Biden Can’t Fight Corruption Without Help From Europe

Joe Biden might be the per­fect pres­i­dent to restore America’s stand­ing as a cham­pi­on against for­eign corruption.

This arti­cle is part of Foreign Policy’s ongo­ing cov­er­age of U.S. President Joe Biden’s first 100 days in office, detail­ing key admin­is­tra­tion poli­cies as they get drafted—and the peo­ple who will put them into practice.

This pic­ture tak­en on September 25, 2018 shows a gen­er­al view of the ‘Danske Bank’ in Copenhagen, Denmark. — Danske Bank said on October 4, 2018 it was being inves­ti­gat­ed by the US Department of Justice over pos­si­ble mon­ey laun­der­ing relat­ed to more than $200 bil­lion trans­ferred through the Danish lender’s Estonian branch. (Photo by Mads Claus Rasmussen / Ritzau Scanpix / AFP) / Denmark OUT (Photo by MADS CLAUS RASMUSSEN/Ritzau Scanpix/AFP via Getty Images)

More than $550 bil­lion of dirty mon­ey is laun­dered each year in the United States and European Union, the world’s two largest economies. The good news is that strong­men, drug traf­fick­ers, crim­i­nals, and klep­to­crats may find it hard­er to park and hide their mon­ey thanks to recent U.S. and EU actions that tight­en anti-laun­der­ing reg­u­la­tions, and expand mon­i­tor­ing and enforce­ment. But even more impor­tant­ly, U.S. President-elect Joe Biden has made the fight against cor­rup­tion a top domes­tic and nation­al secu­ri­ty pri­or­i­ty, while the EU has long been con­cerned about illic­it and untaxed mon­ey. Neither side can act alone on this glob­al problem—coordinated action is need­ed to shut down safe havens for nefar­i­ous actors. High on the Biden administration’s agen­da should there­fore be a transat­lantic anti-cor­rup­tion action plan, which would help rebuild frayed U.S.-EU rela­tions while bol­ster­ing the secu­ri­ty of coun­tries on both sides of the Atlantic.

The United States is one of the world’s largest havens for illic­it cash and one of the eas­i­est places to form anony­mous shell com­pa­nies, which must be at the cen­ter of anti-cor­rup­tion efforts. A few exam­ples: For many years before the scheme was shut down in 2015, the Iranian regime cir­cum­vent­ed U.S. sanc­tions and used an anony­mous cor­po­ra­tion to pur­chase a sky­scraper on New York’s Fifth Avenue worth as much as $1 bil­lion and to col­lect mil­lions of dol­lars in rent. During the 1990s and 2000s, the Russian arms deal­er Viktor Bout—known as the Merchant of Death—used at least 12 shell com­pa­nies in Delaware, Florida, and Texas to move funds relat­ed to his weapons-traf­fick­ing net­work. Mexico’s largest drug car­tel, Sinaloa, secret­ly laun­dered mil­lions of dol­lars in drug pro­ceeds after pur­chas­ing a horse ranch in Two Ukrainian oli­garchs, after laun­der­ing funds stolen from a bank in Kyiv through anony­mous com­pa­nies in Europe, used U.S. shell com­pa­nies to pur­chase U.S. real estate and busi­ness­es; two Cleveland prop­er­ties alone are worth $70 million.

But this year should be a turn­ing point, both because of the Biden administration’s planned cor­rup­tion-fight­ing efforts and a recent major step by the U.S. Congress to rein in shell com­pa­nies. The National Defense Authorization Act, passed against out­go­ing President Donald Trump’s veto with bipar­ti­san sup­port on Jan. 1, includ­ed the Corporate Transparency Act (CTA) that will, for the first time, require mil­lions of U.S.-registered busi­ness­es to report their true ben­e­fi­cial own­er­ship to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). This mea­sure should make it hard­er for crim­i­nals and auto­crats to set up anony­mous shell com­pa­nies to hide their mon­ey. While the new law only allows access to the fed­er­al ben­e­fi­cial own­er­ship reg­istry to law enforce­ment, intel­li­gence agen­cies, and fed­er­al regulators—but not anti-cor­rup­tion NGOs, for­eign inves­ti­ga­tors, or pri­vate individuals—it is the first sig­nif­i­cant anti-mon­ey laun­der­ing leg­is­la­tion in the United States in two decades. A coali­tion of banks and oth­er cor­po­ra­tions, real­tors, nation­al secu­ri­ty experts, anti-human traf­fick­ing groups, reli­gious lead­ers, state gov­ern­ment offi­cials, and cham­bers of com­merce sup­port­ed this crit­i­cal legislation.

The U.S. Treasury Department now has one year to issue cor­re­spond­ing reg­u­la­tions. Once they are in place, many com­pa­nies will have to dis­close the name, date of birth, address, and the num­ber of a dri­ver-license or pass­port of the company’s ben­e­fi­cial own­ers. While this infor­ma­tion can be fal­si­fied, a com­pa­ny sub­mit­ting false infor­ma­tion would face civ­il and crim­i­nal penal­ties. A weak­ness of this leg­is­la­tion is that exist­ing com­pa­nies will have anoth­er two years to com­ply once reg­u­la­tions are in place. An even big­ger, more fun­da­men­tal prob­lem: Sectors such as pri­vate equi­ty and hedge funds are exempt, as well as any busi­ness with more than 20 peo­ple, $5 mil­lion in gross receipts or sales, and a ver­i­fi­able phys­i­cal pres­ence. During the three years before this law is ful­ly imple­ment­ed, it is expect­ed that lob­by­ing groups will try to carve out even more exemp­tions, which would be an unfor­tu­nate set­back in the fight against corruption.

Along with the United States, Europe shares the dis­tinc­tion of being a glob­al mon­ey-laun­der­ing center. 

Denmark’s largest lender, Danske Bank, for exam­ple, remains under inves­ti­ga­tion in EU mem­ber states for an esti­mat­ed €230 bil­lion in sus­pi­cious trans­ac­tions that flowed through its Estonian branch office to EU and non-EU juris­dic­tions. According to the International Consortium of Investigative Journalists, much of this mon­ey was trans­ferred through shell com­pa­nies in the United Kingdom. European offi­cials are also inves­ti­gat­ing how Isabel dos Santos, Africa’s wealth­i­est woman and the daugh­ter of for­mer Angolan President José Eduardo dos Santos, used shell com­pa­nies through­out Europe to hide hun­dreds of mil­lions of euros, if not more, from unex­plained sources. Meanwhile, her coun­try remains des­per­ate­ly poor, rank­ing 148th among 186 coun­tries on the pover­ty scale.

The EU, part­ly as a response, has been updat­ing its mon­ey laun­der­ing direc­tives. On Nov. 4, EU finance min­is­ters approved the cre­ation of a new anti-mon­ey-laun­der­ing watch­dog that will have author­i­ty to inter­vene with nation­al gov­ern­ments if they fail to com­ply with or enforce EU direc­tives. This supra­na­tion­al body will also make it eas­i­er for law enforce­ment to act across borders.

While they are signs of progress, these laws and direc­tives are not enough. The polit­i­cal will to imple­ment and enforce them are key. And while the United States and the EU seem to want to put their own hous­es in order, only by work­ing togeth­er will they be able to expose and pros­e­cute those who are hid­ing bil­lions of dol­lars obtained through cor­rup­tion and crime. Therefore, the Biden admin­is­tra­tion should embark on a joint action plan with its European part­ners. Such a plan should include:

1. A top-lev­el com­mit­ment to increase resources for inves­ti­ga­tors. U.S. and EU finan­cial intel­li­gence units are under­staffed and under­fund­ed. The Corporate Transparency Act gives FinCEN $10 mil­lion in new funds and the author­i­ty to hire more experts. That’s far less than Congress pro­vid­ed to FinCEN to fight ter­ror­ist finance under the 2001 USA Patriot Act, when the unit’s staffing was dou­bled to about 300. A sim­i­lar increase in staffing and the use of tech­nol­o­gy such as arti­fi­cial intel­li­gence is need­ed giv­en the new respon­si­bil­i­ties under the Corporate Transparency Act, includ­ing the require­ment to draft reg­u­la­tions in record time and to build an IT sys­tem for the new ben­e­fi­cial own­er­ship database.

Digital cur­ren­cies, dig­i­tal front com­pa­nies, and cryp­tocur­ren­cies have cre­at­ed still more oppor­tu­ni­ties for mon­ey laundering.

2. Increased training—and joint training—of U.S. and European offi­cials. The U.S. Treasury Department, State Department, Department of Justice, and Securities and Exchange Commission offi­cials pro­vide anti-mon­ey-laun­der­ing train­ing pro­grams, but their focus is on non-EU coun­tries. Some EU finan­cial intel­li­gence units also need train­ing to mon­i­tor and pre­vent cross-bor­der and transat­lantic flows of illic­it mon­ey. As the U.S. ambas­sador to Cyprus, an EU coun­try with a pop­u­la­tion of only 800,000 that is a favorite des­ti­na­tion of and tran­sit point for Ukrainian and Russian mon­ey of dubi­ous ori­gin, I saw first­hand the urgent need for a first-class, well-staffed finan­cial intel­li­gence oper­a­tion.

3. Better use of the exist­ing U.S.–EU Mutual Legal Assistance Treaty. The process estab­lished by this treaty is key to exchang­ing infor­ma­tion between the U.S. and EU on mon­ey laun­der­ing and cor­rup­tion. But the process is incred­i­bly inef­fi­cient and can take years. I wit­nessed this as a deputy assis­tant sec­re­tary of state, when I pushed for long-delayed respons­es by EU mem­ber states to U.S. requests. A tighter part­ner­ship will be espe­cial­ly impor­tant to ensure a smooth and time­ly exchange of ben­e­fi­cial own­er­ship infor­ma­tion on sus­pect companies.

Kathleen Doherty, ForeignPolicy.Com

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