Financial Transparency Coalition

At the US Summit for Democracy in December 2021, the Biden administration made a series of ambitious policy commitments aimed at fighting corruption globally.The release of the first-ever nationwide Strategy on Countering Corruption was a welcome step, as it included both domestic and cross-border initiatives. Importantly, with Treasury Secretary Janet Yellen recognizing in her Summit remarks that that the U.S. might currently be “the best place to hide and launder ill-gotten gains”, the US administration for the first time squarely acknowledged the importance of cleaning up their act at home in the fight against corruption.

The main advance of the summit was for the US Treasury’s FinCEN, its financial crime-fighting unit, to initiate a series of rulemakings including on a modernization of the AML regime and the implementation of a beneficial ownership register. It also issued an Advanced Notice of Proposed Rulemaking (ANPR) to address money laundering via the real estate sector, something Global Financial Integrity (GFI) and wider coalitions such as the FACT Coalition in the US and the Financial Transparency Coalition (FTC) globally have called for years, most recently in the ‘Acres of Money Laundering’ report by GFI.

Globally the significance of the Summit was to start to address the role of the United States acting as a safe haven to global inflows of illicit finance by recognizing the problem and by implementing meaningful financial transparency measures. The success of these reforms will for a large part depend on the progress made in the year of action ahead.

The anti-corruption agenda is ambitious and comprehensive, but it does not come without challenges. While the US Office of Foreign Assets Control (OFAC) took the Summit as an opportunity to announce new sanctions against corrupt government officials, crooks aiding corrupt networks, and thugs involved in organized crime, questions remain on how the United States will fare in implementing its anti-corruption agenda when faced with conflicting foreign policy interests. For example, government officials from Equatorial Guinea, a country where US oil giant ExxonMobil has a huge presence and China is eyeing to establish a naval base, were not part of the sanction announcements by OFAC despite the long-standing authoritarian rule and human rights abuse concerns in the country.

So there is an important role for civil society to closely monitor whether the United States will follow through on its anti-corruption objectives in strategically important countries that also face concerns of democratic backsliding and corruption, such as India or the UAE. To this effect, USAID released several new initiatives, including a Grand Challenge seeking to cooperate with the private sector and civil society to find innovative ways to disrupt the looting of resources by corrupt officials abroad. Other initiatives include Anti-Corruption Response Funds to enable quick responses to emerging risks overseas, and the Global Defamation Defense Fund to protect journalists against lawsuits initiated by the kleptocrats they expose. It will be key to keep an eye on the implementation and impact of these initiatives in the year ahead.

In the United States itself, the anti-corruption strategy reflects meaningful commitments to address regulatory deficiencies. Although long overdue, the proposed real estate regulation for instance seeks to create transparency in both commercial and residential real estate transactions through a reporting obligation to be imposed on a wide range of actors including title and escrow companies, real estate agents, real estate attorneys, and closing agents. However, this ambitious scope comes with a risk, as it will likely prompt strong opposition from the legal and real estate industry. It remains to be seen whether Treasury will be able to take on the fight against these powerful industries and put forth a rule in 2022 that is as ambitious as its promised scope.

Moreover, the final Beneficial Ownership rule will likely come into effect before the end of 2022. Although FinCEN is still accepting comments on the draft rule, it demonstrates a good faith effort to implement the reporting requirements of the Corporate Transparency Act, covering a wide range of legal entities including trusts incorporated in US states that have been recently exposed by the Pandora Papers as being used for illicit finance. However, it is only the first of three expected regulations to implement the CTA. A second rulemaking is required to implement provisions on access and disclosure of beneficial ownership information, and a third to revise existing customer due diligence rules on beneficial ownership identification by financial institutions.

While the timeline for these additional regulations remains unclear, FinCEN has given itself two years after the effective date of the reporting rule to also evaluate a verification mechanism, which is essential to ensure accuracy of the information. This leaves the design of several crucial elements for a robust beneficial ownership registry open for discussion in the year ahead.

Ultimately, success of the reforms will for a large part depend on support from Congress. This is not only necessary to pass pieces of legislation on professional enablers, but also to appropriate the resources necessary for FinCEN to deliver on these reforms. With the Midterm elections coming up in November 2022 where President Joe Biden and the Democrats risk losing the House and Senate majority, it will be crucial for the administration to keep these efforts bipartisan.

Despite these challenges, the Biden administration has demonstrated an unprecedented awareness of the role that the United States itself plays in transnational corruption. As such, the new strategy marks a significant momentum for the United States to get serious about holding both foreign kleptocrats and domestic enablers of corruption to account. This offers hope that the US administration will be able to show meaningful progress in the fight against corruption at the follow-up Summit at the end of 2022.