Law firms, their clients and other parties with cases reliant on litigation funding will have cause to be concerned about a recent investigation by Bloomberg Law, which found that litigation funding has been used as a means to skirt sanctions laws by an investment company founded by Russian oligarchs with well-established links to Vladimir Putin.
As the investigation notes, litigation funding is not subject to the same transparency or reporting requirements as apply to regulated sectors such as banking or finance, in the USA or in the UK. Opacity surrounding the origin of funds which may be received from a litigation funder presents a challenge for law firms and solicitors, who are widely regulated for anti-money laundering purposes in the same way as banks and other financial institutions, particularly in the UK since the move to a “strict liability” sanctions compliance regime under the Economic Crime (Transparency and Enforcement) Act 2022.
Recent changes introduced by the Economic Crime and Corporate Transparency Act 2023 have also extended regulatory objectives for legal services to “promoting the prevention and detection of economic crime”, which places new onus on solicitors, firms and other legal service providers to ensure they can not only prevent sanctions breaches, but to take appropriate steps to detect potential breach attempts.
A recent Court of Justice of the European Union (CJEU) ruling criticised the basis on which EU sanctions were imposed on Mikhail Fridman and Petr Aven, who are among the investors identified in the Bloomberg Law investigation. The CJEU ruling underlines that assessing risk across a range of jurisdictions’ constantly evolving sanctions programmes, and determining an appropriate level of due diligence to address those risks, is a complex challenge for law firms and others.
Adding litigation funders to the list of funding sources (and destinations) that must be scrutinised adds to that challenge. In the absence of a regulatory framework it will be up to those working with potential funders to collaborate meaningfully with them in order to ensure that sanctions and other economic crime risks can be effectively managed.
Our approach
At Stewarts we have developed a robust and collaborative due diligence procedure for the litigation funders we work with. This ensures we understand funders’ practices and mitigates a range of potential risk factors, including in relation to sanctions and anti-money laundering compliance.
Building on our extensive experience in dealing with litigation funding, our Litigation Costs and Funding service is available to assist and advise clients across a range of litigation funding issues, including in relation to due diligence and risk assessment of litigation funders.
We are able to advise on how to select and appoint a litigation funder, and on the specifics of an effective litigation funding agreement. In cases where funders, claimants or lawyers may be in dispute, our expert Cost and Funding Disputes team will be able to assist.
You can find further information regarding our expertise, experience and team on our Litigation Costs and Funding and Competition Litigation pages.
If you require assistance from our team, please contact us.
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