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Banking Exchange

By Terri Luttrell, CAMS-Audit, Abrigo
May 8, 2019

The United States financial system has long been a desired destination of illicit funds linked to senior foreign political figures and kleptocracy, a state of unrestrained political corruption. In the 1970s, the U.S. Security and Exchange Commission launched investigations into the political corruption and started legislative efforts to thwart such acts in the U.S. The Foreign Corrupt Practices Act (FCPA) passed in 1977 to include an anti-bribery provision to prevent unscrupulous foreign business dealings.

Then the unthinkable happened, the September 11, 2001 terrorist attacks. The money used to finance those attacks was tied to funds flowing into the U.S. from foreign businesses and individuals. This discovery led law enforcement and financial institutions to take a stronger stance on political corruption. 

In 2004, the infamous Riggs Bank (Riggs) case brought political corruption to the top of a compliance officer’s reasons not to sleep at night when the Office of the Comptroller (OCC) and the Financial Crimes Enforcement Network (FinCEN) assessed a $25 million penalty for money laundering violations relating to their omission in reporting suspicious activity. The bank held several foreign private banking customers and embassy accounts, and funds flowing through Riggs were tied to the financing of the September 11^th terror attacks. The $25 million assessment was the largest imposed by regulators at that time. Riggs Bank never recovered from the financial and reputational damage and was acquired shortly after, in 2005, leading to the nationwide de-risking of foreign embassy accounts. 

While political corruption is of primary concern on a global level, many anti-money laundering (AML) professionals within the U.S. do not see this as a serious risk to their financial institutions, especially at the community financial institution level. The risk imposed by political corruption should be a concern to institutions, regardless of size and geographic location. 

The current global climate is no different than it was in 2004, and foreign corruption continues to be a significant risk for the U.S. financial system as well as our national security. Regulatory authorities and law enforcement have frequently cautioned financial institutions about this global concern, and it should continue to be on the minds of AML and fraud professionals. The fact that many instances of political corruption involve terror financing should make AML professionals that much more diligent. 

Two real-world examples that are (and should be) of global concern currently are Russia and Venezuela. 

The U.S. Helsinki Commission Report (the Report) emphasizes that corruption is a defining characteristic of the Vladimir Putin regime in Russia. Putin and his associates, with a top-down structure of kleptocracy often pursue the government’s illicit interests. In fact, the Panama Papers traced billions of illicit dollars associated with Putin through Sergei Roldugin, one of Putin’s primary caretakers of his hidden assets. 

Political and business success of the top echelon of Russian society is dependent upon one’s relationship with President Putin. The Report states that many former insiders who fell into isolation from Putin faced tragic death, while business continues to thrive for those who remain loyal. In addition to kleptocracy, Russia has long been suspected of terrorism ties through its close allies with Iran and Syria. U.S. federal legislation was introduced in 2018 to designate Russia as a state sponsor of terrorism.  The legislation was dropped due to lack of support and the belief that an official designation would be counterproductive, even though Russia has killed dissidents in multiple countries.

One of Russia’s emerging allies, Venezuela, is another hot bed for political corruption. Among numerous economic and political issues the country is facing, organized crime and narco-traffickers are allegedly entwined with kleptocrats, or corrupt political officials, including corruption within U.S. Government contracts (See FinCEN guidance here). With a short flight across the Caribbean to reach their borders, the U.S. could easily consider Venezuela its neighbor. 

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To read the full article featuring Abrigo, visit Banking Exchange, “Global Political Corruption and Kleptocrats: How Can We Protect Our U.S. Financial Institutions.”