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Owning Up

Last week, Reuters reported that “as the Biden administration pushes ahead with an effort to combat global corruption, [a part of the National Security Study Memorandum], its primary focus is on a U.S. Treasury Department process to create a registry of the individuals behind legal entities.” The administration launched its anti-corruption campaign earlier this summer when it released the memorandum that prioritized public corruption as a national security issue and put the world on notice by placing anti-corruption efforts at the core of Biden’s foreign policy agenda. And as the Pandora Papers demonstrated, the memorandum “speaks of the need to fight against ‘anonymous shell companies, opaque financial systems, and professional service providers’ that ‘enable the movement and laundering of illicit wealth’.”

And while creating a beneficial ownership registry remains the “biggest focus” for the executive branch’s anti-corruption efforts, the Pandora Papers appears to have inspired those in the legislative branch to take further action.

According to Politico, members of Congress are “planning to soon unveil a bill, [dubbed the ENABLERS Act] designed to make it harder for lawyers, accountants and others to help kleptocrats and other malign actors hide their money.” It comes as the U.S. House of Representatives introduced the Counter-Kleptocracy Act last month, which aims to combine seven counter-kleptocracy bills, including the previously introduced Foreign Extortion Prevention Act that addressed shortcomings associated with the Foreign Corrupt Practices Act (FCPA). While the FCPA focuses “solely on bribe payers, also known as the ‘supply side’ of foreign bribery, many observers believe that the United States should do more to tackle the ‘demand side’ of foreign bribery,” as the FCPA cannot be used against a foreign official who demands or takes a bribe.

While the legislation is certainly a step forward in the fight against illicit finance, there is significant work to be done to address additional shortcomings with the existing regime, especially as it pertains to the broad array of gatekeepers from lawyers and accountants to real estate agents as the Pandora Papers has so clearly demonstrated.  While it may come as a surprise, the United States is “the only major economic member of the G7 that does not impose anti-money laundering rules on real estate professionals.” So, it should come as no surprise that President Biden, through his earlier National Security Study Memorandum, has urged “the Treasury Department to revoke the regulatory exemption for real estate agents, who are not currently required to identify their ultimate clients or to report suspicious activity” even as “real estate continues to be the country’s biggest sponge for anonymous, ill-gotten wealth.”

Notably, according to a recent study from Global Financial Integrity (GFI), “while anonymous shell companies and complex corporate structures remain the most popular money laundering techniques,” it is the enablers from lawyers to agents that resulted in money laundering being “more prevalent in real estate than anywhere else.” GFI suggested that while the “findings of the report underscore the continued need to prioritize the implementation of the U.S. beneficial ownership registry,” it also demonstrates that “the registry alone will not solve the critical regulatory gaps that exist which allow [not only] real estate money laundering to flourish in the U.S.” but has placed the U.S. at center of global kleptocracy.

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