LAW MEETINGS

Toronto to Host Largest AGM in LAW History

This week, members of Lawyers Associated Worldwide will gather at the Four Seasons Hotel in Toronto for the 2005 Annual General Meeting (AGM). Presently, we expect 98 delegates and 40 accompanying persons from 68 different member firms to attend, along with representatives and guests of three observer firms, Schmidt Marketing, Inc. staff and several speakers—the largest attendance ever for a LAW meeting!

The three observers include:

• Corral & Rosales Abogados, Quito, Ecuador
• Broad & Cassel, Miami, Florida, USA
• Kovacs Reti Szegheo, Budapest, Hungary

We look forward to seeing everyone in Toronto!

Tallinn Sparkles in European Regional Meeting

The 2005 European Regional Meeting was held in Tallinn, Estonia on June 2-4. The host firm, Lepik & Luhaäär LAWIN, welcomed 33 delegates, six accompanying persons and an observer firm, Ukrainian Legal Group, LLC from Kiev, Ukraine, represented by Viktor Kovalenko.

Meeting speakers were Aurimas Augustinavicius of Lideika, Petrauskas, Valiunas ir partneriai in Vilnius, Lithuania; Michael Gallagher, Director of the Estonian Law Centre; Rolan Jankelevitsh of Lepik & Luhaäär LAWIN; Priit Raud, President of Heinola Sawmill Machinery Inc.; Anu Varik, Director of Foreign Investments and Trade Promotion for Enterprise Estonia; and Daiga Zivtina of Klavins & Slaidins Attorneys at Law in Riga, Latvia.

Highlights of the meeting included presentations regarding “Doing Business in and with Estonia” and “Doing Business in the Baltics,” dinners at Ö Restaurant and Olavi Hall in the Blackheads House, and tours of Kadriorg, Pirita and Old Town.

MEMBER NEWS

New Orleans Firm Returns Following Hurricane Katrina

Lugenbuhl, Wheaton, Peck, Rankin & Hubbard, our LAW member in New Orleans, Louisiana, has returned to New Orleans effective October 3. Rodger Wheaton expresses his gratitude for the messages of support and concern received from members of LAW following the devastation by Hurricane Katrina. Some firm employees remain in temporary quarters in Houston and Baton Rouge. The firm can be reached at:

New Orleans
601 Poydras St, Ste 2775
New Orleans, LA 70130
Telephone: (504) 568-1990
Facsimile: (504) 310-9195
www.lawla.com

Houston
2929 Allen Parkway
Suite 4100
Houston, TX 77019
Telephone: (713) 335-4990
Facsimile: (713) 335-4991

Baton Rouge
7470 Highland Road
Baton Rouge, LA 70808
Telephone: 225) 763-9571
Facsimile: (225) 763-9573

The lawyers can be reached at their normal e-mail addresses. Rodger will be attending the AGM in Toronto, where we can catch up on his travails.

Hong Kong Member Opens Branch in Shanghai

Christine M. Koo & Ip, Solicitors & Notaries, our LAW member in Hong Kong, is pleased to announce that the firm has obtained a license to open a branch law office in Shanghai. The Shanghai branch office will be ready in October. In the meantime, if you would like any information concerning Shanghai, please contact Ms Lance Zhang, mobile number 86-138-16136681 or Christine Koo at christinekoo@cmkoo.com.

Name Change for Toronto LAW Member

Our member firm in Toronto, Ontario, Canada has shortened its name from Aylesworth Thompson Phelan O’Brien LLP to Aylesworth LLP. After 144 years, the firm decided to make it easier for clients to call.

Expanded Trusts & Estate Planning Practice in Philadelphia

Jacoby Donner, P.C., our Philadelphia, Pennsylvania LAW member, is proud to announce that Joel S. Luber, an experienced trust and estate lawyer, joined the firm in August. Luber has more than 25 years of experience assisting clients with their estate and tax planning and corporate and real estate needs, and will head the firm’s trusts and estate planning practice. Henry Donner, Chairman of Jacoby Donner, said “I am delighted to have an estates attorney of Joel’s caliber join us and provide estate tax and business planning services to our corporate and professional clients.”

Minneapolis Member Adds Five New Lawyers

Mansfield Tanick & Cohen, our LAW member in Minneapolis, Minnesota, is pleased to announce that five attorneys have joined the firm’s Minneapolis office: Nina Goldberg in Estate Planning; Andrew Jackola in Civil Litigation; Jeremy Johnson in Class Action; and Jeffrey O’Brien and Steven Rose in Business Practice.

London Member Advises Winning Film at the Toronto Film Festival

Howard Kennedy, our LAW member in London, advised producer Peter Fudakowski of The UK Film & Television Production Company plc on the production of ‘Tsotsi,’ which won the People’s Choice Award at the Toronto International Film Festival. ‘Tsotsi,’ based on a novel by acclaimed South African playwright Athol Fugard, is a joint UK/South African production tracing six days in the lonely, violent life of Johannesburg gangster Tsotsi. Howard Kennedy Partner Hakan Kousetta commented, “We are delighted to have been involved with such a timeless and universally appealing film.”

RECRUITING AND NEW MEMBERS

Ukrainian Firms Joins LAW

We are pleased to announce that the Ukrainian Legal Group, L.L.C. in Kiev, Ukraine, has become a member of LAW. The firm was an observer at the European Regional Meeting in Tallinn. The Ukrainian Legal Group is a full-service Ukrainian law firm based in Kiev, specializing in corporate and investment law, oil, gas and power regulation, labor law, customs law, telecommunications, agriculture, securities regulation, business litigation, intellectual property law and privatization. Founded in 1991, the firm was organized to assist clients in pursuing investment and other business opportunities in Ukraine. The firm has 11 lawyers in Kiev and 2 in Washington, DC.

Viktor Kovalenko, the firm’s managing partner, will join us in Toronto. You can reach the firm at:

Ukrainian Legal Group, L.L.C.
4/6 Patrisa Lumumba Street
8th Floor
Kiev, 01042, Ukraine
Telephone: +38 044 502 1024
Facsimile: +38 044 230 2932
Web Site: www.rulg.com
E-mail: victor.kovalenko@ulg.kiev.ua

CHAIRMAN'S CORNER

LAWYERS ASSOCIATED WORLDWIDE ON THE MOVE

Later this week, LAW holds its 17th Annual General Meeting in Toronto, Canada. By the end of the meeting, we will have 77 member firms, with several more in various stages of our application process. Clearly, this organization is on the move, and it has become one of the fastest growing international legal associations of its kind in the world.

I think back just a few short years ago to our 12th AGM held in Los Angeles, California. At the beginning of that meeting, we had 31 member firms in attendance. Several new members were added that year, and LAW has never looked back. The list of attendees at the LA Annual General Meeting includes 6 firms that are no longer members of LAW, and we have tended to lose one or two members each year, so it is even more impressive to think of our growth in terms of the Net Gain of new members.

The firms that have left LAW over the years have done so for a variety of reasons including, in some cases, coming to the realization that we were serious about growth, about setting our recruitment and performance standards high, and about making LAW dependable and accountable to all of its members. Member expectations from earlier years, when some may have viewed LAW and organizations similar to LAW as vacation clubs, have been replaced by the realities of global competition. We all now have a real (no longer hypothetical or imaginary) need to have dependable partners throughout the world to better service our local clients’ legal needs.

These days, LAW is about the serious work, both introspective and outward and forward-looking, of trying to determine how we can make our membership more valuable for each of our firms. Growing our membership with the right kinds of new firms, upgrading our technical capabilities, and agreeing collectively to abide by a uniform set of service standards – these are all things that make us a stronger and more valuable organization.

When we gather in Toronto for this AGM, we also participate in LAW’s most valuable activity – getting to know first-hand our members’ capabilities and interests; establishing new relationships and renewing old ones; setting the stage for the time when each of our firms has a client that needs legal assistance in a distant city or country. We need to be ready, when that time comes, to be able to pick up the phone (or computer mouse) and call (or e-mail) a colleague who we have gotten to know on a personal basis in Toronto, or in Capri, or in Bangkok, or at another AGM or Regional Meeting, so that we can take comfort that the person and the firm that we are dealing with both share a common background and interest with our own – helping us to more effectively serve our clients’ needs in a professional and timely manner.

Preparing for the day when you make that call is one of the main reasons that you are coming to Toronto. I’m looking forward to seeing you there in just a few days.

Best regards,

Christopher C. McCracken, Chairman
Ulmer & Berne LLP
Cleveland, Ohio USA

LEGAL UPDATE

Financial Institutions as Gatekeepers against Financial Fraud: Good News and Bad News

Suzanne E. Duddy, of LAW member Ulmer & Berne in Cleveland, provides the following information on a bank’s responsibility to police fraudulent activities of its customers.

In the wake of a customer’s financial fraud, financial institutions are often targeted by plaintiffs and plaintiffs’ attorneys as the deep pocket in the best position to have prevented or halted the fraud. Our practice of defending banks and brokerage firms with claims like RICO, aiding and abetting and negligence asserted against them based on the fraudulent activities of their customers has seen a dramatic increase. Financial institutions are more often in the precarious position of not only “knowing” their customers, but also “policing” their customers.

Refusing to impose such heightened policing duties on a bank, a Mississippi court of appeals affirmed summary judgment in favor of BancorpSouth, holding that “since the bank had no actual knowledge of the customer’s alleged frauds, it had no liability.” Holifield v. BancorpSouth, Inc., 2004 WL 1729492 (Miss. App. Oct. 26, 2004). The Holifield court relied on an Ohio Supreme Court decision, Master Chemical Corp. v. Inkrott, 55 Ohio St.3d 23 (1990), to define “actual knowledge” as “awareness at the moment of the transaction that the fiduciary is defrauding the principal. It means express factual information that funds are being used for private purposes in violation of the fiduciary relationship.” The Holifield case arose out of a Ponzi scheme involving overseas transfers of money perpetrated by a BancorpSouth customer. The plaintiffs, investors in the Ponzi scheme, argued that “but for” the negligent actions of BancorpSouth, the customer would not have been able to perpetrate his fraud and BancorpSouth owed the investors a duty to halt the fraud. The Holifield court rejected the plaintiffs’ arguments and found that the bank’s internal “Know Your Customer” policies did not create a heightened legal duty to the public at large, including those who had written checks to the bank’s customer, and that BancorpSouth had no duty to ensure that its customer was properly spending the funds in his bank-administered trust account.

While the Holifield decision demonstrates that financial institutions are not necessarily liable for a customer’s financial fraud, financial institutions are still obligated to fulfill their anti-money laundering duties imposed by federal and state regulations. Last year, in one of the largest forfeitures ever by a publicly traded bank, AmSouth Bancorp agreed to pay $50 million in penalties - $40 million to the Justice Department and $10 million to the Federal Reserve and FinCEN for Bank Secrecy Act Violations.

The government’s investigation of AmSouth arose out of a Ponzi scheme carried out by two businessmen who induced investors to buy $15 million in fraudulent promissory notes. The two businessmen opened custody accounts at AmSouth where the notes were held. The Justice Department specifically found that AmSouth had failed to file Suspicious Activity Reports (“SARs”) in a timely manner, failed to perform adequate due diligence on its customers, and ignored red flags, including concerns raised by several AmSouth employees to management. Ultimately, AmSouth filed a SAR; however, the Justice Department determined that it mischaracterized the suspicious activity as check fraud, understated the amount involved, and was not filed until two years after AmSouth should have detected the suspicious activity.

In exchange for the fines paid by AmSouth, the Justice Department agreed to defer all criminal charges for 12 months while the bank improves its controls. AmSouth also agreed to review account and transaction activity dating back to two weeks before the September 11, 2001 terrorist attacks to determine whether all suspicious activity was properly identified. In the interim, however, both federal and state bank regulators imposed a cease and desist order restricting expansion until AmSouth’s compliance improves.

More recently, Riggs Bank, N.A., of Washington, D.C., was fined $25 million by FinCEN for failing to design and implement a suitable anti-money laundering program that would have ensured timely and effective reporting of suspicious activity. On the heels of that settlement, Riggs pled guilty to violating the Bank Secrecy Act in connection with its failure to report suspicious monetary transactions associated with high risk customers and paid a $16 million fine.

Although there is currently no private cause of action under the Bank Secrecy Act, there is a trend to use the Bank Secrecy Act as a standard of care for financial institutions in civil lawsuits. Thus, even though the AmSouth and Riggs Bank situations involved federal prosecution, the Bank Secrecy Act may be used as a weapon in civil litigation to impose a duty to conduct sufficient due diligence regarding the source of funds deposited into a financial institution. In this new environment, even if financial institutions are not directly liable for a customer’s financial fraud, failure to comply with money laundering and other federal and state regulations can result in costly backdoor civil liability.

To discuss these issues further, please contact Suzanne E. Duddy at (216) 931-6074 or sduddy@ulmer.com.