The memorandum establishes countering corruption as a “core United States national security interest.” It directs White House officials to coordinate a 200-day interagency review process and develop a strategy to strengthen the United States’ ability to achieve 10 objectives centered on building a more robust global anticorruption infrastructure. The interagency review process will include representatives of 15 federal agencies and culminate in a report to the president articulating how the United States can more effectively combat domestic and international corruption, curb illicit finance, hold corrupt individuals accountable for their behavior, build international partnerships and strengthen foreign assistance.
The memorandum sends a strong message to the international community about President Biden’s commitment to combatting corruption.
We anticipate that the specific designation of corruption as a national security issue may trigger, among other things, increased information sharing across a broad spectrum of federal agencies; more funding allocated to DOJ components responsible for domestic and international corruption prosecutions; the potential realignment of personnel and resources within key enforcement agencies; and an overall increase in anticorruption enforcement activity.
While the precise means by which the administration will carry out the president’s mandate are still unclear, companies—especially those with an international footprint—should take heed of the clear message the administration is communicating to the private sector and position themselves appropriately by strengthening compliance programs. In this regard, companies should focus on the following areas of compliance.
ANTI-MONEY LAUNDERING COMPLIANCE
Companies should consider strengthening their anti-money laundering compliance programs and infrastructure. The Biden administration clearly views enhanced anti-money laundering enforcement as a key component of its anticorruption platform. The memorandum addresses the use of “[a]nonymous shell companies, opaque financial systems, and professional service providers” in enabling the “movement and laundering of illicit wealth,” and specifically directs federal officials to develop a strategy to combat “illicit finance in the United States and international financial systems.”
As part of its focus on anti-money laundering, the memorandum directs the government to “robustly” implement federal law that requires companies to disclose their beneficial ownership to federal authorities. This is a direct reference to the requirements set forth in the Corporate Transparency Act (CTA)—a component of the Anti-Money Laundering Act of 2020 (AMLA 2020), which was signed into law earlier this year as part of the National Defense Authorization Act (NDAA).
The CTA requires certain US companies and foreign companies registered to do business in the United States to report detailed information about their beneficial owners. The new beneficial ownership reporting requirements, described in detail here, are designed to, among other things, “better enable critical national security, intelligence, and law enforcement efforts to counter money laundering, the financing of terrorism, and other illicit activity.” The US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is currently in the process of issuing implementing regulations for the beneficial ownership reporting requirements. In light of the memorandum’s directives, one can expect that FinCEN will propose regulations reflecting an expansive view of the CTA’s reporting requirements.
The memorandum’s call for federal officials to potentially identify “the need for new reforms” is also notable. This directive suggests that the Biden administration may believe there is more legislative or regulatory work to be done to combat illicit finance, beyond the requirements set forth in the recently-enacted CTA. Among the new reforms contemplated by at least some on Capitol Hill are calls for the administration to promulgate a rule requiring investment advisors to comply with anti-money laundering rules. The Treasury Department is also proposing enhanced financial reporting requirements for domestic and foreign financial institutions, including a specific cryptocurrency reporting requirement, as part of its tax plan.
Companies should take proactive steps now to prepare for increased anti-money laundering enforcement activities and enhanced regulatory requirements by reviewing and strengthening their existing compliance programs. Companies should also begin preparing for the implementation of the CTA’s beneficial ownership reporting requirements and evaluate what impact those requirements may have on their businesses. Investment advisors may want to proactively prepare for increased scrutiny of illicit finance and the prospect that new regulations could subject them to existing anti-money laundering rules.
IMPROVED DATA ANALYTICS AND DATA RESOURCES FOR INVESTIGATIONS
Companies should also consider improving their use of data analytics to strengthen compliance infrastructure.
It is well-known that the DOJ and other federal law enforcement agencies are increasingly using data analytics to identify and prosecute criminal conduct. While the use of data analytics is not new, recent technological advancements and improved data sets enhance the government’s ability to identify suspicious and fraudulent conduct, and we anticipate that this enhanced capability will be integral to law enforcement efforts to fight global corruption. Notably, the first “strategy” identified in the White House fact sheet published in connection with the memorandum is a call to “modernize, increase, coordinate, resource, and otherwise improve the ability” of agencies to prevent and combat corruption and “where appropriate establish new structures and staffing, improve intelligence collection and analysis.” We anticipate that improved information/data sharing between federal agencies and enhanced data analytics are likely to lead to increased criminal and civil enforcement activity.
Companies are rapidly accumulating data from their workforces, with over 300 billion emails sent and received per day in 2020 (not to mention increased use of chat and messaging applications in the workplace). As the memorandum seeks to address for the federal government, companies should incorporate data analytics into their own audit and compliance programs in an effort to proactively identify errors, monitor risk areas and address any potential misconduct. The use of data in compliance programs was a key component of the DOJ’s changes to their corporate compliance guidance issued in June 2020. The DOJ now expects companies to engage in continuous, data-driven risk assessments when designing a compliance program responsive to their operational risks in real-time. The DOJ noted it will consider in its assessment of a compliance program whether the company mines “operational data” to identify and anticipate risks and also whether compliance personnel have access to relevant data so as to conduct ongoing monitoring and review of the compliance program.
MORE ROBUST FCPA ENFORCEMENT TOOLS
The Biden administration’s memorandum suggests that additional resources may soon be available to tackle Foreign Corrupt Practices Act (FCPA) investigations and violations with vigor. Making good on a campaign promise,the memorandum builds upon recent new FCPA tools, including those incorporated into the NDAA, and specifically seeks to “[b]olster the capacity of domestic and international institutions and multilateral bodies focused on establishing global anticorruption norms,” including “combating money laundering, illicit finance, and bribery, including, where possible, addressing the demand side of bribery.”
The memorandum also seeks to support and strengthen the “capacity of civil society, media, and other oversight and accountability actors” in their investigating and uncovering corruption. These provisions will facilitate the investigation and prosecutions of those companies and individuals causing and aiding in the corruption of foreign governments or foreign government officials. Companies should be prepared for an increase in FCPA and anticorruption scrutiny by private actors and whistleblowers, in addition to the US government. We anticipate that the report to be issued following the administration’s interagency review will further clarify how this national security designation will affect FCPA enforcement.
ENHANCED COOPERATION WITH INTERNATIONAL LAW ENFORCEMENT
Although US agencies maintain cooperative relationships with their international law enforcement counterparts, during the global COVID-19 pandemic the strengthening of such relationships became a priority. The Biden administration seeks to build on these partnerships even further, calling for the improvement of foreign assistance programs and working with other international bodies, including the United Nations (UN), the Group of Seven (G7) and Financial Action Task Force (FATF). Improved collaboration to combat corruption will result in more efficient information sharing between international regulators. This is a trend that will continue, and companies should expect an increase in multi-jurisdiction investigations and resolutions, including with foreign authorities that the United States may not have previously coordinated with.
Anticorruption has been elevated from a DOJ enforcement priority to a whole-of-government national security policy priority.
Companies can expect a comprehensive and multifaceted approach by the Biden administration focused on both sides of foreign government corruption, bolstered by increased funding and manpower.
Improved coordination and communication between agencies, and agencies’ utilization of improved technological capabilities, will undoubtedly increase the federal government’s ability to detect illegal conduct in these priority areas.
After the administration’s interim review, we will see how these goals will specifically be advanced. Companies can take this time as an opportunity to assess whether their compliance programs can stand up to this shift in the enforcement landscape.