Biden Administration’s National Security Memorandum Ramps Up Anti-Corruption and Anti-Money Laundering Efforts

On June 3, 2021, the Biden Administration issued a National Security Study Memorandum instructing federal agencies to prioritize the fight against corruption both domestically and abroad. The memorandum links corruption to a series of societal problems—ranging from economic stagnation to widening inequality to public distrust of government—emphasizing the danger to national security when corrupt regimes flourish and ordinary citizens pay the price.

To counter this national security threat, the “Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest” directs federal agencies and departments to prepare a report detailing their strategy to combat corruption. The central elements the memorandum contemplates are: increased interagency cooperation and transparency, improved international collaboration, and robust enforcement of anti-corruption laws. This directive expands on what is already a ramped-up federal focus on the corrosive consequences of corruption. It comes on the heels of the Anti-Money Laundering Act of 2020 (“AMLA”), a comprehensive set of anti-money laundering reforms that took effect on January 1. It also complements the additional Justice Department resources now focused on anti-corruption enforcement and the significant budget increase proposed for the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”). These developments will increase the likelihood of enforcement scrutiny and result in more serious consequences for violators. More than ever, companies must ensure that their compliance programs are up to date and effective to meet these new regulatory challenges.

The Memorandum

The memorandum directs government agencies to conduct a 200-day review and develop a strategy to combat corruption, including increased transparency around domestic and international financial transactions. The memorandum also lays out the Biden Administration’s objectives:

• Increased Resources & Coordination. The memorandum directs federal agencies and departments to devote and optimize key resources toward preventing and combatting corruption. The directive seeks to harness the collective knowledge of disparate agencies by enhancing interagency cooperation and information sharing.
• Targeting Illicit Transactions. The memorandum encourages agencies to increase enforcement of federal reporting requirements, including new laws that require United States companies to report their beneficial owner(s) to the Department of the Treasury. Beginning this year, the AMLA imposed increased beneficial owner reporting requirements on companies, and also created a new anti-money laundering whistleblower program.
• Increased Collaboration. The memorandum also notes that cooperation and information sharing among governments is critical to fighting cross-border corruption. It directs federal agencies to increase transparency and build and foster international partnerships, including by sharing investigative, financial, technical, and political resources with foreign partners.

The memorandum is all the more significant in light of broader structural and personnel developments aimed at boosting anti-corruption enforcement. The Justice Department has already expanded the unit focused on anti-corruption offenses to a record 39 prosecutors, and recently announced the hiring of a compliance-focused attorney with substantial FCPA monitorship experience. The AMLA has provided new tools for these prosecutors to reclaim the proceeds of corruption, including forfeiture authorities against politically exposed persons who do not accurately disclose the ownership and source of funds placed in US banks. Together with existing Treasury Department tools, the AMLA expanded the federal government’s authority to compel foreign banks to provide records on their customers. And while the Departments of Treasury and Justice already coordinate on anti-corruption matters, the recent nominee for General Counsel of the Treasury Department—a longtime prosecutor and former US Attorney who focused on anti-corruption issues while at DOJ—should tighten those ties.

In accordance with the AMLA’s requirements, the Administration also proposes to increase the budget and staffing of FinCEN, the US financial intelligence unit tasked with enhancing government coordination, by $60 million and 80 employees—an increase of 50 percent and 25 percent, respectively. This expansion aims to bolster FinCEN’s ability to implement key provisions of the AMLA. Several of the AMLA provisions directly advance the Administration’s anti-corruption strategy including: the development of a national corporate registry for beneficial owners, the placement of FinCEN liaisons abroad, and the creation of the FinCEN analytics hub to coordinate investigations across the government.

Implications

All of this activity means that companies will face greater scrutiny, harsher consequences for violations, and an enhanced need for effective compliance programs.

• Increased Enforcement. With increasing inter-agency and international cooperation, a top-down directive to focus on anticorruption, and increased federal resources, we expect to see a significant uptick in anti-corruption and anti-money laundering enforcement.
• Increased Burdens on Companies. The combination of aggressive enforcement and the tools provided to investigators in the AMLA will put considerable burdens on financial institutions in particular. Where the Justice Department finds evidence of misconduct, companies should also expect to see an increase in the number and scope of monitorships imposed, the prevalence of which had nose-dived during the last Administration.
• Compliance Program Implications. Companies would be advised to take a fresh look at their anti-money laundering and anti-corruption compliance programs in light of these trends and the newly enacted AMLA. With the increased focus on coordination with both international law enforcement and federal bank supervisory agencies, financial institutions in particular should ensure clear lines of communication exist between US offices and foreign affiliates to bolster global, enterprise-wide compliance.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Michael R. Dreeben, an O'Melveny partner licensed to practice law in the District of Columbia, Laurel Loomis Rimon, an O'Melveny partner licensed to practice law in the District of Columbia and California, Benjamin D. Singer, an O'Melveny partner licensed to practice law in the District of Columbia and New York, Damali A. Taylor, an O'Melveny partner licensed to practice law in California and New York, Braddock Stevenson, an O'Melveny counsel licensed to practice law in the District of Columbia, New Jersey, New York, and Pennsylvania, and Alix R. Sandman, an O'Melveny associate licensed to practice law in California contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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