LAS VEGAS — As the Biden administration pushes ahead with an effort to combat global corruption, its primary focus is on a U.S. Treasury Department process to create a registry of the individuals behind legal entities, according to a senior official who spoke last week during an anti-money laundering (AML) conference here.
“Our key priority — our biggest focus — is building a beneficial ownership registry that’s not only useful to U.S. law enforcement, but useful to our financial institutions as well,” said Scott Rembrandt, deputy assistant secretary for strategic policy at the U.S. Treasury Department. “That, we believe, can help us do more to combat corruption that anything.” Rembrandt’s comments came during the annual conference held by the Association of Certified Anti-Money Laundering Specialists (ACAMS).
“Misuse of legal entities is one of the yawning gaps in the U.S. [AML net] that we need to better address, and we are addressing,” he said.
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The Biden administration launched its anti-graft campaign on June 3 when it released a study memorandum that prioritized public corruption as a national security issue. The memorandum gave the U.S. government 200 days to outline ways of combating corruption-related illicit finance, to take action related to the flow of corruption funds into real estate, and to find new ways to cooperate with foreign partners, noted Rembrandt, who also heads the U.S. delegation to the global AML standard-setting Financial Action Task Force (FATF).
“It’s meant to highlight that combating corruption is a key national priority,” Rembrandt said. “And corruption is a key national security threat because it not only undermines the rule of law, it hurt democracies, it fosters radicalism and it also exacerbated mass migration.” Rembrandt explained that for those individuals who grow up in countries where bribes must be paid to get good grades in school, to get a driver’s license, to succeed in business, there grows a lack of confidence in the government. “That leads to a lack of support for democratic governance, which ultimately hurts us.”
<b>More expected from financial institutions</b>
When ACAMS representative William Grob, who moderated the discussion, asked what message the memorandum intended to send to financial institutions, Rembrandt confirmed that one goal was to enlist greater private sector assistance.
“Yes, in part it’s meant to focus the financial sector’s attention on what more can be done to combat corruption,” Rembrandt said. “I think there’s an expectation that financial institutions will understand the risks related to corruption — depending on the products and services they offer and the geography of their clientele — and implications for customer due diligence and enhanced due diligence.” Financial institutions should ask themselves whether they service politically exposed persons (PEPs) or senior foreign political figures, or whether there are types of transaction monitoring programs the institution can put into place based upon their risk.
“For many financial institutions, they’re already doing this, but [the memorandum] is to amplify this for folks both here and abroad,” Rembrandt added.
<b>Government priorities and rulemaking</b>
Rembrandt observed that there also is a greater expectation with regard to “what the U.S. government itself needs to do.” Developing rules that will bring into force the requirements of the Corporate Transparency Act (CTA) — legislation enacted by Congress on January 1 as part of sweeping AML reforms — is Treasury’s top priority, he said.
The CTA’s goal is to prevent criminals from using shell companies to anonymously engage in financial transactions tied to illicit activity, allowing them to launder money with virtual impunity. Moving forward to create a registry containing information about the beneficial owners of U.S. legal entities, and finding ways to reduce the laundering of corrupt funds via real estate “are among several issues that we as the federal government need to manage,” he said.
On April 1, Treasury’s Financial Crimes Enforcement Network (FinCEN) took the first step in what will be a months-long rulemaking process to enact the CTA, issuing an Advanced Notice of Proposed Rulemaking that requested public comment. FinCEN is required to issue a final rule implementing the registry by January 1 of next year. Then, the next step will be for FinCEN to issue a Notice of Proposed Rulemaking (NPRM) outlining its implementation plan and once again seeking public comment.
The process is being watched closely by the financial services industry as the final rule could have a significant impact on the customer due diligence (CDD) obligations of banks and other financial institutions.
“When FinCEN publishes the NPRM for beneficial ownership, they, and we, would welcome comments on how the registry would actually work and ultimately how it could be used for CDD purposes, which has some implications for combating corruption,” Rembrandt explained.
<b>Global cooperation sought</b>
He added that working more closely with global partners is a high priority for the Biden administration as “cross-border flows of corrupt proceeds continues to be a very significant issue.”
Indeed, efforts are underway to hold a “summit of democracies” this year that involves inviting dozens of democratic governments to a virtual meeting “to talk concretely what more we can do to combat authoritarianism, human rights abuses, and corruption,” Rembrandt explained.
“Broadly, I think we want to get our own house in order and plug some of the outstanding gaps related to real estate,” he said. “And then we want to figure out how we can offer foreign governments technical assistance in new and improved ways of combating corruption.”