A New Frontier for Money Laundering

When discussing financial crime risk, it's common to associate it primarily with financial institutions. However, no one, including professional services firms, is immune to the evolving strategies employed by criminals. One emerging method of laundering dirty money is through sham litigation in law firms. While this may seem farfetched in some regions, it is a growing concern, particularly in the United Kingdom. Additionally, recent judgment debts against the government of India can be manipulated by criminals to constitute sham litigations.

This article aims to shed light on the vulnerabilities of the judicial system to criminal activities and proposes measures to mitigate these risks.

In the UK parliament, MPs express concern over "pin-striped enablers" in law firms aiding Russians in exploiting European courts to launder money out of Russia. There are even allegations that close associates of Russian President, Vladimir Putin, have been utilizing the UK judicial system for money laundering and settling old scores. According to a report by Dame Margaret Hodge, MP, published in March 2022, "There are scores of enablers who are willing to advise and support the crooked and the kleptocratic to stash their dirty money in the UK". These concerns were raised after the Henry Jackson Society published Andrew Foxall's report, "Russian Kleptocracy and the Rule of Law: How the Kremlin Undermines European Judicial Systems", revealing that corrupt Russian oligarchs are using English courts to launder hundreds of millions of pounds in dirty money.

Criminals exploit money laundering loopholes in the judicial system through false representation. They approach law firms in reputable jurisdictions for representation in a dispute, accept the terms and conditions, and make an advance payment. Later, they inform the law firm that the dispute has been unexpectedly resolved, requesting a refund. The law firm complies, transferring back the advance payment (minus charges or fees), providing the criminal a legitimate reason to use the funds without arousing suspicion from their bankers.