By Lucy Komisar
Earth Times News Service, May 7, 2000
Two far-reaching and potentially controversial anti-money laundering measures would require professionals such as lawyers and accountants to file the same sort of suspicious transaction reports that banks do and would extend know your customer rules to include the owners of companies. The Council of Europe has already proposed the first. US authorities have not acted on either.
However, Jonathan Winer, then US Deputy Secretary of State for International Narcotics and Law Enforcement, said there is a growing recognition by key nations and institutions about the need to impose the same kinds of obligations on licensed professionals — lawyers, accountants, auditors, company formation agents and notaries — that have been imposed on financial institutions. He said mechanisms should facilitate suspicious transaction reporting by these people and that intentional failure to file such reports might be made a punishable offense. He said standards were needed to discourage them from becoming wittingly or unwittingly facilitators of serious transnational financial crime. He explained, It is neither practical nor fair to ask banks and bank regulators to protect themselves and the rest of us through due diligence if a body of professionals is busily working to create mechanisms to make due diligence impossible.
Rosalind Wright, director of the UK Serious Fraud Office, pointed out in her speech to the symposium that, Legal professional privilege does not apply where the transaction is in the pursuance of a crime. She referred to press rumors that half a dozen leading London law firms are being investigated for money laundering.
Winer said international standards such as know your customer practices also needed to be extended into the incorporation and licensing of exempt companies, shell companies, international business companies, offshore trusts, offshore insurance and reinsurance companies, and offshore fund vehicles, including hedge funds. He noted that the Channel Islands, Jersey and Guernsey, allowed bearer shares (the company belongs to the bearer of the shares) and trusts that concealed the beneficial owners of companies and aided criminals in hiding their money from private creditors and government inquiries.
Assistant New York District Attorney John Moscow agreed that, Now we have jurisdictions where the bank records are available, and you find out the money is held in the name of a corporation. The corporation is owned anonymously. It has nominee directors and you can’t find out who the beneficiaries are. He said such companies were set up not only in offshore islands but in New York and London.
He recalled, In a fraud against New York banks on third world debt trading, we asked an accounting firm for assistance. They said no. Ultimately, it turned out the accounting firm did not know for whom they set up the company they were managing. A law firm we respected in New York was asked to wave attorney client privilege and indicated they would be delighted to ask their client if he was willing, but they didn’t know who their client was.
He said the lack of information was not due only to ignorance. We have attorneys who set up corporations, cause them to be managed by a company, and assert attorney client privilege as to conversations where the customer asks the attorney to move money. That conversation is not privileged. In the first case, the client cooperated, so we knew the attorney was lying.