Welcome back to the Fides Weekly Update.
We would like to inform you this week of our recent office move. Fides Search has found a new home at 60 Gresham St, London, EC2V 7BB.
Read on for the week’s top stories along with our regular list of movers and shakers.
Follow us @Fides_Search for the latest headlines in legal and compliance.
1) ‘Panama Papers’ and its effect in the legal sector
Tensions are high this week as the ‘Panama Papers’ scandal puts many at risk of exposure for dodging taxes, money laundering and evading sanctions.
11.5 million documents were leaked on Sunday from Panama-based law firm Mossack Fonseca and implicate a variety of current and former heads of state, global institutions and the rest of the world’s most rich and powerful, making it the largest data leak in history.
As journalists gradually scour through the mountain of leaked files, the revelations are bringing up a whole host of questions in the legal market.
Firstly, it reignites the debate regarding the ethical implications of tax avoidance as well as the fine line between “aggressive” tax avoidance and illegal tax evasion. Legal Business posted an insightful blog that discusses a shift that took place post-banking crisis, discouraging the use of offshore jurisdictions for tax purposes, and how this scandal will shift this perspective further, placing additional pressure on the morality of law firm clients’ tax affairs.
The leak has also revealed a multitude of allegations regarding money laundering and evading sanctions. The FT reported on Wednesday that 33 companies and individuals listed in the leaked documents are on the US sanctions blacklist, many of whom are guilty of supporting regimes in North Korea, Zimbabwe, Russia, Iran and Syria.
The London property market is also being looked into as the documents show a huge number of London properties are being purchased through offshore companies supplied by Mossack Fonseca. The Guardian has revealed that the prime minister of Pakistan, Iraq’s former interim prime minister and the president of the Nigerian senate are among those whose links to London property appear in the files. These arrangements, although legal, could be dangerous as they allow for large sums of black money to be laundered through the property market. A director at the National Crime Agency aired his views last year, claiming that the London housing market had been “skewed by laundered money”.
In light of the data leak, the Financial Conduct Authority (FCA) has set a deadline for banks to disclose any business conducted with the law firm to ensure no wrongdoing has taken place. A number of global investment banks are featured in the ‘Panama Papers’ requesting the set-up of offshore companies for their clients, including those subject to international sanctions, making it harder for officials to pinpoint money flows. The action taken by the FCA comes days after the organisation released their business plan for 2016/17, which featured a crackdown on financial crime and money laundering as one of their seven priority themes for the year.
Lastly, such a big data leak has highlighted the inadequacy of data security in law firms. Last week we took a look into cybersecurity in law firms, and the impending threat to their outdated systems as it was reported that 48 top US law firms, along with a selection of UK firms, were targeted by a Russian cybercriminal in an attempt to extract confidential client information. The kind of data breech that brought on ‘Panama Papers’ however, has exposed an even larger weakness in law firm security and questions the ability of law firms to protect confidential client data, a fundamental aspect to their businesses.
The vulnerabilities of Mossack Fonseca’s front-end computer systems that were outlined by wired.co.uk will only further put into the spotlight the outdated systems operated by some law firms, leaving many in the sector open to attacks. If a firm that is shrouded in so much secrecy can have over 11 million documents stolen, how easy can it be to access the files of law firms who don’t require such high levels of privacy?
It is clear that there will be fallout in the legal profession as a result of ‘Panama Papers’, both for law firms themselves as well as consequences for their clients. In particular, it seems this scandal could cause the legal industry to begin offering more advice on the ethical ramifications of their deals as reputational risk begins to carry more weight alongside the legal liability of their actions.
2) Cravath lose M&A heavyweight
It is not often that you see the details of a lateral partner move reported in the New York Times, but that is what happened this week when it was announced on Sunday that M&A heavyweight Scott Barshay has joined Paul, Weiss, Rifkind, Wharton & Garrison from Cravath, Swaine & Moore, where he has spent the entirety of his 25 year career.
With Barshay advising on $292 billion in M&A transactions last year, roughly a third of Cravath’s total announced deals for 2015, this is undoubtedly a huge blow for the firm. One of the best-regarded M&A practices in the US, Cravath ranks second only to Skadden according to data compiled by Thompson Reuters, having completed 97 transactions worth $926.5 billion last year. Paul Weiss on the other hand, where Barshay will join as Global Head of M&A, currently rank at 19th in the mergers league tables, working on 142 deals announced last year that were worth $309.3 billion.
Beyond the financial implications, a reason why this move has garnered so much national (and international) attention, is because lateral hires from Cravath are rare. With the majority of partners working at the firm having done so since the inception of their careers, more frequently Cravath partners who’ve left the firm have gone to banks or taken up positions with the government.
As for what motivated the move, the profitability of Paul Weiss (which last year reported its 20th consecutive year of profit increase), and attractiveness of its modified lockstep remuneration system have been well cited.
Despite advising on a record-breaking $927 billion in deals in 2015, revenues at Cravath only rose a modest 2.9 percent to $666.5 million. Paul Weiss on the other hand turned over $1.109 billion in revenues last year, an increase by 7.1 percent from 2014 that saw average take-home profits for equity partnership surge past the $4 million mark for the first time. Under the modified lockstep and sizeable bonus pool at Paul Weiss, opposed to the pure lockstep at Cravath, it also stands that Barshay will be better remunerated at his new home.
However, this overlooks the point Barshay stated for moving; that greater diversity in Paul Weiss’s practice areas offered him a more attractive platform from which to expand his practice. With market leading practices in litigation, private equity and white collar defense, a Global Head position at Paul Weiss offered “such an amazing opportunity for me and for our clients that I couldn’t say no.”
In a sector that remains highly competitive on both sides of the Atlantic, with firm’s modifying their lockstep systems (as we have noted in previous weeks with Freshfields) in order to hang on to and attract star performers, it again raises the question of law firm partnership structures whilst also promoting that successful lateral hires shouldn’t be focused solely on money, but about the importance for partners and firms serving their clients to the best of their ability.
Movers and Shakers of the week
Paul Weiss hire top M&A lawyer
Scott Barshay has exited Cravath, Swaine & Moore to join Paul, Weiss, Rifkind, Wharton & Garrison as global head of M&A.
KWM lose IP head along with two further partners
Intellectual property head David Rose is to join Mischon de Reya as fellow IP partner Campbell Forsyth joins Dentons. Partner Gretchen Scott also exits the firm to join Goodwin Procter.
Lloyds appoints new GC for group legal
Nathan Butler has been hired from the National Australia Bank where he was general counsel to become general counsel for group legal at Lloyds, a role formally held by Hugh Pugsley.
Squire Patton Boggs boosts financial services capability in Paris
Veronique Collin has joined Squire Patton Boggs, having previously been a partner at Freshfields and DLA Piper.
Mayer Brown adds two partners to its German Banking & Finance practice
Mayer Brown has hired Dr. Martin Heuber and Dr Holger Schelling, joining from Freshfields Bruckhaus Deringer and DZ Bank AG respectively.
White & Case make an addition to their Global Intellectual Property Practice
IP partner Lindsey Canning has joined White & Case from Freshfields Bruckhaus Deringer.
WFW make key hire in Paris
Former De Gaulle Fleurance & Associés partner Arnaud Trozier has moved to Watson Farley & Williams and will sit in their Paris Energy & Infrastructure team.
Simmons adds to financial markets team in Singapore
Simmons & Simmons has appointed Matthew Cox to their Financial Markets practice in their Singapore office. He joins from Dentons.
Fieldfisher partner moves in-house
Banking and restructuring partner Simon Coles has taken on the role of general counsel for cash flow finance provider MarketInvoice.
Freshfields partner launches boutique in Hamburg
Planning and regulatory partner Michael Schaefer has left Freshfields Bruckhaus Deringer and taken three associates with him to launch boutique firm Chatham Partners in Hamburg.
Goodwin Procter launches PE practice in Paris
Six partners have joined Goodwin Procter from King & Wood Mallesons, including KWM’s Paris head Christophe Digoy, to build a french private equity offering.
Office Openings & Closings
Freshfields open second legal services hub
Freshfields Bruckhaus Deringer will launch their second legal services centre in Vancouver to work alongside their current office in Manchester