Although the current situation in Russia has increased the urgency of identifying illicit funds from kleptocracies, the U.S. government has stressed the seriousness of this crime for decades. In the 1970s, the U.S. Securities and Exchange Commission launched investigations into political corruption and started legislative efforts to thwart such acts. The U.S. The Foreign Corrupt Practices Act (FCPA) was passed in 1977 to include an anti-bribery provision to prevent unscrupulous foreign business dealings.
Then the unthinkable happened: the Sept. 11, 2001, terrorist attacks. The money that financed those attacks was tied to funds from foreign businesses and individuals. This discovery led law enforcement and financial institutions to take a stronger stance on political corruption.
In 2004, the infamous Riggs Bank (Riggs) case brought political corruption to the top of compliance officers’ lists of reasons not to sleep at night. The Office of the Comptroller of the Currency (OCC) and FinCEN assessed a $25 million penalty for money laundering violations relating to Riggs’ omission in reporting suspicious activity. The bank held several foreign private banking customers and embassy accounts, and funds flowing through Riggs were tied to financing the Sept. 11 terror attacks. The $25 million assessment was the largest imposed by regulators at that time. Riggs Bank never recovered from the financial and reputational damage and was acquired shortly after, in 2005, leading to the nationwide de-risking of foreign embassy accounts.
While political corruption is of primary concern globally, many anti-money laundering (AML) professionals within the U.S. have not historically seen this as a serious risk to their financial institutions, especially at the community financial institution level. However, the risk tied to political corruption should concern institutions, regardless of size and geographic location. As a national priority, corruption must be added to each institution’s risk assessment.
Given the current global climate, foreign corruption is as significant a risk to the U.S. financial system and national security as it was in 2004. Regulatory authorities and law enforcement officials have frequently cautioned financial institutions about this global concern, and it should continue to be on the minds of AML and fraud professionals. Many instances of political corruption involving terror financing should make AML professionals that much more diligent.
The U.S. Helsinki Commission Report emphasizes that corruption is a defining characteristic of the Vladimir Putin regime in Russia. With a top-down structure of kleptocracy, Putin and his associates often pursue the government’s illicit interests. The Panama Papers and Pandora Papers traced billions of illegal dollars associated with Putin through Sergei Roldugin, one of Putin’s primary caretakers of his hidden assets.
The political and business success of the top echelon of Russian society depends on one’s relationship with President Putin. The Helsinki Commission Report states that many former insiders who fell into isolation from Putin faced tragic death, while business thrives for those who remain loyal. In addition to kleptocracy, Russia has long been suspected of terrorism ties through its close allies with Iran and Syria.