Agenda highlights intersection of national security, corruption and anti-money laundering

On June 3, 2021, President Biden released a National Security Study Memorandum titled Memorandum on Establishing the Fight Against Corruption as a Fundamental Interest of the National Security of the United States (the “Memo”). He reveals – as the title might suggest – that the Biden administration views “fighting corruption as a fundamental US national security interest.” Corruption “erodes public confidence” in foreign countries and, because of its cross-border nature, threatens “the national security of the United States.” . . and democracy itself. This threat to democracy is created by, for example, “[a]anonymous shell companies, opaque financial systems and professional service providers [that] allow the movement and laundering of illicit wealth, including in the United States. Under the rubric of combating illicit financing and promoting transparency, the Memo amplifies the importance of Business transparency law (the “CTA”).

To combat these risks, the Biden administration will use a whole-of-government approach. The memo calls for an interagency review to harness the expertise of a wide range of agencies and executive departments, including the departments of Treasury, Justice, Homeland Security, State, Commerce and energy. Within 200 days, an inter-institutional review must be carried out 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 important implications for many stakeholders: domestic and foreign financial institutions, US companies doing business abroad, and foreign companies and individuals operating or seeking to operate in the United States, as well as their professional advisers.

the Coalition for Corporate Financial Accountability and Transparency (the “FACT Coalition”) has already praised the Memo, saying it represents “real progress in the fight against this global scourge” of corruption. And the memo is only part of a larger federal focus on corruption. The Memo arrives about a month and a half later Executive Order of President Biden targeting Russia’s use of “foreign bribery to influence foreign governments”. It also comes just a day after the announcement a bipartisan Congressional caucus, the Congressional Caucus against Foreign Corruption and Kleptocracy (the “Caucus”). The Caucus will focus exclusively on foreign corruption, what Senator Ben Cardin calls a “top-notch national security priority.” The Caucus will provide a means to educate members of Congress and coordinate efforts between committees. In addition, the release of the Memo preceded Vice President Harris’ visit to Latin America by just a few days. According to a senior administration official, a major focus of Vice President Harris’ trip will be the conversations about anti-corruption measures.

While the exact content of the report is not yet known, the memo specifies that the report is to address ten specific areas. According to fact sheet released on the same day, these ten areas can be summarized in five main themes:

• Modernize, coordinate and mobilize efforts to better fight against corruption;
• Stop illicit financing;
• Hold corrupt actors accountable;
• Build international partnerships; and
• Improve foreign aid.

The Memo also recognizes the central role of the media and other non-governmental organizations in the effective oversight and accountability of governments and corrupt foreign actors. To this end, the report will discuss ways to “build the capacity” of the media to “investigate and uncover corruption, hold leaders to account, inform and support government accountability and reform efforts”. The report will also discuss efforts to ensure safety in what can sometimes be very dangerous work. As we have blogged, restrictions on press freedom go hand in hand with kleptocracy and money laundering.

Corruption report will build on LBA and CTA

Although the Memo has a strong focus on bribery of foreign origin, its themes broadly follow and expand on some of the main national provisions of the 2020 Anti-Money Laundering Law (“AMLA”). In particular, the CTA, passed with the LBA, requires certain legal entities to report their beneficial owners (“BOs”) to a database accessible by U.S. and foreign authorities and regulators, as well as U.S. financial institutions seeking to comply with their own fight against money laundering (“AML” compliance obligations). The memo requires the report to develop a strategy to “[c]Combat all forms of illicit financing in the United States and in international financial systems, including by rigorously enforcing federal law requiring American companies to report their beneficial owner (s) to the Department of the Treasury. It appears from the memo that CTA’s BO database will play a key role in one of the Biden administration’s main national security initiatives.

Information sharing, another key element of the LBA, is also presented in the Memo. To fight against “illicit financing in. . . international financial systems ”and hold“ corrupt individuals ”and“ transnational criminal organizations ”accountable, the Memo underlines the importance of information sharing between agencies. Only the report will reveal how much effort the Biden administration will make to strengthen information sharing between agencies.

Expanding on the information sharing provisions of the LBA, the Memo emphasizes the importance of building international partnerships to fight transnational crimes. The memo suggests that the Biden administration will not only encourage passive information sharing, but also engage in more proactive efforts to help foreign governments and international partners in their fight against corruption. For example, the report will discuss efforts to help foreign governments implement “transparency, oversight and accountability measures” designed to stop corruption before it starts. And the report will explain how US regulators and law enforcement can work “with international partners to counter strategic corruption of foreign leaders.”

In addition, the Memo’s focus on foreign bribery is consistent with two provisions of the LBA, as well as a separate law adopted jointly with the LBA and the CTA, which requires further study on original bribery. foreign. A provision of the LBA, titled “Treasury Study and Strategy on Money Laundering by the People’s Republic of China,” requires, in part, a study by the end of 2021 on “the ways in which the growing amount of Global trade and investment by the government of the People’s Republic of China and Chinese companies exposes the international financial system to increased risk from illicit financing. After completing this study, the Secretary of the Treasury must “develop a strategy to combat Chinese money laundering activities.”

Another provision of the LBA, titled “Treasury and Justice Study on Authoritarian Regimes’ Efforts to Exploit the United States Financial System,” requires a study which is also due to be completed by the end of 2021, and which examines how foreign authoritarian regimes and their proxies use the US financial system to support kleptocracy, export corruption, and “otherwise undermine democratic governance in the United States and among US partners and allies.” The study is expected to be followed in 2022 by “recommendations for legislative or regulatory measures, or measures to be taken by American financial institutions”, to combat the exploitation of the American financial system by foreign authoritarian regimes.

Finally, Russia’s separate anti-money laundering law requires, in part, that the Secretary of the Treasury submit by the end of 2021 to the United States 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 related to Russia.” The report is also set to address the issues of beneficial ownership of anonymous companies, and “improved know-your-customer procedures and filtering of transactions involving Russian political leaders, Russian state-owned enterprises and prominent figures from Russian transnational organized crime.”

Conclusion

The Memo’s whole-of-government approach reinforces the centrality of anti-corruption efforts in the foreign policy of the Biden administration. It appears that financial institutions and their regulators will once again be at the forefront of these efforts. It also appears that the LBA and the CTA, along with its BO database and information sharing arrangements, 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 to light when the report is sent back to President Biden in six to six months. seven months.