Last week, FinCEN, the U.S. Treasury’s anti-money-laundering (AML) unit, “warned financial institutions against efforts by kleptocratic regimes and corrupt public officials to launder their illicit gains, and cited Russia as a particular area of concern,” noting that combating corruption is a priority of the U.S. government. According to the WSJ, the newly released advisory “urged banks and other financial institutions to focus their efforts on detecting the proceeds of foreign public corruption, which could potentially be laundered through shell companies, offshore financial centers and professional service providers.” The advisory goes on to say that corruption with a U.S. nexus may be prosecuted under a range of laws, including the Foreign Corrupt Practices Act (FCPA) and that the information provided by financial institutions through Suspicious Activity Reports (SARs) assists in identifying and prosecuting these activities. In order to facilitate this, FinCEN requested that financial institutions reference this advisory in their SAR filing by including the following new key term: “CORRUPTION FIN-2022-A001.”
Foreign public corruption (which includes kleptocracy) has long been reportable on SARs, but several recent trends in filings may assist in the anti-kleptocracy initiative.
According to analysis by DSA, an AML consulting firm, there were 3,207 Suspected Public/Private Corruption (Foreign) SARs filed between January 2019 and March 2022, with Depository Institutions filing 69% of all Foreign Corruption SARs. Concerningly, the number of annual SAR filings has dramatically fallen from 1,291 filed in 2019 to 782 filed in 2021. Notably, despite the U.S. administration making fighting corruption a national priority in 2021, the number of filings thus far in 2022 stands at 166, which is on track to be the lowest count in years. Other interesting insights include that Florida, specifically Miami-Dade County filed the second most Foreign Corruption SARs after New York County, NY, which should not come as a surprise given anecdotal evidence of the jurisdictions being favored destinations for kleptocrats. Furthermore, as DSA states, “it is always interesting to also explore who is not filing SARs for a given category. Notably, only a handful of Foreign Corruption SARs were filed by FinTechs and/or cryptocurrency exchanges located in Silicon Valley or San Francisco proper,” amidst increased scrutiny, including accusations that “nonbanks are getting away with ‘regulatory arbitrage,’ avoiding requirements traditional banks face.”
Given the insights, there is no doubt that compliance programs will inevitably face increased scrutiny, especially as combating kleptocracy has become a strategic national priority and as the administration attempts to combat Russian aggression. As the DSA analysis highlighted, the institutions “reported that the SAR subject had No Relationship to the Institution for half of all Foreign Corruption SAR subjects”, thereby highlighting the complexities of non-customer due diligence in today’s environment. By leveraging technology like Sigma, risk insights can be quickly and easily derived from a variety of data sets, including corporate registries and other structured and unstructured data, in order to mitigate and fight financial crime more effectively.
