How Lawyers Can Undermine Russian Sanctions and Ukraine War Effort

Kyrylo Korol: All over the world, lawyers are supposed to safeguard democracy and not threaten it, and I feel like when lawyers weaponize some of the privileges of their profession, they kind of cast a shadow over the profession as a whole. 

Rich Ford: This is Stanford Legal, where we look at the cases, questions, conflicts, and legal stories that affect us all every day.

I’m Rich Ford with Pam Karlan. Please subscribe or follow this feed on your favorite podcast app. That way you’ll have access to all of our new episodes as soon as they’re available. Russia’s unprovoked and unlawful attack on the Ukraine in 2022 is a threat to the rule of law and to the international order, and the United States and its allies have rallied to provide aid to Ukraine and to impose sanctions on Russia for this violation of international law. 

Today, we’re here with Erik Jensen, the director of the Rule of Law Program at Stanford Law School, and two students working on a policy lab on the question of sanctions against Russia for its invasion of Ukraine, Sarah Manney and Kyrylo Korol, who have worked on a project to ask whether or not those sanctions are working as well as they should be and what role lawyers play in making sure the sanctions work, and, unfortunately, sometimes in undermining the effectiveness of those sanctions.

So thanks so much for being on the show. Could one of you tell us about how you got started on this question and the work that the Policy Lab’s been doing? 

Erik Jensen: Thanks, Rich. I think I’ll start out by describing a little bit of the background and the impetus for the Policy Lab. I taught an S-Term course in September.

It was the first S-Term Stanford Law School has had, and, actually, the course was Ukraine: Legal Reform and Governance, in Wartime and in Reconstruction. To my knowledge, it was the first course in an American law school taught on Ukraine. We spent a weekend at Stanford. I co-taught the course with Mike Strauss, the General Counsel of the European Bank for Reconstruction and Development and a former student of mine, and we had a number of economists, politicians, diplomats, and lawyers come through, including people like Frank Vogel and Bill Taylor, who famously testified in Trump’s Ukraine case, and then we spent a week in Warsaw, where we brought over justice of the Ukraine Supreme Court and interacted with a number of Ukrainians who took a long train ride from Kyiv to Warsaw to meet with us, and the students were so motivated by that course, that S-Term course, that at least the two students who are being interviewed here today were absolutely insistent that we needed to do a policy lab where we deliver serious work product to try to help the Ukrainian cause. 

Pam Karlan: Can I just stop there for a second and ask, Kyrylo, you are both a Ukrainian lawyer and now in the process of becoming an American lawyer.

That makes you pretty unique. 

Kyrylo Korol: I think so. 

Pam Karlan: Yeah, and, so when you started, was that part of the motivation for being involved in this course that you had both the kind of American experience, U.S. experience, and the Ukrainian experience? 

Kyrylo Korol: Yeah. I would say the motivation for me was twofold. After the S-Term course, I wanted to help continue the discussion on Ukraine and Russia’s war against Ukraine at the law school, especially given the fact that Russia’s war kind of disappeared from the radar and the media doesn’t really focus on it these days and wanted to help create an opportunity for people to contribute to democracy and the rule of law, but also had a personal motivation as a Ukrainian. I wanted to help Ukraine win in an existential war and to ensure that the voice and concerns of Ukrainian civil society are heard and considered.

For example, in, you know, since our project related to sanctions, I directed the team, suggested tools that Ukrainians have developed to, for example, compare sanctions lists, and I also helped explain how sanctions are imposed and enforced in Ukraine, which is slightly different from how they are imposed and enforced in the United States because the, you know, Ukraine experiences direct harm, so it uses freezing and seizing of Russian assets as a type of remedy, type of compensation for the damage caused. 

Erik Jensen: Kyrylo is the first, to my knowledge, JD Ukrainian student at Stanford Law School, and he’s been president of the Ukrainian Student Association, so he’s hyperactive on campus about the Ukrainian cause.

Pam Karlan: So tell us a little bit about this policy lab and who you were working for and what the kind of scope of your mission in this particular lab was. 

Kyrylo Korol: So, when we did our S-Term, we looked at a couple of policy papers produced by our client, the Freeman Spogli Institute’s International Working Group on Russian Sanctions here at Stanford, and we saw that those papers had a lot of expertise of policymakers and economists, but not so much of lawyers, so we thought it would be great to add our legal expertise and work on a project, you know, specifically tailored to lawyers, and I think there were two drivers here. One, we wanted to look at how economic sanctions apply to oligarchs, Russian oligarchs, in part because oligarchs contribute to the war in Russia.

They contribute directly by completing military contracts. We identified a research that found that at least 81 of the richest Russians were openly involved in supplying the Russian army with guns, ammunition, and other military equipment, many of which was then traced back to atrocities in places like Bucha, Mariupol, and Vinnytsia, but they also contribute indirectly through taxation. Most of them are still residents of Russia, and in 2023, the Russian parliament passed a law that imposed an additional tax to fund the war effort, but because Russia’s economy and the situation there generally is unstable, oligarchs move their wealth around, and they move it to safer jurisdictions such as the United States. They invest in real estate, corporate securities, and luxury assets like yachts and aircraft, and even artwork, so that was one of the drivers. We wanted to focus on oligarchs, but the second driver was research we found that showed that various professionals in different industries help facilitate sanctions evasion, either knowingly or by being willfully blind to their client’s identity and that these professionals, so-called enablers or gatekeepers, are kind of bottlenecks in the system, and if we find a way to regulate these professionals, we can immediately make sanctions more effective, since a single enabler can cater to many oligarchs, so being law students ourselves, we decided to focus on lawyers as enablers of sanctions evasion, and in addition to that, we also found a global witness investigation from 2016 that appeared on the 60 Minutes show. By the way, that episode, for some reason, is paywalled, one of the few that’s paywalled, so it’d be great to get access to it at some point, but in this investigation, the Global Witness conducted an operation where they called different law firms in New York and asked them if they would be willing to provide legal services to someone who was a high-risk client, who was a politically exposed person, who was a made up person, but someone who had a high risks money laundering risks, and a lot of those law firms have agreed to provide legal services, so this is concerning, and this is how lawyers could play the role in money laundering and sanctions evasion, too. There are different types of sanctions evasion, you know, like corporate restructuring, transferring assets to family members, concealing beneficial ownership, and lawyers can help with that.

They can help set up and administer shell companies. They can purchase properties. They can perform other transactions. They can transfer and manage assets, or they can act as nominal directors. 

Pam Karlan: One question I have for you is, in the report, you talk about three different scenarios of these kinds of evasions, and one of the things I wondered about is, do you know how much of this was law firms that already had existing clients who were oligarchs and just continued to represent them versus law firms coming into the field in order to represent people for the purposes of getting around sanctions, right? So you can imagine some clients that you’ve been dealing with for years on various issues, and then others; I mean, do you have a sense of how that problem fits together and whether there are different arguments for different kinds of clients?

Kyrylo Korol: It’s difficult to find out, to be honest, because for the most part, there is virtually no way to figure out if a lawyer actually provided services to a sanctioned individual because of attorney client privilege and confidentiality, and, you know, those are privileges, but some lawyers weaponize them to conceal the true identity of their clients, but one of the cases that we looked at was a case from New York where a lawyer who used to work with an associate of a sanctioned individual who previously wasn’t sanctioned, but then was put on the sanctions list, continued working with him and essentially accepted funds from an associate to then put them, you know, spend them to pay for rent and maintenance of luxury real estate in New York, so obviously, that attorney, in that particular case, knew what was going on and continued working with an associate of a sanctioned individual, even after the individual, you know, the oligarch in question was sanctioned, so I think there are different ways to look at this, but, you know, disclaimer, U.S. lawyers generally can provide certain legal services to sanctioned oligarchs, such as those relating to civil or criminal representation, for instance, because the Office of Foreign Assets Control within the treasury allows them to do so. They can do that through the OFAC, the agency in charge, issues licenses to allow lawyers to provide certain types of services, but some lawyers don’t go through this process, and those were the lawyers we focused on. 

Sarah Manney: And not to jump ahead too much to solutions, but I think your question, Professor Karlan, prompts what I think was a trickier part of this report is that there are, in our estimation, lawyers sort of along the spectrum of knowledge and really weaponizing ignorance in some times to serve clients.

There might be cases of purely benign breaches because you already have a client. There might be cases where someone approaches you, you don’t know who they are or if they’re sanctioned, and our solutions really ask you, ask lawyers to first understand who their clients are, you know, do the basic due diligence to understand if they do, if the client appears on a sanctions list, if they work with several associates who are, if the client is a legal entity, if the parent company is on a sanctions list over a certain threshold, and then once they have that knowledge, to report out if it meets a very high standard of suspicious activity, so not to, again, jump ahead too much, but I think we need to address really along the spectrum of knowledge. 

Pam Karlan: Yeah, I mean, there are in some areas of law, there are these Know Your Client and Know Your Customer rules. Are those, are there rules like that that are relevant to the sanctions context? 

Sarah Manney: So, the ABA sanctions in general, yes. It’s a crime to work directly with a sanctioned individual in an unlicensed fashion, so lawyers should be doing that due diligence just as sort of anyone in the industry should.

In terms of generally sort of Know Your Client, lawyers pose, I think, an exception to that rule in other regulated industries, other industries providing quasi financial services who are regulated by anti-money laundering legislation, and in, I believe it was 2022 or very recently, the ABA passed a resolution to add a sort of beginning step in that direction.

It was Resolution 100 requiring lawyers to inquire into the circumstances of the representation. That’s now in the NPRC. 

Pam Karlan: The NPRC is what? 

Sarah Manney: The model rules of professional conduct. 

Pam Karlan: Okay. Yeah. 

Sarah Manney: Perfect, and it gets much more complicated when we looked at six countries’ case studies, so we are no fans of acronyms here, but that now that’s codified, but our argument is that that doesn’t go far enough.

It leaves a lot of ambiguity as to what one should do if one suspects there is criminal connections or criminal activity ongoing in connection to financial transfers. 

Pam Karlan: So Erik, what was the overall scope of the project? There was, I guess from what Kyrylo was saying, there was figuring out what the problem is, and then Sarah was saying, figuring out some solutions, doing some comparative work with what the United States does, what other countries do.

What do you think the most innovative thing about the report is? 

Erik Jensen: There are a couple of things that I would point to. You know, I teach in the Masters in International Policy program, too, and one thing that is generally difficult for students to do in the capstone project that I teach is getting a problem that’s specific enough that can be solved, and we worked hard on getting a specific problem. Another is that we did comparative work that, and in working with really top-notch American law professors who teach professional responsibility, discovered that there isn’t that much work comparatively, so we did this six-country comparative study on the regulation of lawyers related to money laundering and the like that I think was a true innovation, and so do the law professors that we worked with. They thought that was quite unique. Another is that you know, it’s easy to spin a policy. It’s hard to figure out how to implement it, and the paper that we published really spends a good deal of time on how do we get this thing implemented. This is the legislation we want.

How do we implement it? And I think the students did an extraordinary job on that as well. 

Rich Ford: So maybe you could tell us a little more about the details of the Enablers Act, so right now we have a problem where lawyers can, as Sarah said, weaponize ignorance and pretend that their clients, that they perhaps don’t know that their clients are on a sanctions list.

How would the Enablers Act change that? And, you know, as a follow-up, what’s been some of the reaction or pushback perhaps that you’ve gotten for advancing this legislation? 

Sarah Manney: Sure, I can jump in on that. The Enablers Act, I think, is a long time coming for the U.S. It was sort of interesting and humbling for us to read assessments of the United States by a body that the United States actually helped to create in the G7.

It’s called the Financial Action Task Force, and it reviews hundreds of countries around the world for their sort of compliance with, again, G7, you know, United States-led standards and really critiqued the United States for not focusing on what they call Designated Non-Financial Business Persons, another annoying acronym. Essentially, these are professionals who are performing financial services but who are not banks and yet are often implicated precisely because of their lack of regulation in money laundering and sanctions evasion, so the Enablers Act tries to, and again, as it’s the first version introduced in 2021, tries to do is to look at these other industries, whether it’s sort of art dealers, I believe casinos. There’s sort of a long list, including lawyers, who perform financial services on behalf of clients and really just trying to introduce, I would say again, those two prongs, one is knowledge and the second is reporting, so understanding who their client is, asking the questions to, if, especially if it’s a legal entity. In other words, a shell company is a named corporation trying to understand who owns it, and then, on the second half, if they’re, you know, they’re approached to perform a transaction, that raises several red flags, and these are red flags that often the government body, it’s called the Financial Crimes Enforcement Network, sort of reviews, especially sort of high-risk transactions around sanctioned countries to say, you know, these are the trends we’re seeing. If a client approaches you asking for this type of fund, or it’s especially a large cash transaction, there’s a way to report that, so those two sort of interventions really try to cover to increase the knowledge that individuals have of whom they’re working with, and trying to get that knowledge in the hands of folks who can eventually detect sanctions evasion. Again, because we’ve seen so, so little in the way of enforcement so far, and these are, you know when we’re talking in terms of dollars, pretty big loopholes where funds can get in and out of Russia.

Rich Ford: Can you tell us a little bit more about how lawyers now currently are treated differently than other types of professionals who might have an obligation not to facilitate these kinds of transactions? 

Erik Jensen: One thing at the end of the day that our report is advocating for is that lawyers shouldn’t be treated differently from accountants, from wealth managers, and the like, and the regulations that apply to them and banking institutions, that they shouldn’t have a special privilege vis-à-vis those actors when they’re simply doing transactional work, and our argument is that lawyers should be treated with no special privilege when they’re acting as accountants or financial managers, and the like. That there’s nothing uniquely lawyerly about the work that they’re doing 

Kyrylo Korol: Yeah, let’s just add that, and our report looked at other industries, and we learned that banks and other financial institutions are required by law to go through a checklist, you know, assess risks, and submit a suspicious activity report if a client makes a transaction that raises suspicion as to sanctions evasion or money laundering, and those suspicious activity reports are filed with the federal agency that reviews them and can then refer cases for further investigation. We also looked at how other countries regulate lawyers, and then we looked at how the United States regulates lawyers, especially when they perform essentially the same functions as financial institutions, and we found that in many countries, lawyers are regulated similarly to financial institutions when they perform these functions, you know, when they move funds around, and they’re required to do so by law. In the U.S., however, lawyers are guided only by ethical rules, and we observed that they leave too much discretion to lawyers as to how they should conduct client due diligence, what kind of information they have to collect when they are required to report potential money laundering schemes to authorities, and spoiler alert, only if they have actual knowledge, which is a very high bar, and coupled with relaxed client due diligence obligations I just mentioned, they can be very difficult to meet. 

Pam Karlan: I mean, a huge number of Stanford students go into big law practices that do international business-related stuff. Did you have discussions about this inside the team? You know, how do you think about the profession you’re entering and what the obligations that profession should be? 

Sarah Manney: Certainly. I think a motivation for a lot of us was understanding something really close to home, which is the role of lawyers and how we can be a force for good, especially in a time of crisis, like I think the war in Ukraine presents, and sort of what the legal profession looks like in this kind of globalized world, and I think what really stood out from our report was that there, you know, there is a real threat, I think, to the legal profession, and it is people who are abusing it in these ways that, you know, obviously then draw the attention of regulators and create sort of systemic risk to what it means to be a lawyer. When lawyers are providing services, you know, I think, especially like the case examples that we found, which are either, you know, purely lowercase t transactional, really moving funds on behalf of clients to a place that they shouldn’t be going or, setting up these sort of shell companies really with the intention of hiding funds and these sort of extreme abuses, I think, cast the profession in a really negative light, reduce trust in lawyers, and I think at the same time, it’s obviously really important to, and I think Professor Jensen used the word privilege, to protect the privileges that lawyers have and the reasons that they have them, so we spent a lot of our report focusing on both ways to preserve attorney client privilege and to make sure the regulations that we are proposing would be respectful of that, especially in cases where there are, you know, life and liberty issues at risk, and then also ways to look at the impact on underserved populations.

We know that de-risking, in other words, banks dropping clients en masse, that’s already a problem in financial regulation. That would be especially problematic if it were to happen for lawyers, so how can we make sure that the way that these regulations are promulgated by the relevant authorities are narrowly scoped to really target the problem of sophisticated, you know, sanctions evasion and don’t inadvertently impact other areas of legal representation, so I think it’s a real tension for our profession is upholding the privileges that lawyers have and then using those privileges to provide the services that are intended and not to erode them. 

Kyrylo Korol: Let me just add, I think Sarah made a really good point about, you know, we only concerned, we were only concerned with lawyers performing a very narrow set of transactional work, which has nothing to do with civil or criminal representation of sanctioned individuals, and even with most types of transactions. It is mostly when lawyers serve as financial agents for a sanctioned individual or his or her associate or for a shell company, and this is a very narrow set of transactions that we wanted to cover, and we just wanted to make sure that if lawyers perform essentially the same function as a financial institution, they must adhere to the same regulations. They must complete certain client due diligence steps on client relationship and file a suspicious activity report if they suspect that there might be, you know, a crime going on, and I just wanted to say that we looked at other countries, and all of these measures seem to be working in other countries. We saw them working in the United Kingdom and the European Union, and those countries also have attorney-client privilege and confidentiality obligations for lawyers, but the sky hasn’t fallen, so it’s definitely possible to regulate lawyers.

Rich Ford: And so given this, what seems to be a pretty common sense type of regulation, why hasn’t it passed yet? What’s been the pushback? 

Erik Jensen: Well, the pushback has really been centrally from the American Bar Association, and Sarah, perhaps you want to elaborate. 

Sarah Manney: Sure. I think there’s, you know, especially in response to the first Enablers Act, you know, a lot of questions raised and internal discussion at the American Bar Association about ways to harmonize these proposed led regulations with attorney-client privilege and other pillars of the profession.

I think our report really tries to sort of play that intermediary role to understand the goals, the regulation, the intended targets and how they could fit in and just been an important discussion around that, and, you know, we feel confident there’s a version of this that could work and be passed.

I think it’s important to remember as well that the Enablers Act, you know, is ambitious and tries to cover several dozen, I believe, professions, and each of those has their own set of pushback, so our task was really narrowly focused to addressing the critiques in the legal space, and, you know, I think we’re confident as law students who’ve taken a deep look at this that it is possible.

Kyrylo Korol: And let me just add that some of those critiques are certainly valid, so we, our proposed regulation, would, you know, take into account attorney-client privilege and confidentiality obligations, and I just wanted to say that I have a law degree from Ukraine. I’m about to get a law degree in the United States, but, you know, there are differences in the legal system.

The thing that’s important is that in, you know, all over the world, lawyers are supposed to safeguard democracy and not threaten it, and I feel like when lawyers weaponize some of the privileges of their profession, they kind of cast a shadow over the profession as a whole. 

Rich Ford: Thank you so much for doing this important work, not only for the rule of law and the legal profession, but for humanitarian aims generally, and thanks for talking to us today on Stanford Legal. 

This is Stanford Legal. If you’re enjoying the show, tell a friend, and please leave us a rating or review on your favorite podcast app. Your feedback improves the show and helps new listeners to discover us. I’m Rich Ford, along with Pam Karlan. See you next time.