U.S. Strategy on Countering Corruption Signals Focus on Enforcement

Client Alert  |  December 13, 2021

  1. Executive Summary

On Monday, December 6, 2021, the Biden-Harris Administration released the United States Strategy on Countering Corruption (the “Strategy”),[1] the first of its kind. The Strategy culminates a months-long process set in motion when President Biden declared that the U.S. Government’s efforts against corruption represent a “core United States national security interest.” As the Administration explained in a June 3, 2021 National Security Study Memorandum, “corruption threatens United States national security, economic equity, global anti-poverty and development efforts, and democracy itself.”

The Strategy seeks to broaden and energize the Government’s anti-corruption efforts by focusing on a range of policy and enforcement strategies coordinated across executive branch agencies. While many of the goals and programs described in the Strategy have been discussed for years by U.S. Government officials, the Strategy signals that the White House is elevating the priority of anti-corruption policy and enforcement efforts above those seen in recent years. Ultimately, while the Strategy is an important affirmation of an anti-corruption agenda for the Administration, time will be needed to assess its impact on reducing corruption globally, its stated goal. From an enforcement perspective, the Administration’s significant emphasis on combating corruption strongly points toward increased action, which echoes recent U.S. Department of Justice (“DOJ”) pronouncements pledging a renewed focus on corporate criminal enforcement. For the private sector, these developments emphasize the importance of implementing and monitoring corporate anti-corruption compliance programs.

The Strategy announced this week identifies five “pillars” on which the Administration intends to build its evolving anti-corruption efforts:

  • Modernizing, coordinating, and resourcing U.S. Government efforts to fight corruption;
  • Curbing illicit finance;
  • Holding corrupt actors accountable;
  • Preserving and strengthening the multilateral anti-corruption architecture; and
  • Improving diplomatic engagement and leveraging foreign assistance to advance policy goals.

As detailed below, the Strategy has the potential to impact, among other programs, (1) DOJ’s enforcement activities, (2) the U.S. Government’s overarching anti-money laundering regime, and (3) the Administration’s anti-corruption work abroad—both on its own and through multilateral initiatives in conjunction with the European Union and other foreign governments.

  1. Background: The United States Strategy on Countering Corruption

The Strategy outlines in broad terms the Administration’s plan for the U.S. Government to tackle corruption—including through increased coordination among federal agencies, foreign governments, multinational entities, and non-governmental organizations; increased funding for established U.S. anti-corruption enforcement activities; the integration of enhanced anti-corruption practices into various federal programs; and the creation of new, targeted initiatives. The Strategy highlights deficiencies in the U.S. Government’s current approach, such as the inability of officials to timely access information regarding beneficial ownership of shell companies and insufficient information-gathering regarding U.S. real estate transactions, as well as successful practices that the Administration will continue and expand. The Strategy includes both initiatives that can and will be executed through federal agencies and plans that the Administration aspires to implement but that depend on congressional legislation or agreement with foreign governments.

The Strategy comprises five overarching parts, or pillars, each divided into two to five strategic objectives.

Pillar One – Modernizing, Coordinating, and Resourcing U.S. Government Efforts to Better Fight Corruption. In addition to improving data collection and information sharing among federal agencies, this pillar outlines new initiatives within federal agencies, such as new anti-corruption teams in the Treasury and Commerce Departments and a new beneficial ownership data system for use by law enforcement as part of the Administration’s support of Financial Crimes Enforcement Network (“FinCEN”) authorities. This Pillar also reveals the Administration’s plans to integrate anti-corruption practices into its other priorities, as by placing new conditions on foreign aid to fight the COVID-19 pandemic and to counter climate change.

Pillar Two – Curbing Illicit Finance. This pillar describes initiatives to improve the U.S. anti-money laundering regime, including its coordination with U.S. allies and other partners. For example, because billions of dollars in criminal proceeds are reported to be laundered through the U.S. real estate market, the Strategy announces that the Treasury will issue reporting requirements for “those with valuable information regarding real estate transactions.” In a similar vein, the Treasury will consider reviving a 2015 proposed rulemaking that would prescribe minimum standards for anti-money laundering programs and reporting requirements for certain investment advisors. Federal agencies also are ordered to consider ways to increase policing of professionals and service providers, such as lawyers, accountants, and trust and company service providers (“TCSPs”), who have frequently been alleged to play key roles in facilitating money laundering.

Pillar Three – Holding Corrupt Actors Accountable. This pillar lays out the White House’s vision for scaling up efforts to enforce anti-money laundering and other criminal and civil anti-corruption laws. The Strategy places a renewed focus on efforts to counter kleptocracy, such as the Treasury’s pilot Kleptocracy Assets Recovery Rewards program, which would make payments to individuals who provide information that leads to the recovery of stolen assets linked to foreign government corruption held at U.S. financial institutions. This pillar surveys the Administration’s plan to continue targeting the tools used by corrupt actors to scrutinize “the demand side of bribery”—by using diplomatic and foreign assistance programming to enforce and enact legislation in countries where bribery is prevalent. This plan also includes the launch of a new Democracies Against Safe Havens initiative to coordinate international efforts to eradicate safe havens for illicit funds. Further, this pillar previews that, following the priorities for anti-money laundering and counter-terrorism financing policies FinCEN issued in June 2021, FinCEN plans to regulate how financial institutions should incorporate anti-corruption measures into their risk-based anti-money laundering programs.

Pillar Four – Preserving and Strengthening the Multilateral Anti-Corruption Architecture. As this pillar describes, the Administration plans to work with allies and partners to more effectively implement multilateral treaties and frameworks for combatting corruption. Domestically, this pillar also lays out initiatives to improve the resilience of security and defense institutions. For example, the Department of Defense will elevate and prioritize funds for institutional capacity-building activities, aligned with NATO’s Building Integrity program. In particular, the U.S. Government and other donor countries will collaborate with international financial institutions and multilateral trust funds to strengthen anti-corruption efforts in their programs and allocation systems.

Pillar Five – Improving Diplomatic Engagement and Leveraging Foreign Assistance Resources to Advance Policy Goals. The final pillar outlines the Administration’s objectives for making anti-corruption efforts a key component of its foreign policy. For example, it will launch initiatives to reduce transnational corruption, such as a new Anti-Corruption Solutions through Emerging Technology program, which will engage government, civil society, and private sector actors to collaborate on tracking, developing, improving, and applying new and existing technological anti-corruption solutions. To further develop ways to respond quickly to emerging areas of risk, the U.S. Government also will launch two new response funds: (1) the Anti-Corruption Response Fund implemented by USAID to support, test, and pilot anti-corruption programming; and (2) the Global Anti-Corruption Rapid Response Fund implemented by DOJ and the State Department to enable expert advisors to consult with and assist foreign anti-corruption counterparts.

  1. DOJ Anti-Corruption Enforcement

The Strategy emphasizes that “aggressive enforcement action” is crucial to root out widespread corruption. The Strategy plans to expand  criminal and civil law enforcement activities under the Foreign Corrupt Practices Act (“FCPA”) and other statutes, to increase coordination across the U.S. Government (and with foreign government partners and private actors), and to develop and implement new tools to broaden U.S. regulators’ reach. Responsibility for implementing these core components of the Strategy will naturally fall on DOJ, the SEC and other enforcement authorities.

Increased Enforcement: Given the Strategy’s focus on “vigorous enforcement,” the coming years likely will see a renewed DOJ focus on complex investigations into foreign bribery, misuse of cryptocurrency, and money laundering, among other areas. The uptick in investigations may arise through cross-referral of corruption matters between U.S. Government agencies and from other countries—as the Strategy calls on the U.S. Government to rely on greater cross-border cooperation in detecting, tracking, and investigating corruption schemes. The Strategy also contemplates greater cooperation with partner countries through joint investigations and coordinated prosecutions.

Increased Public-Private Coordination: In addition to prioritizing cooperation within the U.S. Government and with partner countries, the Strategy elevates the importance of coordination across various public and private institutions—with the goal of deepening and broadening anti-corruption enforcement capabilities and impact. As an example, the Strategy outlines enhanced collaboration among the U.S. Government and foreign policy partners to identify industries, financial channels, geographic areas, and governmental institutions and officials for increased scrutiny.

The Strategy focuses on expanding successful asset recovery programs that rely on individual whistleblowers. For example, the Strategy highlights DOJ’s existing “Kleptocracy Asset Recovery Initiative,” which since 2010 has facilitated the recovery of more than $1.7 billion in corruption proceeds by targeting the associates of corrupt foreign regimes. Building on this work, the Strategy introduces a new pilot Kleptocracy Asset Recovery Rewards Program, funded pursuant to the FY21 National Defense Authorization Act, that will create concrete financial incentives for reporting proceeds of foreign bribery. Treasury will run the pilot program and “provide payments to individuals for information leading to the identification and recovery of stolen assets linked to foreign government corruption held at U.S. financial institutions.”

Development of New Anti-Corruption Tools: The Strategy recognizes the need for new tools to broaden the reach of anti-corruption enforcement activities. In particular, the Strategy emphasizes the Administration’s commitment to working with allies and partners on “enacting legislation criminalizing the demand side of bribery” and enforcing such laws here and abroad—in the “countries where the bribery occurs.” Among the legislative fixes under consideration is an amendment to the FCPA to expand its application to foreign persons and government officials directly involved in bribery schemes—a perennial proposal that may finally find greater traction among lawmakers.

  1. Enhancements to the U.S. Anti-Money Laundering Regime

In the name of combating corruption, the White House is signaling strongly through the Strategy that it intends to push forward several long-standing recommendations for enhancing the U.S. anti-money laundering regime. These recommendations focus on financial gatekeepers, corporate transparency, and industry-specific initiatives.

Gatekeepers—Overview: The Strategy’s most controversial area of AML enhancements is the potential extension of mandatory compliance and reporting requirements to non-financial institution professional service providers. These include lawyers, accountants, trust and company service providers, incorporators, registered agents, and nominees, who are “gatekeepers” to the U.S. and international financial system.

The lack of mandatory AML requirements for gatekeepers has long been an area of discussion and past and current proposed legislation, but has faced objections from self-regulating professions, especially the legal profession, on the basis that regulations would not deter lawyers who knowingly facilitate money laundering and that reporting requirements would undermine traditional expectations of client confidentiality. Because the extension of mandatory AML requirements to gatekeeper professions would require legislative amendment to the Bank Secrecy Act (“BSA”), the Strategy explains that the White House will work with Congress as necessary to try to secure additional authorities.

Corporate Transparency: The Strategy highlights that FinCEN will continue efforts already underway to establish a beneficial ownership database as required by the Corporate Transparency Act. Doing so not only would meet the congressional mandate, but also answer the call of law enforcement, prosecutors, and the Financial Action Task Force to allow timely access to adequate, accurate, and current beneficial ownership information to federal agencies and financial institutions. Gibson Dunn published a detailed summary of the 2020 AML Act here and further analysis of the Corporate Transparency Act here.

Real Estate: The Strategy announces that FinCEN will move forward with applying permanent AML regulations to the real estate industry. In conjunction with the Strategy, FinCEN published an advance notice of proposed rulemaking on December 8, 2021 requesting public comment on effective methods to collect and report information relevant to preventing money laundering through real estate purchases in the United States.

Investment Advisors: The Strategy reveals the Biden Administration’s intent to re-examine a proposed rule, originally published in 2015, to require registered investment advisors to implement Bank Secrecy Act/anti-money laundering programs and to report suspicious activity. Imposing AML requirements on registered investment advisors, which work closely with private equity funds and hedge funds, would address a gap in the U.S. AML regime identified by the FATF and bring the United States closer to the legal regimes of other financial-center jurisdictions. Gibson Dunn published a client alert discussing the 2015 proposed rule in detail.

Antiquities and Art Dealers: The Strategy notes FinCEN’s recent actions with respect to dealers in arts and antiquities. FinCEN will submit a report to Congress later this year, as required by the 2020 AML Act, on facilitation of money laundering, terrorism finance, and other illicit financial dealings through trade in works of art. Further, FinCEN solicited public comment in September 2021 on an advance notice of proposed rulemaking as the first step to implementing the recent amendment to the BSA to extend the definition of financial institution to include dealers in antiquities.

In sum, most of the proposals in the Strategy have been the subject of debate and proposed rulemaking for several years, but have languished due to a lack of clear administration priorities or resources (or both). The Strategy renews efforts in this area, which may result in substantial expansions to the U.S. AML regime.

  1. Anti-Corruption and National Security

The Strategy was published on the eve of the Summit for Democracy, an effort to bolster cooperation among like-minded democracies. This Summit was timed to coincide with International Anti-Corruption Day (December 9) and International Human Rights Day (December 10). More than 100 countries were invited to the Summit, but China and Russia were not among the invitees.

In the lead-up to the Summit, U.S. officials clarified that they consider corruption a threat to democracy. Treasury Secretary Janet Yellen and USAID Administrator (and former UN Ambassador) Samantha Power wrote in a joint editorial in the Washington Post that corruption has made democratic decline possible: “Autocrats use public wealth to maintain their grip on power, while in democracies, corruption rots free societies from within.”

To address the transnational nature of corrupt financial flows, the Strategy highlights action taken by the Office of Foreign Assets Control (“OFAC”) to freeze the assets of foreign officials who have engaged in major schemes to embezzle public funds and corrupt public procurement. OFAC has imposed asset-freezing sanctions and visa restrictions on more than 200 foreign officials since Executive Order 13818, which was issued on December 20, 2017, implementing the Global Magnitsky Act.

The Strategy highlights the United States’ intent to increase multilateral cooperation in levying economic sanctions and visa restrictions to curtail corruption. The Strategy also notes the close cooperation between the United States and the United Kingdom on the United Kingdom’s Global Anti-Corruption Sanctions. On December 2, 2021, Australia’s Parliament adopted the Autonomous Sanctions Amendment, granting sanctions authority similar to the U.S. Global Magnitsky Act by unanimous vote.

  1. Recent European Union Anti-Corruption and AML Actions

The Biden Administration prioritized talks with the EU regarding the joint fight against corruption from the very beginning during its first months in office. As part of the EU-U.S. summit on June 15, 2021, the parties—in a joint statement—stated that the EU resolves to “lead by example at home” by implementing “concrete actions to […] fight corruption.”

The Treaty on the Functioning of the EU recognizes corruption as a “euro-crime,” among the particularly serious crimes with a cross-border dimension for which minimum rules on the definition of criminal offences and sanctions may be established (TFEU Art. 83.1). With the adoption of the Stockholm Program in 2010, the European Commission (in close cooperation with the Council of Europe Group of States against Corruption) has been given a political mandate to measure efforts in the fight against corruption and develop a comprehensive EU anti-corruption policy. The European Commission has, however, not made meaningful progress since then. Currently, the anti-corruption laws of the 27 member states—including their extraterritorial reach—vary across the EU, and the EU has not yet adopted any harmonization measures to change this.

Cross-Border Enforcement: Over the past decade, we have seen increasing cooperation among U.S. enforcement agencies and their counterparts in Europe and worldwide. We expect this to continue and grow in the years to come. One of the most evident examples of this trend is an investigation that led to parallel settlements between a European company and the authorities in the United States, France, and the United Kingdom in January 2020. As part of the global settlement, the company agreed to pay combined penalties of more than $3.9 billion to resolve foreign bribery charges, making this settlement the largest anti-corruption settlement to date.

New Anti-Money Laundering Regulations: During the past few years, the EU has significantly increased its fight against money laundering. Most notably, the EU member states had to implement into their national laws the changes introduced by Directive (EU) 2018/843 on preventing the use of the financial system for money laundering or terrorist financing (the Fifth Anti-Money Laundering Directive) by January 10, 2020. As a result, many economic players were subjected to new or enhanced AML requirements—including private financial institutions, cryptocurrency traders, real estate agencies, and notaries. The Directive is intended to bring more transparency to the ultimate beneficial owners of legal entities, including foreign associations, and expands the number of individuals entitled to inspect transparency registers. It also increases reporting obligations of so-called “obliged persons.” Further, the Directive sets stricter standards with respect to customer due diligence requirements (i.e., know-your-customer requirements).

Continuing this trend, on July 20, 2021, the European Commission presented an ambitious package of legislative proposals to strengthen the EU’s anti-money laundering and countering the financing of terrorism (“AML/CFT”) rules. The package consists of four legislative proposals: a regulation establishing a new EU AML/CFT authority; a regulation on AML/CFT containing directly applicable rules, including in the areas of customer due diligence and beneficial ownership; a sixth directive on AML/CFT; and a revision of the 2015 Regulation on Transfers of Funds to trace transfers of crypto-assets (Regulation 2015/847/EU).

  1. Conclusion

The Strategy may well reflect an inflection point in the anti-corruption enforcement landscape under the Biden Administration, particularly when viewed in conjunction with Deputy Attorney General Lisa Monaco’s pronouncements in October 2021 on corporate criminal enforcement. These Administration initiatives and public statements are an important reminder of the value of actively reviewing corporate anti-corruption compliance programs, both to prevent violations and to obtain mitigation in a self-disclosure or enforcement context. In terms of its focus, specificity of effort, and call for cross-government coordination, the Strategy may reflect real change in the coming years of the Administration. The commitment to increased coordination between U.S. agencies as well as with foreign law counterparts, the focus on the demand side along with the supply side of bribery, and the use of anti-money laundering tools to combat corrupt financial flows, point toward a heightened enforcement environment in the near term. Companies, senior executives, and industry participants should expect an intensifying regulatory and enforcement anti-corruption landscape in the United States and abroad.

___________________________

   [1]   The White House, United States Strategy on Countering Corruption (Dec. 6, 2021), https://www.whitehouse.gov/wp-content/uploads/2021/12/United-States-Strategy-on-Countering-Corruption.pdf.

The following Gibson Dunn lawyers assisted in preparing this client update: Patrick F. Stokes, Stephanie L. Brooker, Adam M. Smith, John D. W. Partridge, Richard W. Grime, Michael S. Diamant, M. Kendall Day, Kelly S. Austin, Courtney M. Brown, David P. Burns, John W.F. Chesley, Benno Schwarz, Linda Noonan, Brendan Stewart, Samantha Sewall, Andreas Dürr, Victoria Granda, Katharina E. Humphrey, Nealofar S. Panjshiri, and Lindsay Bernsen Wardlaw.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues.  We have more than 110 attorneys with anti-corruption and FCPA experience, including a number of former federal prosecutors and SEC officials, spread throughout the firm’s domestic and international offices.  Please contact the Gibson Dunn attorney with whom you work, or any of the following:

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