Corruption, Human Rights in the Spotlight
There’s been a flurry of activity around Washington, DC this week. Sanctions are being issued on a near daily basis under the Magnitsky and Global Magnitsky authorities; the White House released the very first US Strategy for Countering Corruption, building on the identification of corruption and kleptocracy as core national security interests last summer; FinCEN has issued a notice of proposed rulemaking to implement the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA); and the agency is soliciting public comment on a potential rule to address the vulnerability of the US real estate market to money laundering and other illicit activity to protect the US financial system and real estate market from abuse by money launderers and other illicit actors.
This week, OFAC designated Alain Mukonda Mayandu of the Democratic Republic of Congo under the Global Magnitsky Human Rights Accountability Act (GLOMAG) for his support to corrupt, US-sanctioned billionaire Dan Gertler. Yesterday, individuals across three countries—Iran, Syria, and Uganda—were sanctioned for human rights violations and undermining democracy, including Syrian senior Air Force officials for participating in chemical weapons against civilians, Iranian officials and prison facilities for human rights violations, and Uganda's chief of military intelligence, Major General Abel Kandiho, for alleged human rights abuses committed under his watch.
Today, continuing its focus on human rights and corruption, the Biden administration sanctioned 40 individuals and entities—mostly in the Balkans, with a couple in Latin America tossed in for good measure—under GLOMAG. Included in that list is Zvonko Veselinović—a well known Serbian businessman, organizer of barricades, and alleged criminal. A court in Pristina, Kosovo, issued an international arrest warrant against him for setting up barricades and clashes with Kosovo special police, one of whom was killed in 2011. He is also linked to fuel, weapons, and drug smuggling between Serbia and Kosovo. The Kosovo prosecutor’s office is apparently investigating him for participating in the murder of a politician from northern Kosovo. He and a slew of his buddies, as well as companies he owns or controls have been designated today.
So why all the activity?
The United States, ahead of the Summit for Democracy that begins tomorrow and the World Human Rights Day on Friday is living up to its promise to target global corrupt actors, kleptocrats, and human rights violators, who not only negatively impact US national security, sully the US financial system, and skew financial, real estate, and other global markets, but also undermine democratic institutions and erode society’s confidence in their government structures, eating away at the very foundations of democracy, justice, and freedom.
The Summit for Democracy brings together the leaders of more than 100 nations, civil society, and the private sector to tackle the issues caused by corruption and human rights violations through collective action.
What does that mean?
For one, I think we see that the White House is serious about targeting corrupt actors across the globe. From human rights violators in Iran to corrupt actors in Serbia and Latin America, OFAC has been assiduously issuing designations, blocking these actors from the global financial system.
Second, with the release of the Pandora Papers this summer, the use of the US financial system by corrupt actors was brought into stark relief. The leaks did not reveal anything new, other than the sensationalistic set of actors who abuse the secretive offshore economy to hide assets, but they did underscore that so-called gatekeepers—attorneys, real estate agents, accountants, art and antiques dealers, and corporate service providers—who help build complex networks of corporate structures that help obscure financial flows and open the door for illicit actors to access the US financial system, are a serious problem that has been put on the backburner for far too long.
That’s why FinCEN is getting serious about addressing the problem of foreign kleptocrats and illicit actors buying up US real estate—a perfect, stable way to invest misappropriated funds. Global Financial Integrity in August released a report describing why the US real estate market is a “kleptocrat’s dream.”
To tell the story of why U.S. real estate continues to remain a favored destination for illicit activity, GFI built a database of more than 100 real estate money laundering cases from the U.S., UK, and Canada, reported between 2015 – 2020. The database and accompanying regulatory analysis in this report provide conclusive evidence that the current U.S. regulatory approach, using temporary and location- specific Geographic Targeting Orders (GTOs), has critical shortcomings that will require comprehensive reform before it can adequately address the threats to the U.S. financial system and national security.
FinCEN has been concerned about the use of the US real estate market to launder illicit funds for years, but now the agency is taking concrete steps to do something about it.
The Advance Notice of Proposed Rulemaking (ANPRM) reflects concerns highlighted in new White House Strategy on Countering Corruption, which spotlights the money laundering risks in the US real estate market, as well as the need to protect the sector from abuse by corrupt officials and other illicit actors. And while real estate associations and trade organizations have established some voluntary AML/CFT guidelines, those guidelines are not mandatory, and the sector has been abused for far too long.
Possible changes include applying reporting requirements that currently involve residential real estate to commercial real estate transactions. FinCEN may also require scrutiny of natural persons wishing to make non-financed real estate purchases and apply regulations nationwide instead of using geographic targeting orders (GTOs) in specific jurisdictions and renewing them every six months.
FinCEN has also issued a Notice of Proposed Rulemaking (NPRM) to implement the beneficial ownership information reporting provisions in the CTA to prevent malign actors from abusing legal entities, such as shell companies, to hide illicit funds.
All these initiatives are linked. As Deputy Treasury Secretary Wally Adeyemo said in a recent address to the Brookings Institution, anti-corruption is the centerpiece of the administration’s efforts to promote democracy.
Democracy depends fundamentally on institutions and on trust. Institutions perform the fundamental work of democratic government—from faithfully representing the interests of the people to ensuring everyone pays the taxes they owe. Institutions, in turn, depend on trust—trust between citizens to resolve their differences through the democratic process, rather than outside it, and trust in government to provide effective leadership in times of calm and of crisis.
Corruption is corrosive to both. It siphons resources away from democratic institutions and erodes people’s trust that these institutions will serve them in the first place.
These efforts are a great start to helping ensure that our financial and economic systems are not abused, but there’s hard work ahead. The government faces the tough challenge of balancing the people’s right to privacy with efforts to block illicit actors from using our financial system to undermine democratic institutions worldwide. Resourcing will also be a challenge. Enforcement, research, analysis, improved IT systems—all these cost money, and in an era of fiscal frugality, resources might be hard to come by.
But these are issues that need to be addressed. No one should be allowed to use loopholes to misappropriate assets, steal from the taxpayers, and then use secrecy havens or corporate vehicles to hide those stolen funds.
With the initiatives happening now, we are putting our money where our mouths are—not just condemning corruption and kleptocracy, and not just paying lip service to denouncing human rights abuses against citizens opposing corruption, perpetrated many times by the same corruptocrats who undermine democratic institutions in the first place—but cutting off the pathways to hiding their misappropriated wealth and returning those assets to the people from whom they were stolen.
Let’s do this!