We are exploring the recently released the United States Strategy on Countering Corruption (the “Strategy); subtitled “Pursuant To The National Security Study Memorandum On Establishing The Fight Against Corruption as a Core United States National Security Interest”; in response to President Biden’s prior declaration of corruption as a national security issue of the United States. Over this 5-part series I will be delving into the Strategy and considering how it will impact the compliance professional. Yesterday, we considered Pillar 1, modernizing, coordinating, and resourcing US government efforts to fight corruption. Today we take up Pillar 2, curbing illicit financing.
Today, we also pay tribute to New Orleans native Anne Rice who died over the weekend. Rice is best known for her first novel, Interview with the Vampire, which was published in 1976. According to her New York Times obituary, “Ms. Rice was a largely unknown writer when she turned a short story she had written in the late 1960s into “Interview With the Vampire,” her first published novel. It features a solitary vampire named Louis who is telling his life story to a reporter, but Ms. Rice said the tale was her story as well.” She went on to state, “I really got into the character. For the first time, I was able to describe my reality, the dark, gothic influence on my childhood. It’s not fantasy for me. My childhood came to life for me.” The book became a bestseller. Rice “found herself with a considerable fan base, which she proceeded to entertain with a series of follow-up novels that became known collectively as the Vampire Chronicles. The books, more than a dozen in all, are widely credited with fueling a revival of interest in all things vampiric.” So, farewell to many a gothic, chilly and scary night, all courtesy of Anne Rice.
The fight against illicit financing is extraordinarily significant. The Strategy noted, that in “today’s globalized world, corrupt actors bribe across borders, harness the international financial system to stash illicit wealth abroad, and abuse democratic institutions to advance anti-democratic aims. Emerging research and major journalistic exposés have documented the extent to which legal and regulatory deficiencies in the developed world offer corrupt actors the means to offshore and launder illicit wealth. This dynamic in turn strengthens the hand of those autocratic leaders whose rule is predicated on the ability to co-opt and reward elites.”
It is most interesting to highlight that the US government is pointing to “major journalistic exposés” as a major source of information on illicit financing, providing wrong all the naysayers who criticized publication of the Panama Papers, Paradise Papers and the Pandora Papers. This pointing to the public releases of information on illicit financing also should end the calls for these types of releases to criminalized. But more than simply the monies involved, “corrupt actors and their financial facilitators have taken advantage of vulnerabilities in the U.S. and international financial systems to launder their assets and obscure the proceeds of crime. Similarly, corrupt actors amass ill-gotten wealth through illicit gains of other resources, including minerals and wildlife.”
The Strategy recognizes the US role as the pre-eminent leader in global banking and financing. The Strategy outlines what it calls ‘Lines of Effort’ or LOEs which will add more “human resources to synchronize anti-corruption work as a core domestic and foreign policy priority”. The US also commits to working in “coordination with global partners to magnify” to both expand and magnify the US efforts. The next two lines from the Strategy speak directly to the compliance professional. “We will seek to foster and learn from governmental and non-governmental partners pioneering innovative solutions. And we will dedicate and steward financial resources by matching appropriate means to critical ends.” This means more information will be collected from actors in the private sector such as public and private corporations.
There are several Strategic Objectives to guide this initiative. First, the US will address deficiencies in the current Anti-Money Laundering (AML) regime. This will include additional work in beneficial ownership transparency, in US government procurement, real estate transactions, sources of private equity funds and investments, gate keepers, offshore and tax havens, digit assets and arts and antiquities. Most interestingly, while the places and strategies of money-laundering are well known and have begun to be addressed, this is the first real push against gatekeepers.
Many professionals and service providers, including lawyers, accountants, trust and company service providers, incorporators, and others, have been used as registered agents or who act as nominees to open and move funds through bank accounts. This is usually with little to no understanding of the underlying source of the funds, the character of the actors involved or even who is behind the curtain. All basic due diligent inquires by the compliance professional. When you add these advisors to create “opaque corporate vehicles” you can see why “complicit professionals are often sought by criminal organizations to facilitate their illicit activities.” Yet even while law enforcement “has increased its focus on such facilitators, it is both difficult to prove “intent and knowledge” that a facilitator was dealing with illicit funds or bad actors, or that they should have known the same.”
This same type of effort will be made at the international level. The US will expand its level and presence with key international players such as “the Europe-based Camden Asset Recovery Interagency Network and its regional bodies, and the International Anti-Corruption Coordination Center, which has multi-country membership and observers.” The US will act with what it calls “Proactive disruption” to “prevent the establishment of new safe havens for corrupt actors and their ill-gotten gains.” Finally, the US “will work with allies and partners to push key gatekeepers and facilitators to tighten ways in which corrupt actors move money.”
Many of these initiatives are processes which compliance professionals are currently doing. Moreover, the basic information generated through due diligence and other investigative skills will be of great use for the government’s efforts. Finally, any information that the government generates to unmask UBO’s will benefit the greater compliance community.
Join us tomorrow where we pay honor to Dave Campbell and consider Pillar 3 – Holding Corrupt Actors Accountable.
Tag: Strategy on Countering Corruption
Last week the Biden Administration released the United States Strategy on Countering Corruption (the “Strategy”); subtitled “Pursuant To The National Security Study Memorandum On Establishing The Fight Against Corruption as a Core United States National Security Interest”; in response to President Biden’s prior declaration of corruption as a national security issue of the United States. While obviously focused on the US government’s role in leading the fight against corruption, the entire document portends a major sea change in the approach of fighting bribery and corruption, literally on a worldwide basis. For this reason alone, it should be studied by all compliance professionals. Over this 5-part series I will be delving into the Strategy and considering how it will impact the compliance professional.
However, first I have to pay tribute to fellow Houstonian and one of the four original Monkees, Michael Nesmith who died over the weekend. The cultural significance of The Monkees cannot not be overstated. It was television’s answer to The Beatles and the English Invasion. Nesmith was the tall quiet one, who was the best musician of the group, known for his trademark wool cap. With Peter Tork and Davey Jones also gone, only Mickey Dolenz is left. Nesmith chafed under the song writing and live playing restrictions believing that he was a good enough musician to both supply songs and perform them live. He was right on both scores. But Nesmith was a creative phenomenon, presaging country rock in an early band, creating the first music video and receiving the first Grammy for video. He also wrote Different Drummer, made a hit by Linda Ronstadt. Rock and Roll Heaven got another great over the weekend.
Back to the Strategy, which has five pillars (conveniently designed for a 5-part series). Pillar 1 is Modernizing, Coordinating, and Resourcing U.S. Government Efforts to Fight Corruption, with five strategic objectives (1) to enhance corruption related research, data collection, and analysis; (2) improve information sharing within the U.S. Government, with non-U.S.-Governmental entities, and internationally; (3) increase focus on the transnational dimensions of corruption; (4) organize and resource the fight against corruption, at home and abroad; and (5) integrate an anti-corruption focus into regional, thematic, and sectoral priorities.
Obviously, this more holistic approach is most welcomed. Corruption does more than simply steal money from the world economy. According to the Strategy, “Corruption robs citizens of equal access to vital services, denying the right to quality healthcare, public safety, and education. It degrades the business environment, subverts economic opportunity, and exacerbates inequality. It often contributes to human rights violations and abuses, and can drive migration. As a fundamental threat to the rule of law, corruption hollows out institutions, corrodes public trust, and fuels popular cynicism toward effective, accountable governance.” I would add several others such damaging the fight against climate change, destroying ethic business practices and, of course, leading to transnational crime and terrorism.
All of this means more information and analysis, including search and data collection, by using “information more effectively to understand and map corruption networks and related proceeds, and dynamics, and tailor prevention and enforcement related actions, as well as build the evidence base around effective assistance approaches.” The next improved information sharing within the US government, private companies and across international boundaries. It also includes holding corruption actors accountable, curbing illicit financing and bolstering international cooperation and actions.
Another key area will be the increased focus on the “transnational dimensions of corruption.” This means more than simply looking at the usual geographic areas recognized as high-risks of corruption by tackling transnational organized crime through “understanding and disrupting networks, tracking flows of money and other assets, and improving information and intelligence sharing across U.S. departments and agencies, and, as appropriate, with international and non-governmental partners.”
However, the Strategy makes it clear that there is an important US domestic component as “Law enforcement will be provided with the independence and resources necessary to investigate and prosecute domestic crimes involving abuses of the public trust. The Administration will advocate for greater transparency in the U.S. campaign finance system, and to strengthen prohibitions on foreign nationals attempting to influence federal, state, or local elections.” To help in this effort the Department of Treasury will establish an “Anti-Corruption team to develop and support the implementation of current and new initiatives to address corruption and corrupting influence on the U.S. economy.” This group will look at such apparently disparate areas as “financial crimes and financial intelligence, economic sanctions, financial transparency policy, criminal tax investigations, tax policy, and international finance.”
In addition to the Department of Treasury, the US Agency for International Development (USAID) will also develop an Anti-Corruption Task Force to help develop ABC programs and partnerships, look at ABC policy and improvements; promote ABC across foreign sectors and consider resources. Financial Crimes Enforcement Network FinCEN will continue to play a key role in building out an ultimate beneficial ownership (UBO) data system for not only law enforcement but the Financial Action Task Force (FATF) to help “identify, investigate, and take enforcement actions against fraud, money laundering, terrorist financing, and proliferation financing.”
In Pillar 1 the government will merge all these efforts into “regional, thematic and sectorial priorities”. So not only will the usual suspects be targeted, both regionally and by industry, but areas such as response to climate change, response to the Covid-19 pandemic and overall infrastructure. Note, references were made several times to non-government actors, which includes US private and public sector entities. Strategic Objective 1.5 will allow pivoting when new issues, challenges and risks arise, such as Covid-19 and the variants from over the past several months.
Finally, in Pillar 1 you begin to see the overall outlines of this new US government approach. No longer will the effort to fight corruption be led by the Department of Justice (DOJ), Securities and Exchange Commission (SEC) through enforcement of the Foreign Corrupt Practices Act (FCPA). Now a much wider and broader swath of the US government will be involved in the overall effort.
Join us tomorrow where we pay honor to Anne Rice and consider Pillar 2 – Curbing Illicit Financing.
