While advisors are not legally barred from dealing with hate groups, they could run afoul of their own firms’ internal ethics policies, ThinkAdvisor writes. Furthermore, working with hate groups can harm a firm's image, which can be almost as damaging as civil or criminal actions, according to the publication.
Law Professors’ Advice on Steering Clear of Hate Groups
Legally, no advisor “is permitted to assist... designated terrorists or terrorist groups,” and therefore they should screen potential clients, Robert C. Hockett, a professor at Cornell Law School, tells ThinkAdvisor. Hockett recommends using a regularly updated terrorist watchlist, like those of the Department of Justice or the Treasury Department, the publication writes. However, there are very few laws regarding unlisted extremist groups, according to ThinkAdvisor.
Advisors may be obliged to inform clients “of the existence of one another,” and failure to disclose interactions with extremists could cause a breach of contract or fiduciary requirements, Hockett tells the publication.
Furthermore, if a firm advertises itself as “socially responsible,” and then deals with hate groups whose aims run contrary to this, they could face charges of fraud, Hockett tells ThinkAdvisor.
Additionally, extremist groups often aim for social and political destabilization, which is detrimental to investors who “need and crave… a stable investment environment,” Hockett tells the publication.
Mehrsa Baradaran, a law professor at the University of Georgia, believes advisors could lose public trust if they “are seen enabling domestic terrorists,” and suggests that firms take their fiduciary roles seriously by avoiding hate groups, according to ThinkAdvisor.
The Financial Industry Regulatory Authority stipulates that advisors know their clients in order to recommend suitable products and avoid violating anti-money laundering restrictions, James Fanto, a professor at Brooklyn Law School, tells the publication. This policy can be used to avoid dealing with hate groups, but advisors must ensure they don’t “engage in prohibited discrimination” and shouldn’t rely on “private, non-governmental organization[s]” to designate hate groups, Fanto tells ThinkAdvisor.
Hate groups, who are often banned from PayPal, credit card processors and Amazon Smile, have turned to bitcoin as a means for accepting donations, according to the Southern Poverty Law Center, and in response some wallet companies such as coinbase have chosen not to deal with them, the publication writes.
Bitcoin is the “preferred currency/investment” of many anti-government groups due to its “promised anonymity and decentralization,” which doesn’t require intermediaries like advisors, Baradaran tells ThinkAdvisor.
