US lawmakers call for crackdown on financial ‘enablers’ after Pandora Papers

The pro­posed leg­is­la­tion, experts say, rep­re­sents the most sig­nif­i­cant reform of anti-mon­ey laun­der­ing rules since 9/11.

SIOUX FALLS, SOUTH DAKOTA — JUNE 17: Pedestrians walk past South Dakota Trust Company’s office in down­town Sioux Falls, South Dakota, Thursday, June 17, 2021. (Photo by Salwan Georges/The Washington Post)

A bipar­ti­san group of law­mak­ers will intro­duce leg­is­la­tion this week that for the first time would require trust com­pa­nies, lawyers, art deal­ers and oth­ers to inves­ti­gate for­eign clients seek­ing to move mon­ey and assets into the American finan­cial system.

The bill’s spon­sors cit­ed the find­ings of the Pandora Papers, a sweep­ing inter­na­tion­al col­lab­o­ra­tion pub­lished this week that exposed how the glob­al elite con­ceal their wealth in tax havens that increas­ing­ly include the United States.

The sto­ries by The Washington Post and the International Consortium of Investigative Journalists (ICIJ) showed that lit­tle-known trust com­pa­nies in Sioux Falls, South Dakota, estab­lished near­ly 30 trusts in recent years con­nect­ed to peo­ple or com­pa­nies accused of cor­rup­tion, human rights abus­es or oth­er wrong­do­ing in some of the world’s poor­est com­mu­ni­ties. The inves­ti­ga­tion also found that King Abdullah of Jordan secret­ly used off­shore com­pa­nies to pur­chase three prop­er­ties in Malibu and reveal the use of two off­shore trusts by an art deal­er, now deceased, who was accused by U.S. pros­e­cu­tors of traf­fick­ing in loot­ed Cambodian artifacts.

The pro­posed law, known as the Enablers Act, would amend the 51-year-old Bank Secrecy Act  by requir­ing the Treasury Department to cre­ate basic due dili­gence rules for American gate­keep­ers who facil­i­tate the flow of for­eign assets into the United States.

Banks are already required to inves­ti­gate their clients and sources of wealth, but  trust com­pa­nies, lawyers, invest­ment advi­sors, accoun­tants, art deal­ers, pub­lic rela­tions firms and oth­er pro­fes­sion­als  have been exclud­ed from due dili­gence rules — a loop­hole reg­u­lar­ly crit­i­cized by finan­cial crime experts and inter­na­tion­al watchdogs.

The pro­posed leg­is­la­tion, experts say, rep­re­sents the most sig­nif­i­cant reform of anti-mon­ey laun­der­ing rules since 9/11.

If we make banks report dirty mon­ey but allow law, real estate, and account­ing firms to look the oth­er way, that cre­ates a loop­hole that crooks and klep­to­crats can sail a yacht through,” Rep. Tom Malinowski (D‑N.J.), co-spon­sor of the pro­posed bill and co-chair of the Congressional Caucus against Foreign Corruption and Kleptocracy, said on Wednesday. “Our bill clos­es that loop­hole and encour­ages the admin­is­tra­tion to move in the same direction.”

Malinowski called on the White House to sup­port the leg­is­la­tion, co-spon­sored by Reps. Steve Cohen (D‑Tenn.), co-chair of the bipar­ti­san Commission on Security and Cooperation in Europe, Joe Wilson (R‑S.C.), rank­ing mem­ber of the com­mis­sion, and Maria Elvira Salazar (R‑Fl.), a mem­ber of the caucus.

All around the world, coun­tries are being loot­ed and the most vul­ner­a­ble peo­ple vic­tim­ized by their elites,” Cohen said. “These klep­to­crats then laun­der that mon­ey to the West, where they enjoy the high life — spend­ing the mon­ey on lux­u­ry cars, pent­hous­es, jets and opu­lent par­ties. Some also spend it on inter­ven­ing in our democ­ra­cy … work­ing to under­mine the rule of law. In order to fight cor­rup­tion, we must curb the enablers.”

If passed, the law would give the Treasury Department until December 2023 to cre­ate anti-mon­ey laun­der­ing rules for the gate­keep­er indus­tries. A new nation­al secu­ri­ty task force would over­see the effort.

After 9/11, banks — crit­i­cized for serv­ing and shield­ing ter­ror­ists, drug traf­fick­ers and dic­ta­tors — shored up their due dili­gence prac­tices. Financial crime experts say that such mea­sures encour­aged wrong­do­ers to find oth­er finan­cial gate­keep­ers, includ­ing the U.S. trust industry.

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Global crim­i­nals, klep­to­crats, dic­ta­tors, they’re going to look for new ways to laun­der their mon­ey and we’re going to try to close them down, but the gap right now is just mas­sive — we basi­cal­ly left our finan­cial defens­es wide open,” said Paul Massaro, a con­gres­sion­al anti-cor­rup­tion advis­er who helped work on the pro­posed legislation.

In South Dakota, now con­sid­ered a top des­ti­na­tion for glob­al wealth, trust com­pa­nies over­see more than $360 bil­lion in assets, state data shows. The Post and the ICIJ inves­ti­ga­tion iden­ti­fied a series of inter­na­tion­al clients who moved their assets into trusts in South Dakota in recent years, includ­ing a Colombian tex­tile mogul impli­cat­ed in an inter­na­tion­al scheme to laun­der drug pro­ceeds and a Brazilian orange juice exec­u­tive accused of col­lud­ing to under­pay local farmers.

Regulating pro­fes­sion­al enablers is how the United States could stop being the world’s top off­shore finan­cial haven, begin treat­ing dirty mon­ey as a lead­ing nation­al threat and start demon­strat­ing how democ­ra­cies can deliv­er against cor­rupt adver­saries and pow­er­ful spe­cial inter­ests,” said Josh Rudolph, a mem­ber of the National Security Council staff in the Obama and  Trump admin­is­tra­tions who recent­ly pub­lished an analy­sis on the role of finan­cial gatekeepers.

On Sunday, ICIJ, The Washington Post and 150 media part­ners start­ed pub­lish­ing the  Pandora Papers inves­ti­ga­tion, which revealed the trans­ac­tions and assets of 35 cur­rent and for­mer world lead­ers and more than 330 politi­cians and pub­lic offi­cials in 91 coun­tries and ter­ri­to­ries, includ­ing the United States.

If we are seri­ous about fight­ing dic­ta­tor­ship, we need U.S. pro­fes­sion­als to do the most basic due dili­gence — no American should be accept­ing mon­ey from Chinese Communist Party oper­a­tives, Iranian mul­lahs, Russian oli­garchs or oth­ers,” Wilson said. “The Enablers Act is a crit­i­cal nation­al secu­ri­ty measure.”

ICIJ by Will Fitzgibbon

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