GAB is pleased to welcome back Shruti Shah, the President of the Coalition for Integrity, to contribute today’s guest post:

Like so many of us, I am shocked and horrified by Russia’s invasion of Ukraine and unforgivable attacks on civilian targets. At the same time, I have been encouraged by the resistance to Russia’s unprovoked aggression—most obviously and importantly by the brave Ukrainians defending their homeland, but also by the response of the international community. The United States, the European Union, Canada, the United Kingdom, and other nations have announced coordinated sanctions against Russia, including cutting off major Russian banks from the SWIFT system and preventing Russia’s central bank from drawing on foreign currency reserves held abroad. In addition to sanctions targeted at Russia’s financial system, Western nations have also sought to use targeted sanctions aimed at oligarchs close to President Putin. The Biden Administration also announced a transatlantic task force to ensure the effective implementation of financial sanctions by identifying and freezing the assets of sanctioned individuals and companies and an interagency law enforcement group called KleptoCapture.

This renewed focus on the corruption of the Russian political and economic elite is welcome. Russia’s deep-rooted corruption is one of the reasons that Putin has been free to engage in such outrageous acts. He relies on the security services and corrupt oligarchs to protect him. Oligarchs also serve as his personal wallet. Yet for far too long, these corrupt oligarchs have lived lives of luxury off of ill-gotten wealth, which they have used to purchase luxury property in places like New York and London. Yet while some oligarchs and Russian political figures were already the subject of targeted sanctions prior to the recent attack on Ukraine. Overall the West had been far too complacent. The Ukraine tragedy seems to have prompted Western governments to pay more attention to this problem. Indeed, the new sanctions are significant in both scope and size, and they welcomed by the Coalition for Integrity and most other anticorruption activists around the world.

But there’s more work to be done. It’s time for Western governments to ask some hard questions about how these corrupt elites were able to use their ill-gotten gains to buy luxury property and assets and enjoy their wealth in places like New York and in London for so long, and about the role of Western “enablers” in hiding the sources of their wealth and shielding questionable transactions from scrutiny. And, to turn to more specific priorities for policy reform in the United States, there are three specific things that the U.S. government should do to crack down further on illicit finance and thereby advance the agenda laid out in the White House’s Strategy On Countering Corruption:

• First, the U.S. must ensure the swift and effective implementation of the Corporate Transparency Act (CTA), which seeks to prohibit the formation of anonymous companies. As is well known, anonymous companies are used to evade sanctions, launder money, and facilitate other forms of criminal activity. The CTA was an important step forward. That law will require most private companies to report their true beneficial owners to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). But FinCEN still needs to finalize its Proposed Rule on CTA implementation. And it is vital that the effective date of for the CTA’s requirements not be unduly delayed—the effective date should not be more than a year following the enactment of the FinCEN’s final rule. It is also critical that Congress and the Administration ensure that FinCEN has the resources to both build the database into which the beneficial ownership information will be submitted and to enforce the disclosure rules.
• Additionally, the U.S. government needs to do more to promote transparency and integrity in the real estate sector. FinCEN is in the process of developing a new anti-money laundering (AML) regulations for real estate transactions. FinCEN is apparently considering two alternate approaches. One option would involve implementing specific and relatively limited reporting requirements to disclose beneficial owners, similar to those already required of title insurance companies under the current Geographic Targeting Orders. Alternatively, FinCEN is considering imposing more fulsome AML monitoring and reporting requirements on real estate transactions, including the requirement that real estate brokers file Suspicious Activity Reports (SARs) and establishing AML programs (which would entail things like designating an AML compliance officer, establishing AML training programs, implementing independent compliance testing, and performing customer due diligence). FinCEN should embrace the second, more comprehensive option.
• In addition to requiring more ownership transparency in the corporate and real estate sectors, it is also essential that all intermediaries who set up offshore companies and trusts should also be required to conduct due diligence and screening of their clients and report suspicious activities to authorities. When these actors fail to meet their obligations, authorities should hold them accountable and impose appropriate sanctions.

For far too long, Western governments have been far too lax about addressing the vulnerabilities that enable corrupt politicians and their wealthy supporters to hide their money in the West. The failure to stem this tide of dirty money has contributed to creating a culture of corruption and impunity in Russia and elsewhere, a culture that has bred instability and contributed to the current crisis. It is therefore vital that the U.S. and other Western governments respond not only by imposing targeted sanctions on individual corrupt actors, but that they redouble their efforts to reform the systems that have facilitated the flow of dirty money.