Biden Takes Aim at Kleptocrats

The United States is finally taking big steps to close the loopholes that make America a money laundering haven.

By , a national security and intelligence reporter at Foreign Policy.
U.S. President Joe Biden
U.S. President Joe Biden
U.S. President Joe Biden delivers closing remarks for the White House's virtual Summit For Democracy in Washington on Dec. 10. Chip Somodevilla/Getty Images

In between efforts to stave off war in Europe and defibrillate democracy in a long-awaited summit, last week may go down as one of the single most consequential for the Biden administration’s foreign-policy agenda so far—but not for the headline-grabbing reasons.

In between video calls with Russian President Vladimir Putin and the Summit for Democracy, the Biden administration rolled out the first formal U.S. strategy to counter corruption and a host of other actions intended to prevent crooks and kleptocrats from using the American and international finance system for laundering money and dodging taxes. The U.S. Treasury Department also asked for input as it crafts new rules to place greater scrutiny on commercial and residential real estate ownership, announced new rules to unmask the owners of anonymous shell companies, and imposed sanctions on 15 corrupt actors from several countries.

“Some of it has been beyond our wildest expectations in terms of its ambition,” said Lakshmi Kumar, policy director at Global Financial Integrity, a think tank that focuses on illicit finance.

In between efforts to stave off war in Europe and defibrillate democracy in a long-awaited summit, last week may go down as one of the single most consequential for the Biden administration’s foreign-policy agenda so far—but not for the headline-grabbing reasons.

In between video calls with Russian President Vladimir Putin and the Summit for Democracy, the Biden administration rolled out the first formal U.S. strategy to counter corruption and a host of other actions intended to prevent crooks and kleptocrats from using the American and international finance system for laundering money and dodging taxes. The U.S. Treasury Department also asked for input as it crafts new rules to place greater scrutiny on commercial and residential real estate ownership, announced new rules to unmask the owners of anonymous shell companies, and imposed sanctions on 15 corrupt actors from several countries.

“Some of it has been beyond our wildest expectations in terms of its ambition,” said Lakshmi Kumar, policy director at Global Financial Integrity, a think tank that focuses on illicit finance.

Lax legislation and loopholes have long made the United States a hot target for people looking to hide and enjoy ill-gotten gains. Until recently, most states required more forms of identification to sign up for a library card than to form a company, a glaring loophole that has been exploited by drug kingpins, human traffickers, terrorists, and officials from some of the world’s most authoritarian regimes.

“[T]here’s a good argument that, right now, the best place to hide and launder ill-gotten gains is actually the United States. And that’s because of the way we allow people to establish shell companies,” Treasury Secretary Janet Yellen said last week at the Summit for Democracy.

The flurry of policies announced last week would go a long way to ending this problem once they are enacted in full. The strategy unveiled on Dec. 6 details dozens of policy measures to solder gaps in the American financial system; leverage U.S. diplomacy, foreign aid, and intelligence to crack down on overseas corruption; and defend journalists and members of civil society who help to expose it. Agencies will report to the president annually on their progress toward achieving these goals, a measure that experts say is important for accountability.

The strategy is the culmination of a national security memorandum issued by the White House in June that recognized corruption as a national security threat and gave government agencies 200 days to come up with solutions on how to better fight corruption. So far the administration has largely flexed its executive branch muscle to get the job done. But the strategy also outlined working with Congress, where anti-corruption measures have broad support. The administration also offered tacit endorsement of the proposed Enablers Act, legislation that would require middlemen such as trusts, lawyers, art dealers, public relations firms, and other professionals to closely scrutinize wealthy clients looking to move money into the United States.

U.S. President Joe Biden was, while serving as vice president under Barack Obama, the point person for Ukraine and the northern triangle countries in Central America, two regions where corruption has kneecapped economic prosperity while fueling political instability. On the campaign trail, Biden and his allies vowed to make anti-corruption efforts a cornerstone of the administration’s foreign policy.

The Treasury Financial Crimes Enforcement Network (FinCEN) on Monday solicited public input on new rules to keep laundered money out of the U.S. real estate market, which is one of the few sectors exempt from the anti-money laundering legislation passed in the wake of the 9/11 terrorist attacks. A recent report by Global Financial Integrity found that, at a minimum, $2.3 billion was laundered in the United States through residential and commercial real estate in the past five years.

While the final rules are yet to be written, FinCEN’s solicitation for input suggests that it will be ambitious in scope, placing more accountability on real estate agents, lawyers, and other professionals involved in the industry, Kumar of Global Financial Integrity said. “This opens up the box,” she said.

Imposing new requirements on real estate may be an uphill battle, as the industry has fought back against increased regulation, and it affects every congressional district in the country.

“They opened the door to something that no administration has frankly had the fortitude to do,” said Josh Rudolph, a fellow with the German Marshall Fund who studies malign finance.

Experts on kleptocracy and anti-corruption were effusive about the breadth and ambition of the actions announced last week. On Twitter, Paul Massaro, a staffer on the bipartisan congressional Helsinki Committee, described it as a “long telegram of the 21st century,” referring to diplomat George Kennan’s 1946 cable that became the basis for the United States’ strategy of containment toward the Soviet Union during the Cold War.

But some question how the administration can square its democracy promotion and anti-corruption efforts with attempts to rally countries to check China’s increasing military and economic clout. It’s a challenge that has come to the fore in the small West African nation of Equatorial Guinea, where China is reportedly planning to establish a naval base, which would be its first on the Atlantic coast of Africa. Beijing has approached a number of countries along Africa’s west coast about its basing aspirations, the top U.S. general for the continent, Stephen Townsend, said in May. Deputy National Security Advisor Jon Finer traveled to the country in October to dissuade President Teodoro Obiang Nguema Mbasogo from accepting Beijing’s offer.

Obiang is the world’s longest-serving president, having been in office for over four decades. Under his rule, the political elite have been implicated in dazzling displays of corruption, siphoning off the country’s oil wealth while cracking down on dissent. Obiang’s son, widely tipped to be his successor, has been targeted by sanctions and asset seizures by the United Kingdom, Brazil, and Switzerland, and in 2017 he was convicted of corruption by a French court. But no Equatorial Guinean officials have been subject to U.S. sanctions over human rights abuses or corruption.

“You would expect a government that comes in on day one and says we are going to make combating corruption, promoting human rights and democracy the cornerstone of our administration, would then put its money where its mouth is,” said Tutu Alicante, founder of the nonprofit EG Justice. “Fear of China is not a coherent foreign policy. Not sanctioning people out of fear that China might build a military base is the kind of foreign policy that’s always going to backfire.”

Amy Mackinnon is a national security and intelligence reporter at Foreign Policy. Twitter: @ak_mack

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