The Treasury Department’s Financial Crimes Enforcement Network has issued an advisory to U.S. financial institutions to highlight the connection between corrupt senior foreign political figures and their enabling of human rights abuses.
“The use of financial facilitators is one way that corrupt senior foreign political figures access the U.S. and international financial systems to move or hide illicit proceeds and evade U.S. and global sanctions,” the June 12 advisory says. “These corrupt senior foreign political figures and facilitators often contribute directly or indirectly to human rights abuses, which have a devastating impact on individual citizens, societies, and economic development.”
U.S. financial institutions may expose themselves to risks by holding the accounts of these corrupt individuals directly or indirectly through correspondent banking relationships. The advisory reminds financial institutions of their obligations under the Bank Secrecy Act to report suspected illicit activity by these facilitators. It also highlights the activities of those who have been subject to sanctions for providing facilitation services to human rights abusers and others engaged in corruption.
Facilitators may access the financial system to obscure and launder the illicit proceeds of high-level political corruption by using shell companies, misappropriating state assets, and exploiting the real estate sector, FinCEN says. Consistent with existing regulatory obligations, financial institutions should take reasonable, risk-based steps to identify and limit exposure they may have to funds and other assets associated with individuals and entities providing financial facilitation for corrupt senior foreign political figures.
The advisory also reminds financial institutions of their obligations regarding the filing of Suspicious Activity Reports related to facilitators of corrupt senior foreign political officials.
When filing a SAR, financial institutions should provide all pertinent available information in the SAR form and narrative. FinCEN further requests that financial institutions select SAR field 35(l) and reference the advisory by including the key term “Financial Facilitator FIN-2018-A003” in the SAR narrative and in SAR field 35(z) to indicate a connection between the suspicious activity being reported and the persons and activities highlighted in the advisory.
The advisory includes a list of potential red flags that may help financial institutions identify suspected schemes that corrupt foreign Politically Exposed Persons and their facilitators may use. Financial institutions are advised that no single transactional red flag necessarily indicates suspicious activity. They should also perform additional inquiries and investigations where appropriate.
The red flags include:
Use of third parties when it is not normal business practice.
Use of third parties when it appears to shield the identity of a PEP.
Use of family members or close associates as legal owners.
Use of corporate vehicles (legal entities and legal arrangements) 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 seeks to make use of the services of a financial institution or a designated non-financial business or profession (DNFBP) that would normally not cater to foreign or high-value clients.
The PEP or facilitator repeatedly moves funds to and from countries with which the PEP does not appear to have ties.
The PEP or facilitator has a substantial authority over or access to state assets and funds, policies, and operations.
The PEP or facilitator has an ownership interest in or otherwise controls the financial institution or DNFBP (either privately or ex officio) that is a counterparty or a correspondent in a transaction.
Transactions involving government contracts that are directed to companies that operate in an unrelated line of business (e.g., payments for construction projects directed to textile merchants).
Transactions involving government contracts that originate with, or are directed to, entities that are shell corporations, general “trading companies,” or companies that appear to lack a general business purpose.
Documents corroborating transactions involving government contracts (e.g., invoices) that include charges at substantially higher prices than market rates or that include overly simple documentation or lack traditional details (valuations for goods and services).
Payments involving government contracts that originate from third parties that are not official government entities (e.g., shell companies).
Transactions involving property or assets expropriated or otherwise taken over by corrupt regimes, including individual senior foreign officials or their cronies.
“Treasury is sharing information with financial institutions, foreign counterparts, and non-governmental organizations on evolving tactics and typologies across the globe, particularly in regions susceptible to abuse,” Treasury Undersecretary Sigal Mandelker said in a statement. “We must put an end to the longstanding business of government leaders and their financial facilitators in devastated areas profiting off of the backs of the innocent. Financial institutions worldwide are a critical part of that effort.”
“Theft and other bad acts committed by corrupt senior foreign political figures undermine democratic institutions, destabilize economies, and erode societal foundations,” said FinCEN Director Kenneth Blanco. “FinCEN is committed to continuing its fight against corruption and those who use the U.S. financial system to further their nefarious activities at the expense of innocent people.”