FinCEN Issues Guidance on Kleptocracies and Foreign Corruption

The Financial Crimes Enforcement Network (FinCEN) recently issued guidance about kleptocracies and foreign corruption. The guidance includes insights into typologies and includes red flags. John and Elliot discuss the guidance, the global focus and nature of the problems identified in the guidance, and the value of the red flags as a training tool.

FinCEN Issues Guidance on Kleptocracies and Foreign Corruption TRANSCRIPT

Elliot Berman: Hi, John, how are you this week?

John Byrne: I'm good, Elliot. We're both excited to be here in Washington, DC, for the first annual AML Partnership Forum. So that gets started in a couple of hours and. We're very excited about the participation of law enforcement in addition to the private sector and the coverage of so many issues, which includes the one we're going to talk about now, and that's corruption.

Elliot Berman: Yeah. So, at the end of last week, FinCEN published an advisory on kleptocracy and foreign public corruption. There's some emphasis, although not by any means all of it, on some of the things coming out of the Russia Ukraine situation. Right, but it's much broader than that, and it's a worthy read.

We'd encourage everybody to read it, and we'll link to it. You'll be able to find the link to the release on our website. So, John, it was interesting. Some topics we're seeing happening a lot. There's some good red flag discussion. What was the thing that jumped off the page at you?

John Byrne: Well, just a couple of things. Obviously, the focus is on foreign public corruption. And as we've mentioned, kleptocracy, which of course, is rampant in Russia and around the world. But one of the things that they highlight, and it's not new to us, but that corrupt officials and others that are involved in things like bribery often purchase various US assets.

So they mentioned luxury real estate, hotels, private jets, and artwork. And, you know, we're dealing with antiquities and motion picture companies, which is interesting. All of these launder the proceeds of their corruption. Then they also point out another issue. That's top of mind with us, AML practitioners, and that's the anonymous companies or straw purchasers. So basically, in all the areas that we've been covering, many of these things in the anti-money laundering act are certainly tools to move illicit funds and further enable corruption. 

Elliot Berman: Yeah. They call out in here again, by example, not in any respect as a total. Some corruption activities were identified by the US government in Bella Reuss and also in El Salvador. So again, this isn't by any means strictly an Eastern European problem. This is a global problem, one that we continue to try to help folks identify and, therefore, interdict in the sense of pushing these people out of the financial system and also to report as required depending on their jurisdiction.

John Byrne: And I want to hear your thoughts about the red flag indicators, but, again, it's a really good advisory. There's a section in there to remind us of our BSA obligations, including SAR reporting customer due diligence and using 314, the information share. So all those things are always good reminders, but they say on the SAR filing instructions and requests that FIS and all filers reference this alert and include the key terms that they can search it. And then the number 2022 a001. You'll see that in the advisory. But to put that in SAR field two. And also, in the narrative to, make sure that you indicate a connection between the suspicious activity being reported and the activities highlighted in the alert. So I think that's good advice. You also noted that there are a series of financial red flag indicators—kleptocracy in general and in foreign pub public corruption. 

Elliot Berman: Yeah. And some of them were interesting. I thought some of them were, you know, what we would expect. But the first one kind of caught my eye, transactions involving long-term government contracts consistently awarded through an opaque selection process to the same legal entity or entities that share similar beneficial ownership structures.

So when you get done parsing through this, it's a little bit of an oh, that would make sense, but I don't know that that's one that I would have thought of personally or been able to articulate without seeing the red flag. So again, there are ten red flags. I'm obviously not going to read them all to you, but there's a range of the things they touch.

They talk about the issues, the potential issues with embassies and foreign government businesses that are conducted through personal accounts, and a number of other things. And so good training materials for you wherever you might be, in working with your staff. And a good thing to think about how your systems might help identify these types of activities.

John Byrne: Right. And just to close this out, we're going to have a number of key topics covered during this partnership forum for the next couple of days. And while we won't report on the specifics, I think it's safe to say that we'll certainly have a chat about some of the themes from This Week in AML, but also potentially, some blogs and interviews with some of the key presenters. We are very excited that the support is not just with the private sector, but we have key representatives from the IRS, Homeland security, the FBI, and a number of other law enforcement agencies. So, this is designed so that we can discuss issues together, you know, without press coverage, to further enable a sort of open dialogue.

And this is just so important to the AML community. So we'll cover some of the outputs in the next couple of weeks, either in this or in this particular venue that we're doing right now or this avenue, but also in more detail.

Elliot Berman: Yeah. So shameless plug. We're also doing our monthly webinar this month. It's April 28th, the live stream starts at 1:00 PM Eastern time, and the topic is domestic terrorism, and that's from a global perspective. So again, there's domestic terrorist activity going on in many places around the globe. [We're] talking about that with a great panel of experts. So, John, until next week, I hope we have a great time at the forum.

John Byrne: Yep. Take care. Talk to you soon.

Elliot Berman: Yep. Bye. Bye.