Lawyers Should Be Subject to Anti-Sanctions Evasion Regulations, Stanford Law Lab Says
Congress, federal agencies and state bar associations should work together on new regulations to ensure U.S. lawyers aren't enabling Russia-related sanctions evasion, Stanford Law School lecturer Erik Jensen and a host of law students recommended in a recent report.
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The school's Law and Policy Lab report includes specific recommendations to address the enabling of sanctions evasion by U.S. attorneys. Jensen said Russian oligarchs evade sanctions through elaborate strategies, including "burden shifting, trade shifting, and asset shifting."
The report outlined ways to stem asset shifting -- the transfer of funds from sanctioned parties to "safer entities and trusted individuals" -- which is the main tactic that involves Western lawyers. Lawyers can help sanctioned Russians move assets by "creating offshore accounts or concealing beneficial ownership."
Congress should pass a renewed version of the Enablers Act, the report said, referencing a bill introduced in 2021 that would have imposed stronger financial due diligence requirements on lawyers, public relations firms, investment advisers, accountants and others (see 2111190038).
The report also proposed amending the definition of a "financial institution" in the Bank Secrecy Act -- which imposes reporting requirements on certain banks -- to include lawyers, accountants, trust and company service providers and others when they provide a "narrow set of financial services to a client."
It also said Congress should "robustly fund" the Financial Crimes Enforcement Network, DOJ and the Treasury Department's Office of Foreign Assets Control to "supervise the newly covered entities." Congress also should require legal services providers to comply with the new Enablers Act even if FinCEN hasn't yet issued implementing regulations, the report recommended.
FinCEN also should require lawyers to do customer and client due diligence on "new and ongoing client relationships" and to submit suspicious activity reports, "with accommodations for lawyers' ethical duties of communication and confidentiality." FinCEN should then "expand lawyers’ current duty to submit Cash Payment Reports" to a formal currency transaction report requirement, "covering both receipts and withdrawals from their trust accounts."
The report also said DOJ should impose civil and criminal penalties on violators of the BSA, "align the definition of beneficial ownership with other current laws" and "impose more individual sanctions on foreign lawyers committing sanctions evasion activities in third countries."
It also called on OFAC to update its 50% rule by lowering the blocking threshold to 25% ownership. Under the change, an entity would be subject to sanctions if it's at least 25% owned by another sanctioned party, the report said.
The report also recommended that the Biden administration expand the list of parties eligible for secondary sanctions to include law firms and "other non-financial professionals." American and state bar associations should also mandate and create training on the new anti-money laundering responsibilities and establish "compliance monitoring programs."