By Andrew A. Turner, J.D.
The Financial Crimes Enforcement Network has issued an advisory on financial activities of corrupt foreign political figures and their involvement in human rights abuses. The advisory includes a list of 14 red flags for which U.S. financial institutions should be alert.
FinCEN warns that the use of financial facilitators is one way that corrupt senior foreign political figures access the financial system to move or hide illicit proceeds, evade sanctions, or otherwise engage in illegal activity. These corrupt senior foreign political figures and facilitators, according to a FinCEN advisory, often contribute directly or indirectly to human rights abuses.
“FinCEN is issuing this advisory to warn financial institutions about the use of financial facilitators, shell companies, and other schemes corrupt actors and human rights abusers use to move and hide their illicit proceeds and evade sanctions,” said Treasury Undersecretary Sigal Mandelker.
To assist U.S. financial institutions’ effort to insulate themselves from corruption, the advisory highlights a number of typologies used by foreign politically exposed person (PEP) facilitators to obscure and launder the illicit proceeds of high-level political corruption. For example, the typologies used by financial facilitators of corrupt PEPs may include the misappropriation of state assets, the use of shell companies, or the exploitation of the real estate sector.
Misappropriation of state assets. Foreign corrupt PEPs, through their facilitators, may amass fortunes through the misappropriation of state assets and exploit their own official positions to engage in narcotics trafficking, money laundering, embezzlement of state funds, and other corrupt activities. Such PEPs may exploit corporations, including financial institutions that wish to do business with the government to redirect government resources for their own profit.
Use of shell companies. PEP facilitators commonly use shell companies to obfuscate ownership and mask the true source of the proceeds of corruption. Shell companies are typically non-publicly traded corporations or limited liability companies that have no physical presence beyond a mailing address and generate little to no independent economic value.
Corruption in the Real Estate Sector. Real estate transactions and the real estate market have characteristics that make them vulnerable to abuse by illicit actors, including corrupt foreign PEPs or PEP facilitators. For example, many real estate transactions involve high-value assets, opaque entities, and processes that can limit transparency because of their complexity and diversity. In addition, the real estate market can be an attractive vehicle for laundering illicit gains because of the manner in which real estate appreciates in value, “cleans” large sums of money in a single transaction, and shields ill-gotten gains from market instability and exchange-rate fluctuations.
Regulatory obligations. The advisory reminds U.S. financial institutions of their due diligence and suspicious activity report filing obligations related to such corrupt senior foreign political figures and their financial facilitators Consistent with existing regulatory obligations, FinCEN cautioned, “financial institutions should take reasonable, risk-based steps to identify and limit exposure they may have to funds and other assets associated with individuals and entities involved in laundering illicit proceeds, including the proceeds of foreign corruption.”
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