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FinCEN AML/CFT priorities part 5: Political corruption

Terri Luttrell, CAMS-Audit, CFCS
July 29, 2021
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Political corruption: A greatly needed FinCEN priority 

Among FinCEN's first list of key priorities for AML/CFT policy is to thwart political corruption.

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The United States financial system has long been a desired destination of illicit funds linked to senior foreign political figures and kleptocracy, a state of unrestrained political corruption. In the 1970s, the U.S. Security and Exchange Commission launched investigations into political corruption and started legislative efforts to thwart such acts in the United States. The Foreign Corrupt Practices Act passed in 1977 to include an anti-bribery provision to prevent unscrupulous foreign business dealings.  

The Financial Crimes Enforcement Network (FinCEN) has issued specific advisories of known corruption, most recently addressing widespread human rights abuses enabled by corrupt senior foreign political figures and their financial facilitators with respect to Nicaragua, South Sudan, and Venezuela. With the release of the FinCEN Priorities (the Priorities), corruption is now top and center as a growing concern for FinCrime professionals. This priority, along with others, should be addressed in AML programs as an issue linked to illicit funds flowing through the U.S. financial system. Although not new, corruption continues to be a serious global threat, and it clearly has become as much of a threat within our homeland. 

Financial crime

Corruption is a concern for institutions of all sizes

According to the Priorities, corruption fuels instability and conflict and undermines United States economic growth. For this reason, FinCEN included this as a priority and a core national security concern for the United States. Corruption, both domestic and foreign, threatens U.S. national security by eroding citizens’ faith in government, distorting economies, and weakening democratic institutions.  

While political corruption is of primary concern on a global level, many anti-money laundering (AML) professionals within the U.S. do not see this as a serious risk to their financial institutions, especially at the financial institution level. The risk imposed by political corruption should be a concern to all institutions, regardless of size and geographic location. The Priorities emphasize this, and regulators will be expecting corruption to be part of an institution’s risk assessment. 

Stay up-to-date on the latest FinCEN priorities. See Part I: Implications for community financial institutions.

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Factors for your institution to consider

Financial institutions should assess corruption and kleptocracy as a risk for their institution’s profile even if they conduct few foreign transactions, such as wires and ACHs. While it could be safe to assume a lower risk for kleptocrats hiding stolen assets in some institutions, addressing the risk and the mitigating factors should be part of one’s risk assessment and written BSA/AML Policy. Below are factors to consider surrounding corruption as one of the Priorities within an AML program.  

Ask about whom your customers/members are doing business with as part of your onboarding and continuing customer due diligence. Do you know your customers’ or members’ customers well enough to ensure corruption is not hiding within your financial institution? Bribery and illicit payoffs through government contracts are common as indicated by FinCEN advisory FIN-2017-A006 concerning the widespread corruption in Venezuela, our near neighbor to the south. 

Document your understanding of corruption as it relates to your institution’s risk profile. For those financial institutions that do not believe this is a significant risk to their AML program, documented mitigation may be as simple as imposing the following guidelines in their BSA policy and procedures: 

  • Reference the institution’s compliance with the Foreign Corrupt Practices Act and the FinCEN Priorities to include what mitigating factors were put in place. Examples could be: 
    • AML monitoring software scenarios that detect the flow of funds from an international source, particularly involving areas of concern.
    • Know your customer and whom they do business with, especially if foreign governments are involved. Document extra due diligence procedures as necessary.
    • Beneficial owners must be known. Go below the required 25% ownership when something doesn’t feel right. 
  • Reference the FinCEN Advisories, particularly the Interagency Statement on Due Diligence Requirements for Customers Who May Be Considered Politically Exposed Persons, on political corruption to show your knowledge and importance of the issue, and your level of residual risk associated with this threat.
    • Procedurally, add the FinCEN SAR narrative keyword requests as indicated within each FinCEN advisory.

Scrutinize real estate purchases and know your geographic targeting orders (GTOs) imposed by FinCEN. Corruption isn’t limited to wires and ACH transactions. Financial criminals are using less conspicuous methods to hide their illicit gains, such as big-ticket purchases including real estate. The GTOs have been renewed and expanded over the last few years so ensure your institution is aware of the areas more susceptible to this.  

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Community financial institutions cannot become complacent

The United States has long been a desired destination for kleptocrats to hide stolen assets from foreign governments due to the strength of the dollar and the financial system. Former FinCEN Director Kenneth A. Blanco stated that “…the United States will not be a safe haven for corrupt politicians seeking to hide and profit from their ill-gotten gains or money they have stolen from their people while the citizens of their countries suffer.” The current administration agrees, and the U.S. Department of the Treasury is committed to protecting both the U.S. and international financial systems from those who facilitate such activities.  

Financial Institutions cannot become complacent in the areas traditionally thought of as the “big bank” problems. Bad actors understand that the large institutions have very sophisticated tools in their AML programs to catch illicit activity on a large scale. These same criminal transactions, some as serious as corruption and human rights violations, terror financing, and human trafficking, are being detected at the financial institution level. Have written policies, procedures, and practices in place to continue to monitor for these serious offenses, even if there is a lower risk within your financial institution.  

Gain confidence in your BSA program.

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About the Author

Terri Luttrell, CAMS-Audit, CFCS

Compliance and Engagement Director
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size.

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About Abrigo

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