The United States Treasury is attempting to overhaul anti-money regulations via the implementation of sweeping reforms, while also seeking to reduce the burden placed on American financial institutions in the process. Arguably one of the largest and longest-standing flaws in the U.S. anti-money laundering crusade remains the lack of transparency across the financial sector with respect to the use of shell companies to conceal the true sources of income behind companies helping to propel potentially illicit financial activity both domestically and abroad. The passing of the National Defense Authorization Act (NDAA), and within it the U.S. Corporate Transparency Act, in early January will require both newly formed and existing American entities to report their ultimate beneficial ownership information into a database that will be maintained by the Treasury’s Financial Crimes Enforcement Network (FinCEN). An enhanced BSA whistleblower program will also be enacted under the Act that will provide financial compensation to individuals reporting information on BSA violations that lead to prosecutions/monetary penalties exceeding a $1 million threshold. The Treasury Department is confident that soon the NDAA will effectively close several loopholes that criminals have successfully used to clean their dirty money, but have expressed that additional resources will be required for these changes to come to fruition.
Under the umbrella of the Treasury is of course the Financial Crimes Enforcement Network (FinCEN), an agency tasked with analyzing pertinent financial information to combat domestic and international financial crimes and as such, assisting in enforcing these new measures. FinCEN Director Kenneth Blanco has made it clear that rolling out the NDAA both properly and efficiently will be key for all parties involved. “The priority is to make sure that we do everything that we can to implement the [law], everything that we can to get FinCEN in a position where it can accomplish that,”4 stated Blanco at a recent virtual forum hosted by the International Institute of Bankers. He is also very optimistic about the law itself and sees it as a great opportunity for the U.S. financial sector to take a step forward with respect to bringing about increased rates of AML/CFT-related prosecutions. However, when Director Blanco was pressed to provide concrete details on implementation, he noted that his team was still in the process of gathering all of the necessary information needed to make informed decisions. Unfortunately for U.S. financial service providers, additional information on these regulations is not expected to be made available for some time, as FinCEN has nearly one year to publish the regulations, and an additional two years to put them in play. Furthermore, freshly minted Secretary of the Treasury Janet Yellen has noted that her department intends to spend the greater part of 2021 studying current rules regarding suspicious activity reports (SARs) filed by banks and financial institutions as part of the AML provisions contained in the BSA. Nevertheless, Yellen too has expressed the urge to implement the AML provisions of the NDAA as quickly as possible so that efforts can turn to building a formidable beneficial ownership database without cutting any corners.
In addition to the aforementioned whistleblower reward program and establishing regulations regarding exactly who will be required to file beneficial ownership information, one of the largest undertakings under the NDAA’s AML Control Act will be improving coordination and information sharing between FinCEN, federal regulatory agencies, law enforcement and national security bodies and of course, financial institutions. To do this effectively, FinCEN will need additional resources, including a significant increase in full-time employees. Altogether, FinCEN’s staff currently makes up less than 1% of that of the U.S. Treasury Department as a whole. Wall Street Journal writer Dylan Tokar notes that in 2020, FinCEN requested a budget of roughly $130 million, with allocations for 346 full-time employees. A Congressional Budget Office report from 2019 that reviewed an earlier version of the beneficial-ownership bill estimated the one-time cost of updating FinCEN’s IT systems to build the registry alone would be about $40 million.4 It is safe to say that given the depth of measures found within the greater Defense Act, the budget will need to be increased exponentially to meet the demands for successful implementation.
Cyprus To Launch National Beneficial Ownership Registry
The eastern Mediterranean country of Cyprus recently announced plans to launch a register that will create increased transparency with respect to beneficial ownership structures potential being used as a vehicle for criminals and PEP’s to clandestinely stash their cash. The small country has developed into a key player in the global fight against illicit finance given its status as an international financial center through which an increasing number of foreign entities have chosen to operate. This coupled with Cyprus’ close geographic proximity to several high-risk countries has created unique money laundering and terrorism financing risks that threaten the EU and other neighboring countries, this according to European regulators. The information collected via the Ultimate Beneficial Owner (UBO) register is expected to reveal pertinent information on the true ownership structure and perhaps the primary sources of funding for the thousands of companies incorporated on the island. Cyprus companies will be required to enter the requisite details regarding their respective hierarchies into the register within six months of the established March 16th start date.
Analysts have speculated that some of the purported shell firms operating in Cyprus will simply seek to change jurisdictions rather than reveal beneficial ownership information that could put them in a compromised position. Nevertheless, the move is being lauded as a much needed step in the right direction for a country reeling from recent fraud and corruption scandals and one long synonymous with illicit finance. However, global anti-corruption body Transparency International has stated that regardless of this move, more work needs to be done to bring Cyprus up to speed with international standards, with one representative for the NGO noting that the country was “super late” in incorporating AML regulations into domestic law.1 Transparency International currently ranks the Mediterranean island nation at 42/180 on its most recent corruption perceptions index – a leading indicator of public sector corruption.
Ex-President of France Jailed for Corruption
In an unprecedented ruling, a Paris court on Monday sentenced former President of France Nicolas Sarkozy to three years in prison over corruption and influence peddling. The former leader, who held his position from 2007 to 2012, was found guilty of attempting to bribe a magistrate in 2014 in exchange for confidential information regarding a legal case over his previous campaign financing efforts. Sarkozy’s bribery scheme was ultimately discovered as part of a separate probe led by French authorities into claims that the ex-President had accepted illegal payments from L’Oreal heiress Liliane Bettencourt for his 2007 presidential campaign.2 Sarkozy and his lawyer, Thierry Herzog, reportedly sough to bribe senior judge Gilbert Azibert with a prestigious job in Monaco should he return the aforementioned information they requested.
Sarkozy becomes the first president in the modern history of France to both have been convicted of corruption and have been sentenced to a jail term. Sarkozy has the right to be detained under house arrest while wearing an electronic monitoring device, a standard clause for sentences of two years or less in France. While the former president plans to appeal the outright conviction, the reputational damage to a once widely respected elected official has already been done.
UK Court Sentences Former Oil Executive on Bribery Charges
Paul Bond, a former sales manager at Dutch energy services company SBM Offshore NV was convicted on two counts of conspiracy to bribe public officials in Iraq to secure lucrative contracts for his firm in the early 2000’s. Bond becomes the fourth oil executive to be convicted on similar charges following a lengthy investigation by the United Kingdom’s Serious Fraud Office (SFO) – a department of the UK government tasked with investigating and prosecuting significant cases of regional fraud and corruption – into improprieties in the European energy sector. The nearly five-year probe ultimately unveiled more than “$17 million in bribes were paid to secure contracts that would benefit Monaco-based oil-services company Unaoil Group and its clients, which included SBM.”3 These contracts were reportedly related to the building of oil pipelines and offshore mooring buoys in Iraq, with the SFO estimating the total value of these contracts at approximately $1.7 billion collectively.
While Bond has vehemently denied any wrongdoing related to the alleged illegal payments, the SFO’s evidence that Unaoil employees worked with the former executive and on behalf of SBM to make these payouts ultimately sealed his fate. Bond was ultimately sentenced to 3.5 years imprisonment on each guilty count, with the terms to be served concurrently.
- Kambas, Michele. “Cyprus to Lift Veil of Secrecy with Register of Company Owners.” Reuters, Thomson Reuters, 3 Mar. 2021.
- Schofield, Hugh. “Sarkozy: Former French President Sentenced to Jail for Corruption.” BBC News, BBC, 1 Mar. 2021.
- Sun, Mengqi. “U.K. Court Sentences Former SBM Executive to Prison in Bribery Case.” The Wall Street Journal, Dow Jones & Company, 1 Mar. 2021.
- Tokar, Dylan. “Anti-Money-Laundering Unit Must Staff Up to Fulfill Reform Mandate, Official Says.” The Wall Street Journal, Dow Jones & Company, 3 Mar. 2021.