Why Does the American Bar Association Oppose Beneficial Ownership Transparency Reform?

Right around the same time that this post appears on the blog, the U.S. Senate Judiciary Committee will be holding a hearing on “Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency.” The main focus of the hearing will be on a pending bill, the True Incorporation for Transparency for Law Enforcement Act (TITLE Act). That bill’s major provisions do two main things:

  • First, subject to certain limited exceptions, the Act would require that every applicant wishing to form a corporation or limited liability company (LLC) in a U.S. State must provide that State with information on the true or “beneficial” owners of the company—that is, the live human beings who actually exercise control over, and/or receive substantial economic benefits from, these entities—and to keep this information updated. This information could then be requested by a law enforcement or other government agency, or by a financial institution conducting due diligence on a customer. Those applicants who don’t have a U.S. passport or driver’s license who want to form a corporation or LLC would have to apply through a U.S.-based “formation agent”; this agent would be responsible for verifying, maintaining, and updating information on the identity of the legal entity’s beneficial owners.
  • Second, the bill would also subject these “formation agents” to certain anti-money laundering (AML) rules applicable to financial institutions, including the requirements for establishing AML programs and filing suspicious activity reports (SARs) with the Treasury Department. However, the TITLE Act expressly exempts attorneys and law firms from this provision—provided that the attorney or law firm uses a separate formation agent in the U.S. when helping a client form a corporation or LLC. (The idea, as I understand it, is that the bill would avoid putting attorneys in the position of potentially having to file SARs on their own clients—but in order to avail themselves of this exemption, an attorney helping a client form a corporation would have to retain a separate formation agent, and it would be this latter agent that would be subject to the AML rules. More on this in a moment.)

Compared to the more aggressive beneficial ownership transparency reforms touted by anticorruption/AML advocates, and adopted in some other countries, the proposed U.S. legislation is fairly mild—but it is still, as prior commentators on this blog have emphasized (here and here), a welcome step in the right direction. After all, while the U.S. record on fighting global corruption and international money laundering is good in some respects (Foreign Corrupt Practices Act enforcement and the Kleptocracy Asset Recovery Initiative come to mind), when it comes to addressing the facilitators of corruption, such as corporate secrecy, the U.S. is a laggard (as illustrated by poor U.S. score on the Tax Justice Network’s 2018 “Financial Secrecy Index,” released last month). So it’s indeed encouraging that the TITLE Act, and its counterpart in the U.S House of Representatives (the less-cleverly-named “Counter Terrorism and Illicit Finance Act”) have received both bipartisan support and the endorsement of a wide range of interest groups—including not just anticorruption, AML, and tax justice advocacy groups, but also representatives of law enforcement, the finance industry and other business interests (here and here). Many are cautiously optimistic that some version of these bills might actually become law this year.

But some opposition remains. The sources of that opposition are, in some cases, predictable: the Chamber of Commerce, for example, opposes these reforms, as does FreedomWorks, the lobbying group sponsored by the libertarian billionaire Koch brothers. One of the major opponents of the legislation, though, was more surprising, at least to me: the American Bar Association (ABA), which represents the U.S. legal profession. The ABA has come strongly against this legislation, sending letters to the responsible committees in both the House and Senate expressing strong opposition to even these relatively mild reforms.

What’s the explanation for this uncompromising opposition? Do the objections make sense on the merits? How did the ABA decide to take such a strong stand, despite the fact that I’m sure many ABA members support greater beneficial ownership transparency? I don’t know the answers to any of these questions yet, and I may try to do a few more posts over this month as I try to work through these issues. But for now, let me offer some preliminary thoughts: Continue reading

The Lawyers’ Role in Perpetuating Corruption in Nigeria

Nuhu Ribadu, the former head of Nigeria’s Economic and Financial Crimes Commission, spoke to lawyers in Abuja on December 1 on his experience fighting corruption in Nigeria and the role the bar played.

Ribadu came to international attention in the mid-2000s for his audacious efforts to combat the high level corruption then rampant in the country, a fight that led to attempts on his life and ultimately his illegal removal from office despite protests from Nigerian civil society and the international community.  Although Ribadu remains active in Nigerian public life, chairing a high level commission on corruption in the Nigerian oil industry and running twice (unsuccessfully) for public office, he has been relatively silent on the obstacles he faced as head of the EFCC.  In his December 1 speech, unfortunately at this writing still not available online, he explains how some of Nigeria’s most prestigious lawyers, known as SANs or Senior Advocate Nigeria, collaborate with some of Nigeria’s most corrupt actors to frustrate the country’s effort to eradicate corruption at the highest levels of government.

For the benefit of his friends in the international community (of which this writer is one) as well as for a useful insight on one of the challenges of tackling grand corruption, below are excerpts from that speech as reported in the Nigerian press. Continue reading

What Can Young Lawyers Do To Fight Corruption Now that Trump Is President?

I promise that eventually I’ll go back to blogging about things other than Trump, but that seems to be the most important challenge facing the anticorruption community right now. Also, I wanted to contemplate a question that a friend and recent law school graduate (who is currently working for the US government, and so cannot be identified by name) put to me in response to the “cry of despair” I posted in the immediate aftermath of the election. This young lawyer asks:

What can people do in the face of all this? Is there anything young lawyers who care about anticorruption policy can do? If we can expect a drop in enforcement and weakening of the FCPA, where can people concentrate their efforts?

This is a great set of questions, and I wish I had good answers. I don’t, but in the interests of contributing to these important conversations, let me offer a few preliminary thoughts (which are probably worth approximately what you’ve paid for them): Continue reading

The Panama Papers Whistleblower’s Radical Manifesto: Some Preliminary Thoughts on a Fascinating Document

The leak of the so-called “Panama Papers”—the roughly 11 million documents from the Panama-based international law firm Mossack Fonseca, provided to the International Consortium of Investigative Journalists (ICIJ) by an anonymous whistleblower—has generated an enormous amount of coverage and commentary (including on this blog: see here, here, here, and here). The identity of the person who leaked the documents is still unknown, but (as many readers are already no doubt aware), this individual posted a “manifesto” last month under the name “John Doe,” explaining his motives in leaking the documents and advocating the sorts of reforms he or she believes are necessary to combat the evils that the Panama Papers reveal and represent. I’m not sure how many of our readers have already read the manifesto, but if you haven’t, I highly recommend that you do. It’s a fascinating document, obviously written by somebody who is both passionate and very well-informed. I’m not sure whether I agree with everything in it—the spirit of the manifesto is radical, even revolutionary, while by nature I tend to be more cautious and incremental—but I think that everyone ought to read the manifesto and take it seriously.

In terms of specific policy reforms, much of what the manifesto proposes has been widely discussed elsewhere: a call public corporate registers (including calls for the UK to extend its domestic initiatives in this area to its overseas territories and dependencies, and for the US to impose transparency and disclosure requirements on individual states); demand for reform of America’s “broken campaign finance system”; and the criticism of the “revolving door” between regulatory agencies and the financial institutions they regulate. (On this last point, by the way, I think John Doe’s analysis is both overly simplistic and overly nasty. He singles out Jennifer Shasky Calvery, the former director of the US Treasury’s Financial Crimes Enforcement Network (FinCEN), calls her “spineless” and castigates her for going to work for HSBC, “one of the most notorious banks on the planet.” I think the general criticism of the revolving door is too simple for reasons I have laid out previously, and it’s unfair in this context in particular because Ms. Calvery in fact had a reputation for aggressive enforcement. Maybe John Doe knows something about Ms. Calvery’s tenure at FinCEN that I don’t, but I found that this petty name-calling, not backed up by any evidence beyond vague insinuations and guilt-by-association, to be both off-putting and out of character with the rest of the manifesto.)

But in addition to these fairly familiar themes, John Doe’s manifesto lays out two radical policy proposals that, so far as I can tell, have gotten very little attention in the discussions of the Panama Papers, or even in discussions of the manifesto specifically. Both are worth taking seriously, though both make me uncomfortable: Continue reading

“First thing we do, let’s kill 85 percent of the lawyers.”

Readers of this blog know its commitment to publishing the most reliable, up-to-the-minute data on corruption, and it is in this spirit I urge a revision to the famous line Shakespeare has Dick the Butcher speak in Henry VI, part 2: “First thing we do, let’s kill all the lawyers.”  New research shows not all lawyers are, as Shakespeare and his audience supposed, venal, greedy, and unethical.  When lawyers in 13 New York law firms were approached to help an African official squirrel away funds that screamed “we are the proceeds of corruption,” two passed up the chance to earn the fat fee dangled before them, one on the spot and one after thinking things through.  Advanced econometric analysis thus reveals that only 85 percent (11/13) of those queried were willing to consider assisting an obviously corrupt African politician.  So if the same percentage of Elizabethan-era lawyers were as upright as today’s New York attorneys, Dick would not have needed to off all lawyers to reach the utopia envisioned in Act IV, Scene II. Just 85 percent.    Continue reading