Biden Ups the Ante on Fighting Corruption — Directs the Department of Justice and Other Key Agencies to Engage in an Interagency Review Designed to ‘Prevent and Combat Corruption at Home and Abroad'

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On June 3, 2021, President Biden issued a national security memorandum, “Establishing the Fight Against Corruption as a Core National Security Interest.”[1] The first national security memorandum of his presidency,[2] it lays out the relevant policy and strategies to be implemented, including the direction of an interagency report and recommendation on how to best bolster the ability of the United States government to counter corruption. The memo focuses on cooperation between domestic and international agencies in order to more effectively root out bad actors and ramp up enforcement efforts to prosecute those engaged directly in corruption, as well as financial institutions and others that indirectly facilitate such actions.

Policy

President Biden begins by noting the “staggering” effects that corruption has on the world economy, sapping between 2 to 5% of global gross domestic product. One concern that the memorandum and administration have focused on is ways in which proceeds of corruption overseas make their way to the United States through methods of anonymity — “proceeds of [corrupt] acts cross national borders and can impact economies and political systems far from their origin.” Expressing the need to address financial institutions and other actors that enable the “movement and laundering of illicit wealth in the United States and other rule-of-law-based democracies,” the memorandum specifically cites concerns related to “anonymous shell companies, opaque financial institutions, and professional service providers.” In a comment, a senior administration official added that the administration is looking at the means by which proceeds of corruption are being funneled through residential real estate in the U.S. in order to offshore ill-gotten gains, and a statement accompanying the memorandum mentions the administration’s intention to “crack down on tax havens and illicit financing.”

Underlining the importance of these efforts, the memorandum goes on to discuss how “[c]orruption corrodes public trust; hobbles effective governance; distorts markets and equitable access to services; undercuts development efforts; contributes to national fragility, extremism, and migration; and provides authoritarian leaders a means to undermine democracies worldwide.” Through a policy of “effectively preventing and countering corruption and demonstrating the advantages of transparent and accountable governance,” the administration seeks to “bring transparency to the United States and global financial systems; prevent and combat corruption at home and abroad; and make it increasingly difficult for corrupt actors to shield their activities.” Through this, the United States aims to secure a critical advantage for the United States and other democracies.

Strategy

Biden calls for “corrupt individuals, transnational criminal organizations,” and their facilitators to be held accountable, including taking criminal enforcement action against them. In doing so, he has directed the National Security Advisor to conduct an interagency review within 200 days and to submit a report and recommendations to the President for further direct action on how to achieve these goals.

This report should seek to “modernize, increase, coordinate, resource, and otherwise improve the ability of key executives and agencies” to combat corruption and illicit finance in the United States and international finance systems. In doing so, it calls on the report to ensure robust enforcement of federal law requiring companies to report beneficial ownership, reducing offshore financial secrecy, improving information sharing and, as necessary, identifying the need for new reforms.

The memorandum also speaks to holding bad actors accountable by freezing and recovering stolen assets and combatting money laundering, illicit finance, and bribery. Another big focus is U.S. cooperation with international agencies, with domestic agencies, and with private actors, civil society, media, and other oversight and accountability actors, including non-governmental agencies.

Lastly, in reference to the rise of foreign actors influencing the domestic U.S. political environment, the memorandum seeks recommendations to “counteract strategic corruption by foreign leaders, foreign state-owned or affiliated enterprises, transnational criminal organizations, and other foreign actors and their domestic collaborators, including, by closing loopholes exploited by these actors to interfere in democratic processes in the United States.”

The memorandum serves as a call to all relevant departments and agencies to “up their anti-corruption game,”[3] asking for the “broadest span of what each of [the] federal departments and agencies does on anti-corruption.”[4]

Continued and Increased Effort

The memorandum builds on many campaign promises of the Biden administration and policies that have already been in place, allowing the new administration to “hit[] the ground running,” according to a senior administration official. Even prior to the memorandum, the Biden administration engaged in significant enforcement against various foreign individuals using existing legal mechanisms, such as the Foreign Corrupt Practices Act, anti-money laundering rules, and Office of Foreign Assets Control penalties.

As has been well documented, enforcement under the Foreign Corrupt Practices Act has grown dramatically over the past 15 years with a corresponding increase in fine amounts, culminating in an average settlement in 2020 exceeding $500 million. This trend shows no sign of abating; for example, in early 2021, Deutsche Bank AG paid $122.9 million in penalties and disgorgement in resolution of Foreign Corrupt Practices Act investigations by the Securities and Exchange Commission and Department of Justice. Similarly, early 2021 has seen significant money laundering enforcement, with hundreds of millions in penalties being imposed on companies just within the first few months of 2021. And just prior to the release of the memorandum, on June 2, 2021, the Treasury Department’s Office of Foreign Assets Control imposed sanctions on three Bulgarian individuals and their network of 64 entities for allegations of corruption, including bribery.[5]

The memorandum signals that the Biden administration intends to increase these anti-corruption efforts, with greater prioritization, funding, and coordination. For example, the press call announcing the memorandum specifically referenced the Corporate Transparency Act, which directs the Treasury Department to establish “beneficial ownership registration” requirements for U.S. domiciled entities, as well as foreign entities that operate in the U.S. The Act seeks to bar illicit assets from hiding the proceeds of corruption behind anonymous shell companies, combatting money laundering and other financial crimes. It then directs the creation of a federal database to house the beneficial ownership information collected, facilitating cooperation between different U.S. agencies in the investigation and prosecution of financial crimes, including money laundering and violations of the Foreign Corrupt Practices Act. The memorandum specifically seeks recommendations from the report on strategies to “robustly implement” this law, and recently, Biden sought a budget proposal of an additional $60 million for the initiative, an increase of approximately 50 percent over what was enacted last year.

The administration also seeks to build upon other initiatives, such as the Department of Justice’s Kleptocracy Asset Recovery Initiative, which, since 2019, has recovered $1.5 billion in stolen assets, and the Anti-Money Laundering Act of 2020, which was passed last year over a presidential veto, and expanded the Bank Secrecy Act to include other entities such as dealers in virtual currencies, and established a new whistleblower reward program at the Department of the Treasury, offering volunteer whistleblowers of Bank Secrecy Act violations a reward of up to 30% of the funds recovered over a million dollars.

Takeaway

This emphasis on increased coordination, cooperation, and enforcement in conjunction with Congress’ increased focus on anticorruption and money laundering issues, is a clear signal that an increased and highly coordinated enforcement effort is on the horizon, with prosecutions of those involved in corruption and financial crimes following closely behind. Anticipating increased scrutiny, corporations, boards, and senior officers should act now to review and improve their anticorruption compliance programs and continue to pressure test compliance controls, reexamine high-risk relationships, and increase due diligence in acquisitions of entities dealing in corruption-prone countries.


[1] The White House, Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest, June 3, 2021, available at https://www.whitehouse.gov/briefing-room/presidential-actions/2021/06/03/memorandum-on-establishing-the-fight-against-corruption-as-a-core-united-states-national-security-interest/.
[2] See The White House, Background Press Call by Senior Administration Officials on the Fight Against Corruption, June 3, 2021, available at https://www.whitehouse.gov/briefing-room/press-briefings/2021/06/03/background-press-call-by-senior-administration-officials-on-the-fight-against-corruption/.
[3] Id.
[4] Id.
[5] Treasury Department, Treasury Sanctions Influential Bulgarian Individuals and their Expansive Networks for Engaging in Corruption, June 2, 2021, available at https://home.treasury.gov/news/press-releases/jy0208.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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