The body representing America’s lawyers has staked out an eye-opening position in recent years—lobbying against efforts in Congress to close a loophole that enables terrorism, human trafficking, money laundering, and a host of other crimes.
The legislation would force the owners of US companies to disclose their identities to the authorities. The move would make it much harder for criminals to hide their money in shell companies with anodyne names; something anti-corruption experts and law enforcement say is a crucial step in fighting financial crime and ending America’s status as the world’s biggest tax haven. It’s also relatively timid compared to what’s happening on the other side of the Atlantic, where the UK has set up a fully public registry of company owners, and the rest of the EU is following suit.
In these divisive times, the bills boast the rare distinction of serious bipartisan support. After a decade of failing to make headway, the lawmakers behind the legislation have gathered steam by talking up the national security threats posed by shell companies. Earlier this month, the House Financial Services Committee approved Democratic congresswoman Carolyn Maloney’s bill with a hefty majority. It is likely to win a later vote on the House floor, while bipartisan sister bills are being debated in the Senate.
That many business lobbies dislike the bills is no shock. More surprising is that, despite the legislation’s modest nature and bipartisan backing, it has found a constant opponent in the American Bar Association (ABA). That’s worth restating: the chief lobbyist for American lawyers is fighting a bill that seeks to stop rampant law-breaking.
The ABA declined to comment on the record for this piece, but has said it objects to the legislation because, they argue, it would burden small businesses and pose privacy concerns for entrepreneurs. In a recent letter of opposition, the ABA’s president said the organization supports “reasonable and necessary” measures to fight money laundering and terrorist financing, and offered to discuss other solutions with lawmakers.
These arguments are met with deep cynicism among corruption scholars and pro-transparency advocates. While describing the ABA’s case in a blog post earlier this year, Harvard law professor Matthew Stephenson wrote, “I’m trying to find a polite euphemism for ‘self-serving and intellectually bankrupt,’ but I’m having trouble.”
The ABA’s critics point out that there are influential sections of the legal world who make a lot of money from setting up anonymous companies.
Senator Sheldon Whitehouse, a key backer of the legislation and ex-US attorney for Rhode Island, is scathing about his former profession’s role in the world of money laundering. “The estimates of how big this international dark economy is run up into multiple trillions of dollars. As a lawyer, I’m embarrassed to say that there are lawyers who have dedicated their professional lives to facilitating clients to navigate this darkened world,” he told Quartz in March, speaking generally about the industry rather than the ABA specifically.
The ABA’s original complaint was that the law threatened attorney-client privilege—a stance stemming from a policy drawn up 16 years ago. Legislators have since removed the offending clause, however, and ABA president Robert Carlson doesn’t even mention the matter in his latest letter of opposition to Maloney.
But the Bar has stayed resolutely opposed. It has found a surprising ally in the American Civil Liberties Union (ACLU), which argues that the bill’s definition of the beneficial owner of a company is too vague. (The ABA also makes this point, though in less detail.) That vagueness, they argue, means small business owners could face jail-time for making a simple mistake on a disclosure form.
“These claims are groundless,” Stephenson said of the ACLU’s arguments. He and other backers of the bill say the definition—which was actually adopted in a different US law (p.604) last year—is “flexible,” rather than vague. They believe this flexibility will prevent criminals from finding loopholes to game the system, and point out that to face a criminal penalty business owners would have to “knowingly” or “willfully” misrepresent their identity, so couldn’t be punished for a mistake.
Despite publicly offering to help lawmakers find a solution to all this, the Bar apparently has made little effort to do so. “The ABA has shown very little willingness to work with us on this important bill despite our having reached out and met with them on our own initiative,” representative Maloney, a New York Democrat, said in a statement.
The ABA’s actions trouble many members, said John Sherman, a lawyer who helped draw up the UN’s Guiding Principles on Business and Human Rights. He gathered up a slew of seasoned business and human rights lawyers to write to the organization, noting that its opposition to a bill that would help crack down on human trafficking doesn’t jibe with its oft-stated desire to end modern slavery. Carlson replied that the Bar still opposes the bill because of the “burdensome federal beneficial ownership reporting requirements they impose on small businesses and their lawyers.”
The bill’s supporters say this argument baffles them. The requirements are merely to keep the Treasury updated on the name, address, date of birth, and ID number of businesses’ real owners, says Gary Kalman, executive director of the FACT Coalition, an anti-corruption civil society network that is lobbying for the bill. He suggests that more work for small businesses’s lawyers is surely a good thing for ABA members. “I don’t know how filling out compliance paperwork for your clients—which you’re getting paid to do—is a burden,” Kalman said. “If you’re in DC that’s 500 bucks an hour to fill out paperwork, so I’d think there’s a lot of people who would like that job.”
There’s a more cynical explanation for the ABA’s apparent obstinacy.
“There’s a faction of lawyers who are heavily represented not necessarily in the ABA as a whole but on relevant ABA committees on this issue, that make a lot of money from registering companies anonymously,” Stephenson told Quartz. “They’re worried about losing business because in some cases the anonymity is precisely what the clients care about, such that if they can’t register companies anonymously they won’t do it at all or will go to another jurisdiction and lawyers will lose out on their business.”
In other words: Passing the bill would be a serious dent in America’s tax haven status, and lose a lot of lawyers a lot of money.
Anti-corruption NGO Global Witness exposed the allegedly questionable ethics of some lawyers in a stunning 2016 sting, titled “Lowering the Bar.” They sent an undercover investigator to 13 corporate law firms, posing as the advisor to a corrupt cabinet minister from an African government who wanted to stash millions in the United States. He asked for the lawyers’ advice on how to do it. Only one lawyer point bank refused to help, and another said they wouldn’t take him on as a client after the meeting, Global Witness reports. Twelve of them suggested using exactly the kind of anonymous shell companies targeted by Maloney’s bill.
That dozen included then-president of the ABA James Silkenat, who, alongside two colleagues, gave the fake ministerial advisor detailed advice on how to wend money into the US system with as little regulatory oversight as possible. The first line of defense against money-laundering in the United Sates is the strict checks banks are forced to do on potential customers. Silkenat, however, advised the would-be client to take his money offshore.
“There may be other banking systems that are less rigorous on this than the US would be,” he said. “The usual banking havens, I think, would be ones you would want to consider. We could provide you with a list of countries where the banking systems require less detail on ownership or source of funds.” Silkenat also described how to structure opaque webs of companies to “insulate [the minister’s] ownership from public view.” The plan: “Company A is owned by Company B, who is owned jointly by Company C and D and your party owns all of or the majority of the shares of C and D.”
Maloney’s bill would make it much harder to build those secretive webs.
Silkenat and his colleagues didn’t take on the client, and nothing they did was illegal. They also warned him that they would need to ensure no crimes had been committed before working for him. The lawyers told Global Witness through their attorneys that after the meeting they informed a member of their firm’s management committee they found the client “dishonest and untrustworthy” and that they had decided not to take his business under any circumstances.
Unlike banks, law firms don’t legally have to do due diligence before taking on clients—the closest thing they have to regulation is ABA guidelines.
“We did that sting to prove a point and we feel like our worst fears were confirmed, yet it was still striking to see how uniformly the lawyers documented in that investigation were all too willing to give advice on how to structure company ownership in a way that would evade or skirt anti-money laundering rules or monitoring,” said Mark Hays, the anti-money laundering campaign leader at Global Witness.
He says the sting was indicative of a broader trend in the legal industry. When the Financial Action Task Force (FATF), an international anti-money laundering organization, analyzed 106 global cases of the owners of illicit money hiding their identities, it found that most schemes used either lawyers, trust or corporate service providers, or accountants. Lawyers were the most likely of those three to be used in the real estate schemes outlined in the Global Witness sting, FATF found.
Many anti-money laundering advocates would like lawyers to be forced to do similar background checks to bankers. For now, they’ll settle for tackling the webs of anonymous companies that some lawyers help set up for criminals—but the ABA’s opposition doesn’t help.
‘They’re the Bar Association and lot of people on the Hill are lawyers, so when they speak with the voice of the legal industry, people feel like they need to listen,” Hays said. “Frankly, that’s a bit concerning.”