Concerns that foreign entities are exerting influence on US litigation via third-party financing are entirely overblown, according to the head of lawsuit funders’ primary trade group.

“Foreign adversaries aren’t able to manipulate the legal system through legal finance providers,” Gary Barnett, executive director for the International Legal Finance Association, said in an interview.

The estimated $13.5 billion litigation finance industry, in which investors pay up-front costs of lawsuits in return for some of the proceeds if cases are successful, has faced increasing scrutiny in the past year.

A bipartisan bill introduced in Congress would require the disclosure of foreign entities investing in litigation in federal courts. It would also ban sovereign wealth funds and foreign governments from investing in cases. A few states and some federal courts require third-party funding disclosures, with one Delaware federal judge taking a closer look at the role of outside financers.

ILFA is the face of the commercial litigation finance industry’s fight against disclosure. The group and its members largely blame the U.S. Chamber of Commerce for scaremongering in its push increased scrutiny of outside funding in lawsuits.

Litigation funding investors are rarely disclosed, but two major players in the arena have significant investments from sovereigns. Burford Capital, one of two publicly traded litigation funders, has an $872 million funding arrangement with a sovereign wealth fund, which it just extended last month. Fortress Investment Group, which is raising its second fund to invest in legal assets, is in the process of having 90% of its equity acquired by Mubadala Investment Company, a sovereign investor based in Abu Dhabi.

No Traction

ILFA represents 21 litigation funders, a large portion of a nascent industry that totals about 40 or 50 commercial financers. Barnett, the D.C.-based organization’s executive director since 2021, previously was senior counselor to Attorney General William Barr.

Disclosure, in which parties must reveal whether they are receiving any type of litigation finance and from whom, is the biggest bone of contention in the industry.

Efforts to force disclosure haven’t gotten “any significant traction,” according to Barnett, despite the bill pending in Congress and moderate success of similar legislation in some statehouses.

“I wouldn’t confuse [Chamber’s] interest in it with the overall direction that more disclosure is the way things are headed,” he said.

Montana Gov. Greg Gianforte (R) this year signed into law SB. 269, which requires disclosure of litigation funding agreements in all civil cases before Montana courts. In Louisiana, a bill that required disclosure passed the state house and senate but was ultimately vetoed by Gov. John Bel Edwards. With a new governor beginning his term in January, sources in Louisiana say there will be a renewed effort to advance legislation.

Federally, the focus is on the presence of foreign actors in litigation finance.

In September, House Speaker Mike Johnson (R-la.), Senator Joe Manchin (D-W.V.) and Senator John Kennedy (R-La.) introduced legislation (H.R. 5488, S. 2805) that would require disclosure of foreign entities funding lawsuits in US courts. It would ban sovereign wealth funds and foreign governments from engaging in the practice.

The proposal is a longshot in a sharply divided Congress in which even “must-pass” legislation faces an uphill battle.

“The bill itself is based on a false premise,” said Barnett. “The genesis of it is a commissioned paper that was paid for by the Chamber of Commerce that posits, based on no evidence and it’s pure speculation, that the legal finance industry poses a national security risk.”

“I think what our paper lays out and national security experts agree with is that there’s an incentive for geopolitical actors to use funding to engage in America,” said Nathan Morris, senior vice president, legal reform advocacy at the U.S. Chamber Institute for Legal Reform. “Whether that’s to gather information, whether it’s to harm American businesses, there are a variety of reasons it could be done. And as long as an incentive exists, if there’s no check on the ability for it to occur, it is exceedingly likely it will happen.”

The Chamber of Commerce is among the largest corporate lobbying organizations. Its board of directors includes major players at multinational corporations such as FedEx, Bristol Myers Squibb, and Meta’s Facebook.

This isn’t the first time Congress has introduced legislation regarding litigation finance. In 2018, Sen. Chuck Grassley (R-Iowa) sponsored the Litigation Funding Transparency Bill, which required disclosure at the outset of any class action lawsuit filed in federal court and in any claim in a federal multi-district litigation proceeding. It died in committee and was reintroduced in 2021, when it also did not make it out of committee.

China Funder

There are indications that China is entering the US litigation finance space. An August filing in Delaware District Court revealed a Chinese firm is financing a US patent infringement suit. The majority owner of the plaintiff said that the funder, Purplevine IP, is funding three other intellectual property lawsuits in US courts.

ILFA, has spent $150,000 this year on lobbying, which is up slightly from the previous two years. It has lobbied on issues related to law and the legal system and issues related to commercial legal finance.

The Chamber of Commerce has spent $49 million on lobbying this year, with over $13 million going toward a slew of specific measures including the current federal disclosure bill. It spent an additional $150,000 lobbying on the current litigation finance bill and other litigation issues.

“We’re not opposed to disclosure, we just think that requiring disclosure in every case causes more problems than it’s worth,” said Barnett. Turning over funding agreements to the opposing side and disclosing privileged attorney work product could lead to an increase in motions and extend the cost and duration of litigation, he said.

Attractive Asset

The industry has seen some tightening, including layoffs at Validity, the investment team leaving Augusta for Omni Bridgeway, and Woodsford trying to sell off its passive US assets, ILFA’s chairman Neil Purslow said legal finance is a good place to be diversifying a portfolio.

Purslow is also chief investment officer at UK-based litigation funder Therium. He said it has been a difficult fundraising environment due to higher interest rates and more sensitivity about liquidity but litigation finance being uncorrelated to the market makes it attractive.

“I think that the legal finance asset class has lots of good things going for it in this environment,” he said.