One Year Out from the First Summit for Democracy, It’s Time to Put the Pedal to the Metal on Anti-Money Laundering Reforms

Despite Progress, There Remains Much to be Done to Fulfill the Administration’s Anti-corruption Commitments

One year ago this week, the Biden Administration held the first Summit for Democracy, reiterating the United States’ dedication to bolstering global democracy through multilateral engagement, and to establishing the fight against corruption as one of three key pillars underpinning its pro-democracy efforts at home. Fittingly, the Administration took the Summit as an opportunity to launch the first ever national Strategy on Countering Corruption, which identified anti-money laundering (AML) and financial transparency initiatives as central to meeting the Administration’s anti-corruption commitments.

The release of the Strategy was, and remains, an important step toward identifying and prioritizing anti-corruption reforms at home. But, in order to effectuate those reforms, the Administration must accelerate its efforts on AML, namely by fully implementing U.S. anonymous entity beneficial ownership transparency rules and advancing long-overdue regulatory overhauls on U.S. real estate and private investment fund markets within the coming year. Simultaneously, the Administration should make clear its priorities regarding Congressional action on adequately funding the agency responsible for implementing these crucial AML reforms, and establishing new authorities to effectively regulate certain financial gatekeepers.

These initiatives have been a part of the Administration’s approach to anti-corruption since the first Summit for Democracy. The 2021 Strategy specifically emphasized the importance of the then-recently passed Corporate Transparency Act (CTA) – which establishes beneficial ownership reporting requirements designed to pull back the veil on anonymous shell entities used to stash illicit funds in the U.S. by international and domestic criminals – as the heart of its AML agenda. On the regulatory side, new rulemakings by the Treasury’s Financial Crimes Enforcement Network (FinCEN) targeting money laundering through U.S. real estate and private investment markets were also foreshadowed by the Administration.

The Strategy’s focus on AML as a chief anti-corruption priority should not come as a surprise. The urgency of tackling illicit financial flows within the U.S. was made plain by Treasury Secretary Yellen during the Summit, in comments admitting what transparency advocates have long believed – that “… right now, the best place to hide and launder ill-gotten gains is actually the United States.” This unsavory status has since been affirmed in the 2022 Financial Secrecy Index, which identified the United States as the world’s premier financial secrecy jurisdiction. In light of Russia’s invasion of Ukraine, and with concrete evidence of the abuse of U.S. markets by Kremlin-aligned Russian oligarchs mounting by the day, the case for these reforms has been made clearer than ever. The U.S. simply cannot afford to allow its own financial system to be weaponized against democracy worldwide.

Where are We Now?

A year has come and gone since the first Summit and the release of the 2021 Strategy, and, just last week, the Biden Administration announced the second Summit for Democracy, only days ahead of the commencement of the 2022 International Anti-Corruption Conference in Washington. In its announcement, the Administration touted major progress in the fight against corruption at home and abroad, citing the release by FinCEN of the first final rule of the Corporate Transparency Act, and once again referencing upcoming rulemakings intended to address money laundering through U.S. real estate markets.

These achievements should not be downplayed: the introduction of the nation’s first broad beneficial ownership reporting regime through the CTA represents an enormous step forward towards greater corporate and financial transparency, and towards achieving the Administration’s AML and anti-corruption goals. Plans to implement common-sense anti-money laundering regulation within the $50 trillion real estate market should likewise be lauded, particularly given evidence that real estate money laundering (REML) is one of the foremost avenues used by criminals to stash truly enormous sums within the United States.

The pace of progress has been slower than advocates had hoped for, however. The CTA’s first final rule, though strong, was released more than six months after the law’s statutory one-year deadline. An advance notice of proposed rulemaking (ANPRM) for the upcoming REML rule referenced in both the 2021 Strategy and in the administration’s announcement of the Second Summit was released last December, but a draft rule is not likely to be released until 2023 – even as unchecked billions in illicit funds continue to flow through the U.S. real estate market. The same can be said for Treasury’s plans to review AML regulations on the more than $11 trillion private investment market: updated and expanded regulations are desperately needed, but their release and eventual implementation are likely months, if not years, away.

Moving Up the Timetables

These reforms simply cannot wait years. Heading into 2023, the Administration should redouble its efforts to affect real progress on AML by committing to advancing the following priorities within the next 12 months:

  • Fully implement the CTA. Beneficial ownership report filing for newly formed entities under the CTA begins on January 1, 2024. In order to ensure a smooth transition to the new reporting regime, the law’s second rulemaking – which will dictate who gets access to beneficial ownership data collected by FinCEN, and under what circumstances – will need to be proposed for notice and comment  and then released in final form in advance of that deadline. Achieving this will likely require the second proposed rule to be released for feedback before the end of 2022. The second rule should provide full, uncomplicated access to authorized users in line with the confines of the CTA. The draft third rule–which will, among other topics, provide clarifying guidance regarding customer due diligence requirements for financial institutions in light of the CTA, should likewise be released in the coming year. The third rule, which is not necessary to begin reporting under the CTA, should clarify the important beneficial ownership diligence and verification role that financial institutions are to continue to play under the CTA. 
  • Issue a proposed rulemaking on REML, and release the final rule following the review of public comments. Current regulatory measures, including the use of inherently-limited geographic targeting orders, have proven insufficient in countering money laundering through real estate. In order to address these deficiencies, FinCEN must release a draft (and subsequently, final) rule that, among other issues, covers both commercial and non-financed residential real estate transactions nationwide, imposes AML requirements on both buyers and sellers of real estate, without any monetary threshold.
  • Begin the process of reviewing AML programs for private investment funds. The 2021 Strategy outlined plans for the Treasury to review a 2015 NPRM that would place AML requirements on certain investment advisors. A strong draft rule to this effect in 2023 – one that includes requirements for both investment advisors and unregistered investment companies to conduct customer due diligence reviews of prospective investors and implement risk-based anti-money laundering protocols – would go a long way towards addressing gaping holes in the U.S. AML regime.

Additional Tools Are Still Needed

Acting FinCEN Director Himamauli Das has admitted that inadequate funding has slowed the agency’s efforts to implement the CTA and pursue other major objectives. If our nation’s financial crime fighters are not empowered to do their job through additional appropriations, key elements of the Administration’s anti-corruption strategy may continue to face delays, and enforcement efforts may potentially suffer even once new rulemakings are finalized. But additional appropriations, of course, require Congressional approval.

While Congress has steadily increased funding for FinCEN in recent years, the current political moment presents a unique opportunity for the Administration to make the case for a transformative re-evaluation of the gravity of the agency’s work. There exists unprecedented bipartisan support for more effective AML enforcement in the wake of Russia’s invasion of Ukraine in February, with the past nine months witnessing herculean efforts by both Congress and the Administration to locate, sanction, and seize Kremlin-affiliated assets within the United States. The importance of proposed rulemakings by FinCEN cracking down on money-laundering in real estate and private investment markets has been vividly illustrated by cases like those of Putin allies Oleg Deripaska and Roman Abramovich, both of whom were able to sneak millions into the U.S. financial system through regulatory blindspots.

Ensuring that FinCEN has the resources it needs to implement and enforce critical rulemakings is not the only element of the Administration’s anti-corruption agenda that will require cooperation with Congress, however. The 2021 Strategy also notes the deleterious effects of regulatory loopholes that absolve lawyers, accountants and other providers of financial services acting as gatekeepers to the U.S. financial system from performing even basic AML due-diligence responsibilities, and declares the Administration’s intent to “(work) with the Congress as necessary” to address these deficiencies in existing AML law.

A bill that would do just that – the ENABLERS Act  – is currently before Congress as an amendment to the annual defense spending package. Endorsed by more than a hundred law enforcement, national security, environmental, labor, pro-democracy, and anti-corruption groups and professionals, ENABLERS represents the most significant step forward in domestic AML law since the CTA. The bill’s passage should be at the top of the Administration’s list of legislative priorities as the year comes to a close.

It is Time to Act

The second Summit for Democracy will be held in March. The Administration should see the intervening months as an opportunity to redouble its efforts on the AML initiatives outlined in the 2021 Strategy by advancing necessary rulemakings, advocating for the passage of the ENABLERS Act, and working with Congress to secure the funds that FinCEN needs to expedite its regulatory agenda.

Substantive progress in these areas will not only demonstrate that the Administration is serious about combating corruption at home, but also reassert American leadership in the broader fight to protect and strengthen democracy across the globe.