On April 14, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued advisory FIN-2022-A001 on Kleptocracy and Foreign Public Corruption urging financial institutions “to focus efforts on detecting the proceeds of foreign public corruption, a priority for the U.S. government.” Given the extensive recent press on Russian oligarchs’ use of global financial institutions and other “gatekeepers” to transfer and secure their assets outside of Russia, it’s a timely release.
While other countries are mentioned in the advisory, Russia takes center stage:
“Russia is of particular concern as a kleptocracy because of the nexus between corruption, money laundering, malign influence and armed interventions abroad, and sanctions evasion. Corruption is widespread throughout the Russian government and manifests itself as bribery of officials, misuse of budgetary resources, theft of government property, kickbacks in the procurement process, extortion, and improper use of official positions to secure personal profits.”
FinCEN helpfully provides ten “red flags” indicating possible kleptocratic or corrupt behavior, all of which are almost certain to be familiar to FCPA Blog readers. As one might imagine, one of the key red flags, to which FinCEN also devotes an explanatory paragraph, is “[t]ransactions involving public officials related to high-value assets, such as real estate or other luxury goods, that are not commensurate with the reported source of wealth for the public official or that fall outside that individual’s normal pattern of activity or lifestyle.”
This, of course, conjures images of yachts, private jets, and perhaps even the Chanel bags, the loss of access to which Russian influencers have mourned of late. But of course, kleptocratic oligarchs also spend their “ill-gotten gains” on the mundane – and the idea is to apply pressure on those to whom Putin might actually listen, despite their protestations to the contrary. Thus, FinCEN also references customer due diligence obligations with respect to the oligarchs and their close associates.
Financial institutions and other regulated entities should consider enhancing several aspects of their risk management framework to address heightened expectations for the management of corruption-related risks.
First, since institutions will likely receive additional scrutiny over transactions involving politically exposed persons, they should review their Risk Assessment methodology and transaction monitoring coverage assessment to ensure they have appropriate coverage of the risks arising from such transactions.
Second, institutions may need to update escalation procedures and Suspicious Activity Reports (SAR) filing procedures to accommodate FinCEN’s instructions on how to complete SARs about such transactions. FinCen states specifically that it “… requests that financial institutions reference this alert by including the key term “CORRUPTION FIN-2022-A001″ in SAR field 2 (Filing Institution Note to FinCEN) and the narrative to indicate a connection between the suspicious activity being reported and the activities highlighted in this alert.”
Pete Viksnins, pictured above left, is a longtime friend of, and occasional contributor to, the FCPA Blog. He’s an Associate Managing Director at Exiger. He has counseled companies on preventing and detecting fraud and corruption, and improving compliance, since the last millennium.
Claudia O’Donnell, above right, is an Associate Director in Exiger’s Advisory practice. She provides Financial Crime Compliance consulting service to Exiger’s clients. She has extensive experience as a fraud investigator, as well as in providing litigation support and compliance consulting services.