Even before political turmoil erupted in the Middle East and North Africa, the Department of Justice had ramped up enforcement initiatives against financial firms that failed to comply with anticorruption and anti-money laundering protocols. Now, with many top political leaders vacating their positions, regulators will be on high alert for any corrupt officials trying to move funds through the system--and those companies that make it easy for them.
The revolutions and political unrest in the Middle East and North Africa are a good reminder for financial institutions to review their compliance policies. Popular uprisings early this year in Tunisia and Egypt overthrew longtime rulers Zine El Abidine Ben All and Hosni Mubarak. Following the ouster of these leaders, the United States, the European Union and others sought to freeze assets belonging to them, their families and close associates. Soon after, violent protests in Libya against the regime of Col. Muammar Gaddafi also led the United States and others to freeze all assets of the government of Libya, as well as Gaddafi and his family and associates.
The magnitude of proceeds allegedly stemming from corruption that flow through the global financial system is staggering. Tunisia's Ben All is rumored to have more than $5 billion stashed abroad, for example, while Egypt's Mubarak is thought to control more than $3 billion in foreign accounts that allegedly represent proceeds from bribery or misappropriation of state assets. Gaddafi and others in Libya are thought to control at least $30 billion abroad.
These foreign developments coincide with a heightened era of regulatory scrutiny in the United States. Regulators in Washington have redoubled their efforts to enforce anti-money laundering rules, economic sanctions and anti-bribery laws. In addition to protecting the integrity of the banking system, the federal government believes that depriving corrupt foreign officials and sanctioned countries access to the U.S. financial system is an increasingly important instrument of its foreign policy. The message to domestic financial institutions is clear: know your customer and actively monitor transactions or face the consequences.
In February, the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued reminders to financial institutions to take reasonable steps to guard against the flow of funds that might represent proceeds from bribery, corruption, misappropriated state assets or other illegal payments from--or intended for--Tunisia, Egypt and Libya. FinCEN's guidance urged financial institutions to assess the impact of recent events in the region on patterns of financial activity when assessing the risks of particular customers and transactions.
Even before political turmoil erupted in the Middle East and North Africa, however, the Department of Justice announced two new enforcement initiatives that will impact financial institutions. First, the DOJ announced the Kleptocracy Asset Recovery Initiative, which will target the proceeds from foreign corruption laundered into or through the United States. The goal is to prevent foreign leaders from hiding illicit funds--whether from corruption or misappropriation of state assets--in the United States and to return funds to the victimized countries.
While bribe recipients cannot be prosecuted under the Foreign Corrupt Practices Act, the Justice Department has pursued asset forfeitures to recover the proceeds of foreign corruption. For example, the DOJ filed a forfeiture action against Singaporean accounts worth $3 million allegedly related to bribes paid in connection with public works projects in Bangladesh. The feds argue that the illicit proceeds are subject to U.S. jurisdiction because the improper payments were made in U.S. dollars and the funds flowed through U.S. financial institutions.
In another closely watched case, the Justice Department filed asset forfeiture complaints against a condominium in New York and a house in Virginia that allegedly were purchased with the proceeds of bribes paid to the former president of Taiwan and his wife. …