12.06.21

Summit for Democracy will follow the money

One of the key issues at the summit will be to crack down on global money laundering.

America is engaged in a clash of civilizations, pitting democracy and the free market on one side against kleptocracy and corruption on the other. We have vital national security stakes in this contest: Almost all the international evil that has come America’s way in recent decades has come from regimes outside the rule of law, from terrorist attacks to election subversion. That’s why it is a contest we must win.

This week, the State Department will convene the first-ever Summit for Democracy. The event is devoted to the defense of democracies against kleptocracy, criminality, and authoritarianism; to the fight against corruption; and to the promotion of human rights. The summit will mark the beginning of a year of action to strengthen democracies and the rule of law against forces seeking to undermine them.

Key to the success of the summit will be defining the main challenge facing democratic society. Kleptocrats like President Vladimir Putin of Russia combine corruption and brutality at home with disinformation and disruption attacks abroad to degrade the democratic rule of law. Drug trafficking empires — with global revenue of $150 billion annually — damage the rule of law wherever they are based and extend their criminal enterprises deep into democracies’ markets.

They are the enemies of the rule of law, yet they seek the protection of the rule of law for their illicit money. To gain that protection, they need anonymity. The International Consortium of Investigative Journalists’ 2021 release of the Pandora Papers underscores how easy it is to use webs of shell corporations and trusts to hide assets in the United States, Europe, and other rule-of-law jurisdictions. Too often, American professionals, including lawyers, investment advisers, and real estate agents, aid and abet our enemies by hiding their ill-gotten gains — even in US holdings. New tactics within the private sector, like “trade-based money laundering,” enable drug trafficking and other criminal proceeds into American markets. There needs to be a global defense among rule-of-law nations.

Complex as all this trickery is, the basic solution is transparency. Through newly passed legislation, the United States has at last brought some long-overdue sunlight into who — the “beneficial owner” — is really behind US shell corporations. Our banking sector, meanwhile, has long kept a healthy effort against money laundering, but there are still too many shadow opportunities for the world’s thieves to hide money. And too many private interests facilitate that dark trade.

Convening the democracy summit is only a first step in America’s fight against our antidemocratic adversaries. In the wake of the ICIJ’s Panama and Paradise Papers, democratic governments strengthened their defenses against illicit finance schemes, but implementation remains slow, and many vulnerabilities persist. Democracies must act swiftly and decisively to end the reliance of kleptocrats and criminals on rule-of-law financial systems to stow their pelf.

There is a lot to do. Congress passed legislation in 2020 to empower law enforcement to track the true owners behind US shell companies; the federal government has yet to implement it. Our national drug control strategy doesn’t explicitly address illicit finance, despite increasingly complex financial schemes from drug trafficking organizations. The federal government doesn’t know how much money it has seized from narcotics traffickers in criminal cases because it has no central repository for this information.

Moreover, despite the proven track record of geographic targeting orders — tools to clamp down on money laundering through US real estate — in unearthing phony property deals, the US government has yet to extend them. The United States continues to allow private equity and hedge funds to manage trillions of dollars without any anti-money-laundering safeguards. And our most potent tool in the fight against trade-based money laundering — Trade Transparency Units, partnerships to foster trade data-sharing between top US investigators and partner jurisdictions — still lacks steady funding from Congress. These are problems with quick and ready solutions that the Biden administration and Congress can tackle in the coming year of action.

New tools are also needed. I plan to introduce in the Senate a bill to extend the strong due-diligence requirements applied in the banking sector to American professionals who provide services — like legal, public relations, or accounting work — for kleptocrats and criminals seeking to stow their money in the United States. I’ve also introduced bipartisan legislation to make it a crime for foreign officials to demand bribes from Americans — right now, it’s only a crime to pay them. And I’ve introduced legislation to help states tackle money laundering related to the illicit narcotics trade.

Dirty money will go to its easiest safe sanctuary, so the United States needs to lead an international consensus that those helping kleptocrats and criminals hide their money will be held to account. That will require working with friends abroad to strengthen the rule of law, expand judicial transparency, and increase access to justice in struggling jurisdictions. But it will also require confronting some hard conversations with governments that facilitate and engage in this corrupt behavior. With the US dollar as the de facto world currency, US sanctions freezing the assets of kleptocrats and criminals — and their aides and abettors — could be a powerful deterrent. Even more so, if applied in concert with partners around the globe.

We have our work cut out for us, both at the Biden summit this week and in the years ahead. The clash of civilizations will only intensify in the decades to come. How we respond will determine the safety of our nation, the success of the rule of law, and America’s place of leadership in the world. The American example — indeed, the American experiment — hangs in the balance.


By:  Sheldon Whitehouse
Source: Boston Globe