The White House released a Memorandum on Establishing the Fight Against Corruption (“Memo”) on June 3, 2021.[1] The Memo sets Administration policy regarding the corrosive impact corruption has on “United States national security,” which, if not addressed, threatens “economic equity, global anti-poverty and development efforts, and democracy itself.”[2] The Memo directs an interagency review by agencies including CIA, DHS, DOJ, DNI, and certain military assets, to develop strategies that, when implemented, will bolster the U.S. Government’s ability to attack corruption, wherever located.
The Administration proposes increased coordination among U.S. agencies to modernize efforts and optimize resources to combat corruption; increase reporting of beneficial ownership to combat illicit finance in global finance systems; hold accountable corrupt individuals and transnational organizations; strengthen domestic and international institutions focused on establishing anti-corruption norms and encouraging transparency; increased international collaboration under the Global Magnitsky Act; partnering with the private sector on anti-corruption measures; and establishing best practices and enforcement mechanisms such that foreign assistance and security cooperation activities have built-in corruption prevention measures. The findings are due by December 20, 2021.
Impact of New Reporting Requirements on Financial Institutions
Proactive compliance programs. While the Memo requires a “study” of the current condition, section 2(a) anticipates “proposing relevant legislation to Congress.” The new landscape will likely require companies to improve their anti-money laundering (“AML”) programs. Reporting suspicious and fraudulent conduct to the Financial Crimes Enforcement Network (“FinCEN”) is not new,[3] but we anticipate new mandates requiring that institutions provide more data and incorporate analytics into audit and compliance programs and proactively identify errors, monitor risk areas and potential misconduct before they occur, and promptly remediate misconduct upon discovery. New initiatives to identify suspicious and fraudulent conduct will contribute to drive global anti-corruption enforcement efforts, but will also certainly create more regulatory burdens, costs, and perhaps in some cases, be redundant to existing efforts.
More FCPA Investigations. The Administration will leverage the Foreign Corrupt Practices Act (“FCPA”) to root out corruption. Companies should expect an increase in FCPA and anti-corruption activity by whistleblowers, private actors, and government agencies, such as the DOJ and SEC. Financial institutions should evaluate their FCPA programs with fresh eyes in light of the Memo to ensure the program is well designed, effectively implemented, and works in practice. A strong FCPA compliance program is a critical bulwark when allegations are ultimately made.[4]
Expect More Tax Audits. The Biden Administration has pegged increased revenue from “tax cheats” as a source for funding domestic programs. As such, we anticipate the IRS will impose additional requirements to annual reports related to aggregate account outflows and inflows, which will enable them to use analytics to pinpoint discrepancies between bank disclosures and taxpayers’ reported income and to initiate more audaits.[5]
Takeaways. By framing the Memo’s anti-corruption agenda in national security terms, the Biden Administration raises the stakes for financial institutions and companies and leverages the government apparatus to coordinate efforts to detect financial misconduct globally. Institutions are “encouraged” to enhance compliance programs now (before legislation is proposed or enforcement actions are initiated) to ensure that they contain procedures to identify and minimize unlawful payments to foreign government officials and employees of state-owned or state-controlled businesses; are sensitive to high-risk areas; have strong protocols to vet and manage relationships with third-party agents and business partners; ensure appropriate policies, procedures, and internal controls for financial intermediaries, such as fintech operations; monitor, supervise and investigate activities of overseas counterparts when red flags arise; and implement risk-based training programs.
[1] Presidential Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest (June 03, 2021).[back]
[2] Id.[back]
[3] Beneficial Ownership Information Reporting Requirements, 86 Fed. Reg. 17557, 17560 (2021) (This is a direct link to the Corporate Transparency Act (“CTA”), a component of the Anti-Money Laundering Act of 2020 (hereinafter “AMLA 2020”), which requires U.S. companies and foreign companies registered to do business in the US to report beneficial owners, to “better enable critical national security, intelligence, and law enforcement efforts to counter money laundering, the financing of terrorism, and other illicit activity.”) [back]
[4] AMLA 2020 includes a provision establishing a whistleblower reward program at the Department of the treasury. Whistleblowers who voluntary providesinformation about a violation of the Bank Secrecy Act (“BSA”) can obtain an award of up to 30 percent of collected monetary sanctions that the Treasury recovers in a judicial or administrative action brought under the BSA that results in collected monetary sanctions exceeding $1,000,000. [back]
[5] Press Release, Investing in the IRS and Improving Tax Compliance, U.S. Department of Treasury (Apr. 28, 2021), (Discussed that improving audit selection will enable the IRS to “better target its enforcement activity on the most suspect evaders, avoiding unnecessary (and costly) audits of ordinary taxpayers”). [back]
