Meaningful Overlap or Superficial Similarities?

On October 3, the release of the Pandora Papers flooded the global media, as millions of documents detailed incidents of wealthy and powerful people allegedly using so-called offshore accounts and other structures to shield wealth from taxation and other asset reporting. Data gathered by the International Consortium of Investigative Journalists, the architect of the Pandora Papers release, suggests that governments collectively lose $427 billion each year to tax evasion and tax avoidance. These figures and the identification of high-profile politicians and oligarchs involved in the scandal (Tony Blair, Vladimir Putin, and King Abdullah II of Jordan, to name a few) have grabbed headlines and spurred conversations about fairness in the international financial system – particularly as COVID-19 has highlighted and exacerbated economic disparities.

Much of the conduct revealed by the Pandora Papers appears to involve entirely legal structures used by the wealthy to – not surprisingly – maintain or enhance wealth.  Thus, the core debate implicated by the Pandora Papers is arguably one of social equity and related reputational risk for financial institutions (“FIs”), rather than “just” crime and anti-money laundering (“AML”). Media treatment of the Pandora Papers often blurs the distinction between AML and social concerns – and traditionally, there has been a distinction.

This focus on social concerns made us consider the current interest by the U.S. government, corporations and investors in ESG, and how ESG might begin to inform – perhaps only implicitly – aspects of AML compliance and examination.  ESG, which stands for Environmental, Social, and Governance, are criteria that set the foundation for socially-conscious investing that attempts to identify related business risks.  At first blush, the two are separate fields.  But as we discuss, there are ESG-related issues that link concretely to discrete AML issues: for example, transaction monitoring by FIs of potential environmental crime by customers for the purposes of filing a Suspicious Activity Report, or SAR, under the Bank Secrecy Act (“BSA”).  Moreover, there is a bigger picture consideration regarding BSA/AML relating to ESG:  will regulators and examiners of FIs covered by the BSA now consider – consciously or unconsciously – whether FIs are providing financial services to customers that are not necessarily breaking the law or engaging in suspicious activity, but whose conduct is inconsistent with ESG principles?

If so, then ESG concerns may fuel the phenomenon of de-risking, which is when FIs limit, restrict or close the accounts of clients perceived as being a high risk for money laundering or terrorist financing.  Arguably, and as we discuss, there also would be a historical and controversial analog – Operation Chokepoint, which involved a push by the government (not investors) for FIs to de-risk certain types of customers.  Regardless, interest in ESG means that FIs have to be even more aware of potential reputational risk with certain clients.  Even if the money in the accounts is perfectly legal, the next data breach can mean unwanted publicity for servicing certain clients.

These concepts are slippery, involve emerging trends that have yet to play out fully, and the similarities between AML and ESG can be overstated.  Nonetheless, it is possible that these two fields, both of which are subject to increasing global interest, may converge in important respects.  A preliminary discussion seems merited, however caveated or subject to debate.
Continue Reading ESG, AML Compliance and the Convergence of Social Concerns

Second Post in a Series on the FATF Plenary Outcomes

As we blogged, last month the Financial Action Task Force (“FATF”) held its fourth Plenary, inviting delegates from around the world to (virtually) meet and discuss a wide range of global financial crimes and ongoing risk areas. Following the Plenary, FATF identified a number of strategic initiatives for future research and publication, and issued six reports to detail their findings on specific topics. One such report, Money Laundering from Environmental Crime (the “Report”), and its implications for anti-money laundering (“AML”) and countering the financing of terrorist (“CFT”), will be the focus of this post.

The 66-page Report is compiled from case studies and best practices submitted by over 40 countries, as well as input from international organizations like the International Monetary Fund and World Bank. While this Report is the first deep dive into environmental crimes and recommendations for members of the FATF Global Network, it is not the first time FATF has addressed environmental issues. The current Report aims to build upon FATF’s previous study on money laundering and the illegal wildlife trade, on which we also blogged. The current Report is also connected to earlier FATF studies on money laundering risks from the gold trade and the diamond trade.  Indeed, the Report references U.S. enforcement cases involving money laundering and gold or diamonds on which we previously have blogged (see here, here and here).

As this post will discuss, these areas of money laundering risk are often overlooked and are especially difficult to monitor. Further, the Report finds that “[l]imited cooperation between AML/CFT authorities and environmental crime and protection agencies in most countries presents a major barrier to effectively tackle [money laundering] from environmental crimes.”  Stated otherwise, government AML/financial flow experts and government environmental law experts don’t understand or even consider each other’s area of expertise, and often don’t communicate with each other, resulting in missed enforcement opportunities.  With global environmental crimes generating up to $281 billion per year, the Report suggests that government interventions are not proportionate to the severity of this issue. By issuing this Report, FATF hopes to raise awareness of the scope and scale of harm caused by environmental crimes and related money laundering, and enhance collaboration by financial crime and environmental crime enforcement officials.
Continue Reading FATF Issues First-Ever Report on Environmental Crime and Money Laundering

Agenda Highlights Intersection of National Security, Corruption and Anti-Money Laundering

On June 3, 2021, President Biden unveiled a National Security Study Memorandum entitled Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest (the “Memo”).  It reveals—as the title might suggest—that the Biden administration views “countering corruption as a core United States national security interest.”  Corruption “corrodes public trust” in foreign nations, and—because of its cross-border nature—threatens “United States national security . . . and democracy itself.”  This threat to democracy is created by, for example, “[a]nonymous shell companies, opaque financial systems, and professional service providers [that] enable the movement and laundering of illicit wealth, including in the United States.”  Under the rubric of curbing illicit finance and promoting transparency, the Memo amplifies the importance of the Corporate Transparency Act (the “CTA”).

To combat these risks, the Biden administration will use a whole-of-government approach.  The Memo calls for an interagency review to tap the expertise of a wide array of agencies and executive departments, including the Departments of the Treasury, Justice, Homeland Security, State, Commerce, and Energy.  Within 200 days, an interagency review must be completed and a report and recommendations (the “Report”) must be submitted to the President.  The Report will serve as the basis for the Biden administration’s strategy in its fight against corruption, both at home and abroad.

The Report has significant implications for many stakeholders: domestic and foreign financial institutions, U.S. corporations transacting business abroad, and foreign businesses and individuals operating or seeking to operate in the U.S. – as well as their professional advisors.

The Financial Accountability and Corporate Transparency Coalition (the “FACT Coalition”) has already heaped praise on the Memo, stating it represents “real progress in combating this global scourge” of corruption.  And the Memo represents just one part of a broader federal focus on corruption.  The Memo comes about a month and a half after President Biden’s Executive Order targeting Russia’s use of “transnational corruption to influence foreign governments.”  It also comes just a day after the announcement of a bipartisan Congressional caucus, the Congressional Caucus against Foreign Corruption and Kleptocracy (the “Caucus”).  The Caucus will focus exclusively on foreign corruption, what Sen. Ben Cardin calls a “national security priority of the highest order.”  The Caucus will provide a means of educating members of Congress and coordinating efforts across committees.  Additionally, the Memo’s release preceded by just a few days Vice President Harris’ visit to Latin America.  According to a senior administration official, a major focus of Vice President Harris’ trip will be conversations on anti-corruption measures.
Continue Reading President Biden Unveils Broad Vision to Crack Down on Foreign and Domestic Corruption

Indictment Alleges International Scheme Involving Bribes Touching NY Correspondent Bank Accounts

The U.S. Department of Justice announced last week that U.K. law enforcement officials arrested, at its request, an Austrian national, Peter Weinzierl, for his alleged participation in a wide-ranging money laundering scheme involving Brazilian construction conglomerate Odebrecht S.A. Odebrecht previously pleaded guilty in December

Art & Antiquities; Beneficial Owners; Foreign Corruption — and More

We are really pleased to be moderating, once again, the Practising Law Institute’s 2021 Anti-Money Laundering Conference on May 11, 2021, starting at 9 a.m. This year’s conference again will be entirely virtual — but it will be as informative, interesting and timely as

U.N. Report Focus on Improving Accountability, Transparency and Good Governance

On March 2, 2020 the United Nations released a Report on Financial Integrity For Sustainable Development (the “Report”). Although the Report is lengthy and wide-ranging, we will focus here on the portions of the Report which target the humanitarian toll of Illicit Financial Flows (IFFs) from money laundering, tax abuse, cross-border corruption, and transnational financial crime – all of which can drain resources from sustainable development, worsen inequality, fuel instability, undermine governance, and damage public trust.   We also will focus on the portions of the Report which make recommendations designed to expand anti-money laundering (“AML”) compliance.

First, the Report makes evidence-based recommendations focused on accountability, designed to close international enforcement and compliance gaps. Those recommendations include: (i) all countries enacting legislation providing for the widest range of legal tools to pursue cross-border financial crime; (ii) the international community developing an agreed-upon international standard for settlement of cross-border corruption cases, and (iii) businesses holding accountable all executives, staff, and board members who foster or tolerate IFFs in the name of the business.

Second, the Report makes other recommendations on several AML-related issues on which we have blogged: (i) each country creating a central registry of beneficial ownership information for legal entities; (ii) creating global standards for professionals, including lawyers, accountants, bankers and real estate agents; (iii) improving protections for human rights defenders, anti-corruption advocates, investigative journalists and whistleblowers; and (iv) promoting the exchange of information internationally among law enforcement officers and other authorities.

The Report clearly envisions that corporations can and should play a pivotal role in contributing resources in the fight against corruption, money laundering and cross-border financial crime. To start, Boards and management, particularly those of financial and professional service institutions, must engage in oversight to ensure that compensation, benefits, and employment itself are contingent upon financial integrity. Investors also should embrace financial integrity for sustainable development and be clear with the companies in which they invest that they expect effective anti-corruption policies and regulatory compliance. Integrity will be cultivated when organizational leadership hold board members, executives, and staff accountable if they foster or tolerate IFFs in the name of the business. Moreover, the Report observes that governments can foster financial integrity by imposing liability for failing to prevent bribery or corruption.
Continue Reading United Nations Targets Corruption and Illicit Cross-Border Finance

On February 24, the Department of Justice’s (“DOJ”) Criminal Division Fraud Section released its 2020 Year In Review (“the Report”) touting its white-collar enforcement successes.  Among them: four cases in which the DOJ wielded the United States’ money laundering statutes to pursue alleged overseas bribery recipients who are beyond the reach of the Foreign Corrupt Practices Act (“FCPA”).  This is a pattern we have covered previously (here, hereherehere, here, here and here).   While the FCPA imposes liability on American citizens and entities that bribe foreign officials, it does not impose liability on the foreign officials receiving the bribe.  Enter 18 U.S.C. §§ 1956 and 1957.  As illustrated in the Report’s cases, 2020 marked a continuation of the DOJ’s willingness to use the money laundering statutes to pursue corrupt foreign activity that uses U.S. financial institutions, however tangentially.
Continue Reading DOJ Fraud Section 2020 Year in Review: Money Laundering Statute Remains an Overseas Enforcement Tool

On November 25, 2020, Natalino D’Amato (“D’Amato”), a Venezuelan executive, was charged in an 11-count indictment with allegedly laundering $160 million between 2013 and 2017.  The indictment, filed in the Southern District of Florida, includes one count of conspiracy to commit money laundering, four counts of international money laundering, three counts of promotional money laundering, and three counts of engaging in transactions involving criminally derived property.  It is the latest episode in the enforcement campaign of the U.S. Department of Justice (“DOJ”) against alleged corruption involving Venezuela in general, and Venezuela’s state-owned and controlled energy company Petróleos de Venezuela S.A. (“PDVSA”) in particular.
Continue Reading (Another) Venezuelan Executive Indicted in a $160 Million Money-Laundering and Corruption Scheme

Regulators’ Joint Statement Attempts to Clarify AML Expectations Regarding Potential Corrupt Actors

On August 21, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and other banking regulators – specifically the Federal Reserve, the FDIC, the National Credit Union Administration, and the OCC – issued a joint statement that provides additional guidance in applying Bank Secrecy