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US Can Do More to Scrutinize Corruption, Sanctions Evasion, Panelists Say

The U.S. should take more steps to counter corruption and sanctions evasion efforts by Russian kleptocrats, including through a new multilateral anti-corruption council, Sen. Sheldon Whitehouse, D-R.I., said this week. While he applauded recent funding passed by Congress to provide more resources for government enforcement efforts, he said lawmakers have more work to do to close sanctions loopholes.

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While the U.S. can take some of those steps unilaterally, Whitehouse said the Biden administration should help create a “trans-Atlantic anti-corruption council.” Democracies should recognize that “sheltering anonymously the funds of criminals and kleptocrats is as unacceptable in the international community as child labor,” Whitehouse said during a Jan. 24 event hosted by the Atlantic Council. “We have to have all the countries of the world move forward together to close off access to criminal and kleptocratic money.”

Congress has made some progress here, Whitehouse said, including through the recent passage of the Corporate Transparency Act, which will require a range of entities to file reports with the Treasury Department’s Financial Crimes Enforcement Network. Those companies will be required to disclose certain ownership information, which the government hopes will help it counter financial crimes. He also pointed to a provision included in the FY 2023 government spending package that would award seized Russian assets to benefit Ukraine.

But Whitehouse also called on Congress to pass legislation that could impose more due diligence requirements on parties to transactions that typically aren't subject to scrutiny, such as lawyers. Lawmakers have tried in past spending bills to include the Enablers Act, which could impose stronger financial due diligence requirements on public relations firms, investment advisers, art dealers, lawyers and others that help corrupt payments avoid regulatory scrutiny (see 2111190038).

“We have a good deal of work to do ahead of us to make sure that whether you're a lawyer or an accountant or an investment adviser or a hedge fund manager or a realtor or a yacht broker,” Whitehouse said, “you are accountable to the similar money laundering and transparency requirements that banks have operated successfully under for years, and that we have now applied to American shell corporations.”

Elina Ribakova, deputy chief economist at the Institute for International Finance, stressed that many of the new laws and sanctions enacted last year will be useless without proper implementation and enforcement. “If last year in 2022 was all about us [imposing] these fantastic multilateral sanctions on Russia,” then “this year has to be about the implementation,” Ribakova said. “If we're not going after the secret hidden channels of the financial sector transfers or the trade transfers, we won't be able to successfully implement the sanctions against Russia.”

Ribakova said she has already seen “evidence” of companies skirting the sanctions and trade restrictions, including the G-7 and EU oil price cap (see 2301200033). “Companies [are] popping up internationally pretending to work under the price cap, but instead they might do God knows what if we have no way of tracing these companies,” she said.

“The same applies to export controls,” she added. Although the controls have had a “big impact” on Russia’s defense industry, it won’t be sustained without strict enforcement. “We see chips flowing from Turkey [to Russia], and then of course also from China,” Ribakova said. “So we need to be able to have the reach, legally and implementation-wise, to be able to implement sanctions. Otherwise it's just thin air -- it's something that we mentioned and had a lot of press coverage, and then has no impact.”