Biden must go beyond sanctions to rid America’s financial system of dirty money


Announcement by Russian President Vladimir Putin on February 27 raising the alert status Russian nuclear forces in response to increasingly strong Western sanctions – particularly those imposed on itself and its top oligarchs – reinforces the role that limiting illicit financial flows must play in a broader Western strategy of containment.

Corruption and illicit financial flows directly contributed to the invasion of Ukraine in three ways. First, they are tied to Putin and his cronies’ ultimate goal of political survival and the money, lifestyle and impunity that go with it. Putin and his oligarchs stole tantalizing quantities money from their own people and hideouted safely in countries renowned for their high standards of rule of law, including the United States, United Kingdom, Switzerland, Germany and other European Union countries. Western sanctions threaten this regime of government.

Second, corruption and the illicit financing associated with it have to helped keep “near abroad” governments largely in line with Putin’s wishes, particularly Ukraine. As the Ukrainian people rose up and eliminated their own kleptocratic regimes, Putin resorted to violence, culminating in the invasion.

Jodi Vittori

Jodi Vittori is a non-resident researcher in the Democracy, Conflict and Governance program. She is an expert on the links between corruption, state fragility, illicit finance and US national security.

More >

Moreover, corruption helps to partly explain some of the equipment problems that hamper Ukraine’s defenses today. Ukrainian civil society and reformist politicians have cleaned up its defense sector after Ukraine’s venal senior leadership drained the country’s forces, selling the best equipment on international arms markets and leaving the remnants to their own troops. His army came a long road, but it is difficult to repair decades of damage in such a short time.

Third, Russia has used dirty and questionable money to advance its foreign policy priorities in Western countries with the help of various enablers, including leading law firms, accountants, public relations firms, consulting firms, lobbyists, art dealers, arms dealers and banks. Former German Chancellor Gerhard Schroeder pushed for the Nord Stream 2 pipeline and sits on the board of Russian energy giant Rosneft. Former French Prime Minister François Fillon is on the board of Russia’s largest petrochemical company. In 2020, the UK Parliamentary Intelligence and Security Committee documented Russian interference in the British Parliament, including the Brexit referendum. In the United States, Russian interference has been documented in the Muller rreportof former President Donald Trump real estate scandalsson of President Joe Biden and its business links Burismaand more.

As a result, increasingly severe Western financial sanctions are an important development. Coordinating such broad and sweeping sanctions has certainly not been an easy task, and Western governments are to be applauded. Of particular note is the creation of a transatlantic task force to identify and seize the assets of sanctioned individuals and companies, as well as to identify and freeze the assets of the families of the oligarchs and those of their enablers.

But these sanctions will only be useful if governments immediately publish lists of assets already known to be owned or controlled by oligarchs. They rarely hold their offshore assets in their own name, instead resting on anonymous front companies, trusts, foundations, etc. Every day that passes without banks, real estate companies, accountants and other financial guardians being able to verify transactions against lists of assets known to the oligarch is another day when those assets can be moved to where the authorities Westerners cannot reach. Partial asset listings publicly available today are better than full asset listings a year from now.

In the long term, the financial pillar of power must be an important part of a containment strategy against Russia, not an afterthought. There are important steps the Biden administration and Congress can take now to make this more effective.

First, the Biden administration should immediately end a “temporary” exception to the United States Patriot Act in place since 2002 which allows real estate professionals and dealers of luxury cars, boats and planes to avoid anti-money laundering controls. the Treasury Department should also expand current requirements for title insurers to provide information on cash purchases of high-value residential properties in specific metropolitan areas to cover all transactions nationwide, whether commercial or residential.

Second, the Treasury Department should move quickly to end the ability to form anonymous front companies in the United States. the draft rules that the department released in December was a good start, but like many anti Corruption and anti-crime groups have pointed out that the language could be much stronger. The government should also create data base of this information for law enforcement and the intelligence community, as well as training programs on how to access and use these sources.

Third, to minimize the likelihood of federal contracts inadvertently going to Russian oligarchs and other sanctioned entities, the Biden administration should prioritize the implementation of Section 885 of the National Defense Authorization Act 2021. This requires companies that receive federal contracts or grants over $500,000 to report their beneficial owners in the Federal Recipient Performance and Integrity Information System (FAPIIS). As with most FAPIIS information, beneficial ownership information must be publicly available.

The United States, together with its allies, should also pressure countries that have not signed sanctions not to act as an intermediary allowing Russia to circumvent financial and other restrictions. This applies in particular to the United Arab Emirates (UAE). The United Arab Emirates, and in particular dubai— was used as a playground, residence and money laundering location for Russian oligarchies. It is perhaps not surprising that many plane belonging to Russian oligarchs have landed in the United Arab Emirates since the new sanctions were announced on February 26, according to aircraft tracking websites. Indeed, the United Arab Emirates has just been placed on the list of the Financial Action Task Force gray list for its lack of control over money laundering. Sanctions against the oligarchs will be of little use if US allies act as a conduit for them to retain their illicit gains.

Congress also plays an important role. It should immediately pass the Catalysts Act, which would require lawyers, accountants, investment advisers, public relations firms and others to identify the sources of funds that are criss-crossing their accounts. Congress should also provide emergency appropriations to the Treasury Department, other key government agencies, and the new anti-oligarch task force these agencies therefore have the personnel and funds to track down the wealth of the oligarchs. It is to significantly expand the resources and powers of the United States’ financial intelligence unit, the Financial Crimes Enforcement Network (FinCEN), and associated intelligence and law enforcement capabilities against white-collar crime. and corruption. Even though the US dollar is the world’s reserve currency and underpins the global economy, FinCEN is only the size of Australia’s financial intelligence unit. Although Congress authorized additional funds last year, it was not enough.

None of this is a panacea for financially containing Putin and his oligarchs, but it would show the world that the United States is determined to rid its financial system of dirty money. These programs will bring additional benefits in that they will help prevent dirty money from Chinese oligarchs, organized crime, human traffickers and other malicious actors from easily gaining access to the US financial system, as well as to deter certain tax evasion schemes. The best time to begin these measures would have been decades ago, before Putin and his oligarchs could take advantage of lax US rules. The second best time to start is now.


Comments are closed.