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FinCEN Issues Advisory on Human Rights Abuses Enabled by Corrupt Senior Foreign Political Figures

June 13, 2018
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Advisory includes red flags to aid in detection of suspected schemes. 

The Financial Crimes Enforcement Network (FinCEN) released an advisory Tuesday alerting financial institutions to the connection between corrupt senior foreign political figures and their enabling of human rights abuses. They utilize the U.S. and international financial systems, sometimes through a financial facilitator, to circumvent laws and move or hide illicit funds.

A senior foreign political figure is loosely defined as an individual with substantial authority over policy, operations or the use of government-owned resources. It can include current or former officials in the administrative, executive, judicial, legislative or military branch of a foreign government or even a senior official of a major political party.

Corruption in the political sector doesn’t just affect a handful of people directly. It can cause devastating repercussions on the people and societies of that country, weaken markets and economic development and create instability in that region.

Due to the international shockwaves that can be caused by this, the Global Magnitsky Act of 2016 was issued to take enforcement action against financial facilitators of corrupt senior foreign political figures, as well as issuing advisories to financial institutions to help them identify, mitigate and report on these risks.  Additionally, the Treasury’s Office of Foreign Assets Control (OFAC) has a range of authorities to designate corrupt senior foreign political figures, human rights abusers and their financial facilitators. OFAC currently has numerous sanctions against the Democratic Republic of Congo (DRC), Iran, North Korea, Russia, Somalia, South Sudan, Syria and Venezuela that prohibit U.S. financial institutions from engaging in transactions with designated people from those countries.

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Financial institutions are required to perform customer due diligence and, with the implementation of beneficial ownership, know the true owners of an account and the expected activity within the account, including where their funds originate from and where they will be sent. Customer due diligence is risk-based, so institutions in certain areas of the country will have to perform a higher level of control on their customers.

In addition, the Financial Action Task Force (FATF) issued Recommendation 12 which requires countries to ensure their financial institutions implement risk-based measures to prevent abuse of the financial system by Politically Exposed Persons (PEPs) and to detect and report any misuse. Their immediate family, including spouses and any closely-known associates, are included as PEPs because of the greater potential of their relationship being exploited and used as a financial facilitator to move illicit funds. In the U.S., FinCEN oversees Recommendation 12. Financial institutions are strongly recommended to design and implement procedures that protect against transactions with PEPs as part of their anti-money laundering (AML) program. The USA PATRIOT Act also requires U.S. financial institutions to implement a due diligence program for private banking accounts held for non-U.S. persons. It is intended to detect and report any known or suspected money laundering or other suspicious activity and identify accounts owned by, or on behalf of, a senior foreign political figure. If such is the case with an account, it will go under enhanced due diligence and stricter scrutiny to ensure it isn’t used to transfer or move illicit funds or aid in foreign corruption.

FinCEN warns that PEPs will infiltrate the U.S. financial system through a variety of ways, including but not limited to the misappropriation of state assets, the use of shell companies and corrupt real estate transactions. They also released a list of red flags to pay attention to and aid in the detection of suspected schemes that corrupt foreign political official and their facilitators may use. Those include:

  • The use of third parties when it is not normal business practice, or it appears to shield the identity of a PEP
  • The use of family members or close associates as legal owners
  • The use of corporate vehicles to obscure ownership involved industries or countries
  • Declarations of information from PEPs that are inconsistent with other information, such as publicly available asset declarations and published official salaries
  • The PEP or facilitator repeatedly moves funds to and from countries with which the PEP does not appear to have ties

The full text of the advisory, including the entire list of red flags, is available here.

IQ AutoScan is the OFAC scanning software in the Abrigo portfolio that automatically scans your customer and vendor databases daily against OFAC, FinCEN, EU/UK/UN sanction lists and other blacklists/watchlists which help ensure your compliance and defend your organization.

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