The SRA then sought to argue that Dentons should be ordered to pay a contribution towards its costs, saying that the case was properly brought and an ‘important yardstick’ for the regulator and the profession.”
• “Dentons submitted that the SRA had not taken into account its own guidance from the time of the alleged misconduct and had made no criticism of the firm’s systems and controls.”
• “Despite both sides being asked to make submissions on costs, at no point during the hearing was it explained what the SRA’s costs were. The tribunal made no order, meaning the SRA has to pay its costs in full. A full judgment with the SDT’s reasoning will be published in around seven weeks.”

SRA (updated March 5): “Sectoral Risk Assessment – Anti-money laundering and terrorist financing” —

• “We are responsible for the supervision of authorised firms for their anti-money laundering (AML) compliance, and we take our responsibilities very seriously. We owe a duty to society at large, and to protect the integrity of the legal sector through tackling intentional and unintentional enablers of money laundering.”
• “This document sets out information on money laundering, terrorist financing and proliferation financing risk that we consider most relevant for firms we supervise.”
• “We will continue to refresh this sectoral risk assessment on a regular basis to keep up to date with emerging risks and trends.”
• “We have seen increasing numbers of firms facilitating vendor frauds. This involves properties, usually residential, being targeted by fraudsters and being sold without the consent or knowledge of the genuine owners, with fraudsters often impersonating the owners. The conveyancing process is attractive to fraudsters because it provides both the method of committing the fraud and the means of laundering.”
• “Amendments to the Regulations in 2022 mean that all firms must now carry out an assessment of their exposure to the risk of proliferation financing. Simply put, this means the risk of the firm being involved with the global proliferation of nuclear, chemical, biological or radiological weapons by groups and countries which are not permitted to have them under international treaty. This includes both materials for weapons, and also ‘dual-use goods’. These are goods which are not manufactured as weapons but could be used in weapons or to produce them, for example fertiliser.”
• “There are similar risks in the use of new types of financial technology, for example, fund transfer systems and crowdfunding platforms. Any use of new technologies should be preceded by an assessment of the risks they may introduce and effective mitigation of these risks where possible.”
• “A separate issue which is of growing importance is the issue of sufficient resourcing of AML work. As economic conditions have continued to deteriorate, firms are likely to be under pressure to reduce costs, and elements of businesses that are not directly revenue generating may see their budgets reduced.”
• “Whatever decisions are made about resourcing, firms need to understand that economic conditions do not change the requirement to comply with the Regulations. In fact, the economic conditions are more likely to increase a firm’s exposure to would-be money launderers, emboldened by a perception that they are in a position of relative strength in dealing with firms. Potential clients may seek to emphasise the amount of revenue they can bring to a firm as a bargaining tactic.”