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.
Although the exact contents of the Report are not yet known, the Memo directs that the Report must address ten specific areas. According to the fact sheet released the same day, those ten areas can be summarized in five major themes:
- Modernize, coordinate, and resource efforts to better fight corruption;
- Curb illicit finance;
- Hold corrupt actors accountable;
- Build international partnerships; and
- Improve foreign assistance.
The Memo also recognizes the central role of the media, and other non-governmental organizations, in providing effective oversight and accountability of corrupt foreign governments and actors. To that end, the Report will address ways to “strengthen the capacity” of the media to “investigate and uncover corruption, hold leaders accountable, and inform and support government accountability and reform efforts.” The Report also will address efforts to ensure safety in what can sometimes be a very dangerous job. As we have blogged, restrictions on freedom of the press go hand-in-hand with kleptocracy and money laundering.
The Corruption Report Will Build Upon the AMLA and the CTA
Although the Memo has a pronounced focus on foreign-based corruption, its themes broadly track and expand upon some of the major domestic provisions of the Anti-Money Laundering Act of 2020 (“AMLA”). In particular, the CTA, passed along with the AMLA, requires certain legal entities to report their beneficial owners (“BO”) to a database accessible by U.S. and foreign law enforcement and regulators, and to U.S. financial institutions seeking to comply with their own Anti-Money Laundering (“AML”) compliance obligations. The Memo requires the Report to develop a strategy to “[c]ombat all forms of illicit finance in the United States and international financial systems, including by robustly implementing Federal law requiring United States companies to report their beneficial owner or owners to the Department of the Treasury.” It appears from the Memo that the CTA’s BO database will play a key role in one of the Biden administration’s core national security initiatives.
Information sharing, another key part of the AMLA, is also featured in the Memo. To combat “illicit finance in . . . international financial systems” and hold to account “corrupt individuals” and “transnational criminal organizations,” the Memo highlights the importance of interagency information sharing. Only the Report will reveal what efforts the Biden administration will take to bolster interagency information sharing.
Expanding upon the AMLA’s information-sharing provisions, the Memo highlights the importance of building international partnerships in addressing transnational crimes. The Memo suggests that the Biden administration will not only encourage passive information sharing, but also will engage in more proactive efforts to aid foreign governments and international partners in their fights against corruption. For example, the Report will address efforts to aid foreign governments in implementing “transparency, oversight, and accountability measures” meant to stop corruption before it starts. And the Report will address how U.S. regulators and law enforcement can work “with international partners to counteract strategic corruption by foreign leaders.”
Moreover, the Memo’s focus on foreign corruption dovetails with two AMLA provisions, as well as a separate statute passed in conjunction with the AMLA and the CTA, which require yet more studies on foreign-based corruption. One AMLA provision, entitled “Treasury study and strategy on money laundering by the People’s Republic of China,” requires, in part, a study by the end of 2021 of “the ways in which the increasing amount of global trade and investment by the Government of the People’s Republic of China and Chinese firms exposes the international financial system to increased risk relating to illicit finance.” After completing this study, the Secretary of the Treasury must “develop a strategy to combat Chinese money laundering activities.”
Another AMLA provision, entitled “Treasury and Justice study on the efforts of authoritarian regimes to exploit the financial system of the United States,” requires a study that is also due by the end of 2021, and which considers how foreign authoritarian regimes and their proxies use the U.S. financial system to sustain kleptocracy, export corruption, and “otherwise undermine democratic governance in the United States and the partners and allies of the United States.” The study should be followed in 2022 with “recommendations for legislative or regulatory action, or steps to be taken by United States financial institutions,” to address exploitation of the U.S. financial system by foreign authoritarian regimes.
Finally, the separate Combating Russian Money Laundering Act requires, in part, the Secretary of the Treasury to submit by the end of 2021 to the U.S. House of Representatives and Senate a report that identifies “any additional regulations, statutory changes, enhanced due diligence, and reporting requirements that are necessary to better identify, prevent, and combat money laundering linked to Russia.” The report also must address issues of beneficial ownership of anonymous companies, and “enhanced know-your-customer procedures and screening for transactions involving Russian political leaders, Russian state-owned enterprises, and known Russian transnational organized crime figures.”
The Memo’s whole of government approach bolsters the centrality of anti-corruption efforts to the Biden administration’s foreign policy. It appears that financial institutions and their regulators will be—once again—on the frontlines of these efforts. It also appears that the AMLA and the CTA, and its BO database and information-sharing provisions, will play an important role. Although the Memo reveals the themes of the Biden administration’s strategic vision, a fuller picture of that strategy—and the exact role of financial institutions—will only come into focus when the Report is returned to President Biden in six to seven months.
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