Loophole in law firms’ system allows money-laundering

money-launderingWASHINGTON: Tens of billions of dollars move through opaque US law-firm bank accounts that potentially allow money-laundering activities, according to a Wall Street Journal report.

These accounts, it said, had been used by people in scandals such as the multibillion-dollar scandal involving 1Malaysia Development Bhd.

Law firms lump together client money they are holding for short periods into pooled bank accounts, and they are not required to disclose whose cash is in the accounts. Banks say they generally see only a law firm’s name, according to the WSJ report.

At the request of law firms’ clients, funds could be sent from the accounts to other parties, with scant transparency, it added.

Also, the WSJ report revealed, while banks and other firms that moved money across borders faced heavy pressure to alert regulators to suspicious activity, US law firms protected the confidentiality of their pooled accounts in the name of attorney-client privilege.

The result, according to Elise Bean, former chief counsel to a Senate investigating subcommittee that analysed vulnerabilities in the banking system, is “a way of getting money into the US system without going through the anti-moneylaundering safeguards”.

This is how hundreds of millions of dollars allegedly siphoned out of 1MDB passed through law-firm pooled accounts in the US, according to the US Justice Department.

In civil suits seeking forfeiture of assets allegedly bought with stolen 1MDB money, it said law firms holding the money in their pooled accounts authorised transfers that were used to pay for luxury US real estate, jewellery, and yacht and jet rentals.

Other transfers moved money from a pooled account to Las Vegas casinos and to personal bank accounts of individuals linked to the 1MDB scandal, the WSJ reported.

According to the Justice Department lawsuits, in one set of transactions, Malaysian financier Jho Low wired US$148 million from a Swiss bank account to law firm Shearman & Sterling LLP’s pooled account at Citibank in New York in Oct 2009.

Four months later, the report said, four bank cheques totalling about US$22 million were issued from the law-firm’s account to pay for a condo in the Park Laurel adjacent to Manhattan’s Central Park. The buyer was listed as a British Virgin Islands firm called Park Laurel (NYC) Ltd.

Two years later, that company sold the condo to Park Laurel Acquisition LLC.

About US$34 million for this second purchase of the condo was transferred to the Shearman & Sterling pooled account, according to the lawsuits. They said the money came from a Singapore account held by a British Virgin Islands firm.

Next, a wire from the Shearman & Sterling pooled account sent a similar amount of money to an attorney trust account of another law firm, Sullivan & Cromwell LLP.

The Sullivan & Cromwell account, also held at Citibank, then wired US$34 million to a bank account at Switzerland-based Rothschild Bank AG to pay Low, said the lawsuits.

The WSJ said neither Citibank nor the US law firms were being accused of any wrongdoing. A spokeswoman for Shearman & Sterling said its transactions were above board and it had no reason to believe the funds might have been stolen. Citibank, and Sullivan & Cromwell had no comment, said the WSJ report.

It said a rough estimate of how much money ran through the systems was possible from the amount of interest they generated, which was US$78 million in 2015. And the accounts appeared to be swelling, the WSJ report noted.

NY law firm held funds taken from 1MDB, says report