Strategy Reflects Coordinated Focus on Transparency and “Gatekeeper” Responsibilities
Last week, the Biden Administration unveiled a sweeping “whole-of-government approach” to combating corruption. Identifying corruption as a “cancer within the body of societies—a disease that eats at the public trust and the ability of governments to deliver for their citizens”—the United States Strategy on Countering Corruption (the “Plan”) articulates a global vision for rooting out this national security threat. The first-of-its-kind approach focuses on responding to corruption’s transnational dimensions, with a specific emphasis on reducing “the ability of corrupt actors to use the U.S. and international financial systems to hide assets and launder proceeds of corrupt acts.” Although the Plan is grounded in “five-mutually reinforcing pillars,” pillars two and three merit a closer look from this blog’s readers. They serve as an important recap of the various steps the Administration has taken to combat illicit finance and its strategy for increased enforcement using both the new and existing tools at its disposal. Further, the Plan implicates many pressing Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) issues on which we repeatedly blog, as we will discuss.
Expansive Interagency Review
The Plan arises from President Biden’s June 2021 Memorandum on Establishing the Fight against Corruption as a Core United States National Security Interest, which we previously wrote about here. In that memo, the Administration identified corruption as a “core United States national security interest.” It also directed an interagency review among a wide array of executive departments, including the Departments of Treasury, Justice, Homeland Security, State, Commerce and Energy, to be submitted to the President within 200 days. The purpose of that review was to identify deficiencies, recommend changes and lay the groundwork for the Administration’s new strategy to combat corruption. As we noted at the time, this interagency review likely had significant implications for many stakeholders: domestic and foreign financial institutions, U.S. corporations transacting business abroad, foreign businesses and individuals operating or seeking to operate in the United States, and their professional advisors. With the interagency review complete and the Plan unveiled, there is no doubt that is the case.
The Overarching Strategy
The Plan “lays out a comprehensive approach for how the United States will work domestically and internationally, with governmental and non-governmental partners, to prevent, limit and respond to corruption and related crimes.” It rests on the following five pillars: (1) modernizing, coordinating, and resourcing U.S. Government efforts to better fight corruption; (2) curbing illicit finance; (3) holding corrupt actors accountable; (4) preserving and strengthening the multilateral anti-corruption architecture; and (5) improving diplomatic engagement and leveraging foreign assistance resources to advance policy goals. The Administration seeks to achieve these five goals by, among other things, “addressing vulnerabilities in the U.S. and international financial systems; bolstering international best practices, regulations, and enforcement efforts; supporting the role of non-governmental actors; building political will and recognizing when it is absent; and consistently pursuing accountability through a combination of diplomatic engagement, foreign assistance, and enforcement actions.”
New Tools & Increased Enforcement
For those interested in how the Plan will impact regulation and enforcement in the financial system, pillars two and three are the places to look. Pillar two entitled “Curbing Illicit Finance” and pillar three entitled “Holding Corrupt Actors Accountable” detail the Administration’s vision.
Pillar two enumerates how the Administration plans to cure existing deficiencies in the U.S. AML compliance and enforcement regime, including through the following actions:
- Beneficial ownership transparency: The Administration’s new strategy amplifies the importance of the Corporate Transparency Act (“CTA”). Noting that corrupt actors frequently use opaque legal structures, such as shell companies, to launder money, the Administration plans to rely on the Treasury Department’s new beneficial ownership registry created under the CTA to increase transparency. Prior to the CTA, “U.S. law enforcement agencies had no systematic way to obtain information on beneficial owners of legal entities.”
- Transparency in government procurement: Similarly, the plan will seek to increase transparency in the government procurement process by relying on section 885 of the 2021 National Defense Authorization Act, which requires prospective federal contractors and grantees to disclose beneficial ownership.
- Real estate: Almost in tandem with the Plan’s release, the Treasury Department’s Financial Crimes Enforcement Bureau (“FinCEN”) last week issued an Advanced Notice of Proposed Rulemaking to solicit public comment on potential requirements under the BSA for certain persons involved in real estate transactions to collect, report, and retain information. The perceived lack of transparency related to real estate transactions has provided corrupt actors “a means to launder ill-gotten gains.” Indeed, an analysis conducted by Global Financial Integrity found that more than $2.3 billion was laundered through U.S. real estate between 2015 and 2020. Such a lack of transparency “imposes tangible costs on average Americans in the form of artificially inflated real estate prices.” The Plan intends to rely on FinCEN’s regulations to “greatly diminish the ability of corrupt and other illicit actors to launder their proceeds through real estate purchases in the United States.”
- Investment advisers and other private equity funds: Because certain types of investment professionals and entities do not have comprehensive AML obligations, corrupt actors have been able to invest their ill-gotten gains in the U.S. financial system through hedge funds, trusts, private equity funds, and other advisory services and vehicles. As a result, under the Plan, the Treasury Department will re-examine the 2015 Notice of Proposed Rulemaking that would impose minimum AML program and suspicious activity reporting (“SAR”) requirements on certain investment advisors.
- Key gatekeepers/facilitators: The Plan also identifies unregulated gatekeepers, such as lawyers, accountants, trust and company service providers, and others, as a deficiency in the U.S. regulatory framework (a topic we frequently have discussed, including here, here and here). The Plan notes that such gatekeepers are not presently required to conduct diligence on the nature or source of income from their clients or prospective clients, which could result in them being access points to the U.S. and international financial systems for corrupt actors. To address this issue, the Plan proposes a multi-pronged approach, including working with Congress to secure additional regulatory authority; seeking professional sanctions against gatekeepers who facilitate corruption and money laundering; and expanding government engagement with gatekeepers, including through information sharing.
- Other priorities: In addition to attempting to cure the foregoing deficiencies, the Plan also seeks to (1) tackle tax evasion in offshore financial centers; (2) review the corruption risks associated with digital assets; and (3) study the AML risks posed by the art and antiquities market. Notably, as to this last point, the Plan states that FinCEN may issue additional regulations following its September 2021 ANPRM regarding the amendment of the BSA to include a person engaged in the antiquities trade as a regulated financial institution.
After articulating these priorities in pillar two, the Plan sets forth the Administration’s increased enforcement efforts in pillar three, using the new and existing tools available to it, including through the following enforcement actions:
- Enforcement of AML criminal and civil laws: The Administration expects to rely on “newly established tools for investigating and prosecuting money laundering offenses,” enacted under the Anti-Money Laundering Act of 2020. That law granted the Department of Justice (“DOJ”) and investigative agencies expanded subpoena power for certain financial records maintained abroad, created new disclosure requirements for beneficial ownership information and established financial awards to incentivize disclosure of BSA violations in financial institutions.
- Foreign bribery: Based on the discussion so far, it is no surprise that the Plan asserts that the DOJ will continue to aggressively pursue foreign bribery cases, including “vigorously enforc[ing] the Foreign Corrupt Practices Act (FCPA),” further clarifying that the Plan will rely on past enforcement tools, while seeking to transcend their previous limits.
- Cryptocurrency: Under the Plan, the DOJ also will rely on its new National Cryptocurrency Enforcement Team, to focus specifically on complex investigations and prosecutions of criminal misuses of cryptocurrency, including the use of such currency to launder money.
- Focus on demand side of bribery: The Administration plans to work with foreign countries to enact legislation and enforce existing laws to hold the officials who demand bribes accountable, rather than just focusing on those who pay the bribes to the officials.
- Visa restrictions: The Administration also intends to restrict the visas of corrupt actors and work with other foreign countries to secure similar visa restrictions, so as to deny corrupt actors “physical access to key countries with sophisticated financial systems, as well as to globally-connected and lucrative markets.”
- Suspension and debarment from federal contracts: To preserve the integrity of the federal supply chain, the Administration will seek to use its regulatory authority to remove corrupt individuals, companies and other entities from the federal contracts, subcontracts, grants and related business opportunities.
- Asset recovery: The Administration will strive to counter foreign bribery by recouping corrupt proceeds, including through initiatives at the DOJ and Treasury Department.
- Reliance on private sector actors: Recognizing the important role that private actors can play in exposing corruption, the Administration will boost its efforts to support investigative journalists working to expose corruption. In addition, it will increase its reliance on section 314(a) of the USA PATRIOT Act, which provides a mechanism for law enforcement to engage with financial institutions to “locate accounts and transactions of persons who might be involved in money laundering and terrorist financing.” While participation in such information sharing is voluntary, the Plan notes that FinCEN strongly encourages financial institutions to participate to enhance compliance with their AML obligations.
In light of Administration’s priorities articulated in pillars two and three of the Plan, we expect to see increased BSA/AML and FCPA enforcement in the financial sector to combat corruption. Indeed, according to the Administration, while the interagency review that led to the Plan was underway, departments and agencies simultaneously began to “accelerate and amplify their efforts to prevent and combat corruption at home and abroad; bring transparency to the United States’ and international financial systems; and make it increasingly difficult for corrupt actors to shield their activities.” Given this shift in policy, and for the stakeholders discussed throughout this post, now is the time to prepare for and protect against new anti-corruption enforcement actions. To avoid being caught flatfooted, such stakeholders should proactively review their internal compliance policies and procedures, in particular, their BSA/AML and FCPA programs, to ensure that they are up to date and conform to the Administration’s Plan.
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