Law firms’ pooled accounts pose money laundering threat

Tens of billions of dollars flow unfettered through legal company accounts each year: report

New York /
Dec.December 27, 2016 07:30 AM

Even as banks face fiercer anti-money laundering regulations, massive amounts of questionable cash continues to flow freely through the bank accounts of U.S. law firms.

Pooled client accounts, as they are known, are set up by law firms to hold client money for a few days or weeks, like when a real estate sale is pending. Law firms are not required to disclose whose money they are holding in the name of attorney-client privilege.

The method is “a way of getting money into the U.S. system without going through the anti-money-laundering safeguards,” expert Elise Bean told the Wall Street Journal, adding that it’s a “big loophole.”

Such pooled accounts were apparently used in the alleged $3.5 billion money laundering scheme involving the Malaysian development fund known as 1MDB. Malaysian businessman Jho Low was among several individuals accused of siphoning money from the fund to purchase jewelry, art and luxury real estate, including a stake in the Park Lane Hotel.

That case and other real estate developments linked to illicit funds were the focus of a cover story in The Real Deal in October.

The Financial Action Task Force, a global anti-money laundering group, has called pooled accounts at law firms a vulnerability.

Law firms have used pooled accounts for decades at the urging of state legislatures, since pooled accounts generate a tax to help pay for civil legal aid.

Last year, law firms’ pooled accounts had an average balance of $36 billion. But since money is held temporarily, the amount flowing through pooled accounts could be north of $400 billion.

The Justice Department alleges that companies controlled by Low and Riza Aziz transferred a total of $489 million through a pooled account maintained by Shearman & Sterling. [WSJ] — E.B. Solomont


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