03.02.22

Whitehouse Calls for American Leadership in the Global Fight against Kleptocracy and International Corruption

Senate leader in countering global corruption lays out a comprehensive plan to battle kleptocrats like Vladimir Putin and the dark economy on which they rely

Washington, D.C. – As Vladimir Putin and his corrupt regime engineers an invasion of the sovereign and peaceful nation of Ukraine, Senator Sheldon Whitehouse (D-RI) delivered remarks on the Senate floor on the need for rule-of-law societies to crack down on the gaping loopholes that kleptocrats like Putin use to hide their ill-gotten gains in democratic countries and free-market financial systems.

“America is engaged in a growing clash of civilizations against this brand of corrupt leadership; democracy and the free market are on one side, kleptocracy and corruption are on the other,” said Whitehouse tonight. “We prevail in this clash by pursuing one powerful value of rule-of-law society: transparency.”

In his speech, Whitehouse applauded the Biden administration for proposing strong anti-money laundering rules and for leading our allies to clamp down on ill-gotten assets stowed in the west by Russian oligarchs and their families. He urged the Biden administration to strengthen disclosure rules for real estate transactions and better coordinate information sharing on suspicious financial and trade activity. Whitehouse also called on Congress to strengthen the administration’s hand by passing legislation to address additional deficiencies in our financial defenses.

“Kleptocrats like Putin and his oligarchs can be defeated. A little sunlight will vanquish them. Free societies and the rule of law can win the long battle we face against kleptocracy and corruption,” continued Whitehouse. “This is a national security matter and these are the tools – the tools of transparency – that will secure our victory.”

Whitehouse has led the charge to strengthen America’s hand against international corruption and kleptocracy. He is the Chair of the Senate Caucus on International Narcotics Control and a member of the Commission on Security and Cooperation in Europe (or the Helsinki Commission). Whitehouse led efforts in Congress to pass the most important anti-money laundering reform in two decades, the Corporate Transparency Act, and the broader Anti-Money Laundering Act, which clamp down on criminals and foreign enemies hiding assets from U.S. law enforcement and tax authorities. Whitehouse is also the Democratic lead for the Congressional delegation to the annual Munich Security Conference.

Full text of Whitehouse’s as-delivered remarks is below and video is available here.

###

Mr. President, as I rise today, kleptocracy is on the march in Europe showing how unchecked corruption leads to evil. Vladimir Putin’s corrupt regime fabricated a pretext to invade and subjugate the sovereign and peaceful nation of Ukraine. Putin’s attack helps divert the Russian people from his festering corruption and misrule, as jailed Russian opposition leader Alexi Navalny put it.

America and our allies are meting out stiff sanctions, and my colleagues and I here in Congress are working on additional measures to deliver punishing financial blows to Putin and his corrupt oligarchs. But we must consider how we arrived at this moment. Putin has, for decades, deployed corruption and kleptocracy to strengthen his grip on Russia’s government, and to project power and influence throughout the region. In the process, he decimated Russia’s free press, attacked – physically and economically – all political opposition, and grew his own personal fortune to what is thought to be the largest in the world. I say thought to be because Putin’s wealth is hidden behind shell corporations and nestled in tax havens, far from view of the people he robbed and oppresses. And along the way, he’s cultivated – through favors, force, or fortune – a group of oligarchs who serve him.

It’s important to understand that Putin isn’t special; we have plenty of kleptocrats around the globe. Putin just happens to be in charge of a big and oil-rich country with a military at his command. A gangster, with an army, running a gas station, as Senator McCain used to say.

America is engaged in a growing clash of civilizations against this brand of corrupt leadership; democracy and the free market are on one side, kleptocracy and corruption are on the other. And we will prevail in this clash by pursuing one powerful value of rule-of-law society: transparency. Kleptocrats and criminals seek the protection of our rule of law and our secure financial system to stow their illicit money. But they need anonymity. They need to hide it. That is why so much anonymously-owned luxury real estate sits empty in America, in some places actually driving up local housing costs for normal people, and that’s why shell corporations in American states multiplied.

The Pandora Papers last year revealed webs of American shell corporations and trusts hiding dirty assets. It revealed professionals – lawyers, accountants, and real estate agents – aiding and abetting the hiding of those dirty assets. Shining the light of transparency on kleptocrats’ money is a potent countermeasure to their power.

Late in 2020, Congress passed the most important anti-money laundering reform law in two decades, the Corporate Transparency Act. It was very bipartisan. Senators Grassley, Graham, Wyden, Rubio, Brown, Crapo, Warner, Cotton, and I all spent years getting that bill done. Our aim was to arm law enforcement with knowledge of the “beneficial owner” – the real person – who’s behind American shell corporations.

Now, the Treasury Department’s Financial Crimes Enforcement Network – FinCEN – is implementing our beneficial ownership provisions. And the new rule promises to be a strong countermeasure:

  • It requires anyone who exerts substantial control, directly or indirectly, over a legal entity to identify themselves as the beneficial owner. That’s what we wanted.
  • It is clear enough so that companies know what they have to do, while minimizing the risk that bad actors can evade disclosure.
  • And its timelines for reporting and updating beneficial ownership information are fair, providing law enforcement and national security officials timely information without imposing unreasonable turnarounds for legitimate companies.

The beneficial ownership rule also avoided a trap. Some had urged FinCEN to add exceptions to the reporting requirements on top of the ones Congress included in the bill. Well, we worked hard to come up with the right list of excepted entities. It’s encouraging to see FinCEN stand firm and avoid watering down the rule with new, unjustified exceptions.

FinCEN is also working on a review of Bank Secrecy Act regulations with an eye toward a new anti-money laundering and counter-terror financing framework. This review offers a chance to take on some big challenges.

We need to make sure American professionals aren’t aiding and abetting kleptocrats. Investing in hedge funds, luxury real estate, high-priced art, expensive cars, and mega-yachts all requires help from professionals, and those professionals aren’t bound to anti-money laundering and counter-terror financing safeguards like our banks are. Private investment funds are worth about $11 trillion. You can hide a lot of mischief in $11 trillion. An FBI intelligence bulletin leaked in 2020 warned that “threat actors” use those funds to launder their money into rule-of-law financial systems. That’s a vulnerability we need to close.

This aiding and abetting problem, giving aid and comfort to our enemies, extends to professional services from lawyers, accountants, company and trust formation agents, even PR firms. But on this front FinCEN’s hands are tied. Congress will need to step in to clean that up.

Kleptocrats and criminals constantly change the methods they use to hide their money. Trade-based money laundering, for instance, allows bad actors to trade everything from vegetables to washing machines as a way to move their money around internationally. We need better coordination among key agencies involved in overseeing trade, and better information on suspicious financial and trade activity, that is shared more efficiently among various federal authorities.

Real estate is a massive target for money launderers. In August of last year, the watchdog group Global Financial Integrity released a report showing over $2.3 billion laundered through American real estate over the previous half decade. As Global Financial Integrity would tell you, this is just what they could identify – the real number is probably far higher.

Well, the good news is we have a countermeasure that’s working well. In 2016, FinCEN started the “geographic targeting order” program, which requires title insurers to report to FinCEN beneficial ownership information of shell companies that stash money in high-priced real estate. That program started in New York and Miami, then expanded to a dozen jurisdictions nationwide. The Congressional Research Service has reviewed it and says these targeting orders work.

Now, FinCEN is proposing a rule to make these orders permanent and expand coverage across the United States. It looks like FinCEN will deliver that improvement – and if it does, that’s a big win, particularly if that rule lines up with our beneficial ownership rule, and extends to cover commercial – as well as residential – real estate.

In Congress, we should pass legislation to help FinCEN address professional aiders and abettors. There’s bipartisan legislation in the House, the ENABLERS Act, which I hope to introduce here in the Senate. I’ve also introduced bipartisan legislation to make it a crime for foreign officials to demand bribes from Americans; at the moment, it’s only a crime to pay bribes. And we should pay close attention to others in the dark economy, like drug traffickers and terrorists; I am working on legislation to target money laundering related to the illicit narcotics trade, indeed we had a hearing on it today.

Finally, we need to work together with the international community. When U.S. defenses are strengthened, kleptocrats will direct dirty money to some other willing sanctuary. So it matters that the Biden administration has announced a transatlantic, interagency task force to help crack down on ill-gotten assets stowed in the west by Russian oligarchs and their families, their mistresses, their stooges, whomever. This is exactly the right approach – we must work with friends abroad to close off hidey-holes for oligarchs, bolster the rule of law, expand judicial transparency, and increase access to justice in struggling jurisdictions.

I met recently with a member of the Ukrainian Parliament who said a phrase we were talking about during the Munich Security Conference CODEL, which was, it’s not enough to freeze the oligarchs’ assets; we need to seize the oligarchs’ assets. We can do so even theatrically. To take a camera though their preposterous and grotesque wealth and show the people of Russia what was stolen from them would be as significant a public relations victory as when Ukrainians went through their oligarchs’ mansions and showed everything from golden toilet seats to private petting zoos.

Kleptocrats like Putin and his oligarchs can be defeated. A little sunlight will vanquish them. Free societies and the rule of law can win the long battle we face against kleptocracy and corruption. This is a national security matter, not just a question of doing good. This is a national security matter and these are the tools – the tools of transparency – that will secure our victory.

I yield the floor.

Press Contact

Rich Davidson (202) 228-6291 (press office)