Known for its lack of transparency, the litigation financing industry has been under the radar for a while in the United States of America. Due to the absence of laws necessitating elucidation regarding who or what is funding the litigation, this has allowed entities involved in the industry to take advantage of the situation and evade sanctions, as they operate with high immunities.
With billions of dollars at stake in the industry, the call to mandate disclosure standards equivalent to what courts currently require of insurers and publicly traded investors is louder than ever. This once-illegal practice sees funds bet big on litigations with the promise of high returns, yet insist that they have no control over these private deals. As these litigation funders do not typically have terms or involvement which needs to be disclosed, this lends to a lack of oversight by the government, the courts, and the victims of the lawsuits.
Needless to say, this has raised concerns over the potential for illicit activities to be carried out by foreign governments and other ‘bad actors’, leading to conflicts of interest and even instances of money laundering. It is with these risks that calls for better transparency in the industry have been louder than before. Concerns over the industry have been raised by various parties, from government officials and judges to members of Congress.
Despite these concerns, funders have defended their stance, arguing that their involvement is necessary in increasing access to justice and poses no real concerns. They have also maintained that the risks of conflict of interest are rare and do not pose national security risks.
Recent coverage revealed that sanctioned Russian oligarchs have been utilizing litigation funding to circumvent US sanctions. Coupled with reports of Chinese investors backing U.S patent suits against U.S companies in U.S courts, these revelations are setting off alarm bells in the industry.
Given the current state of affairs, it is clear that more transparency is needed, with the Judicial Conference currently considering mandatory disclosure akin to what the courts require of insurers and publicly traded investors. The stark reality of sanctioned Russian billionaires using litigation funding to evade regulations has pushed the industry towards much-needed regulation.
Fundamentally, there is an urgent need for an overhaul in the industry’s operating procedures to ensure proper regulation and transparency. This will not only mitigate the opportunity for countries to profit from the US judicial system but will also prevent the circumvention of sanctions.