An advisory issued Thursday by Treasury’s financial crimes enforcement unit urges financial institutions to focus their efforts on detecting and reporting proceeds of foreign corruption and provides a list of “red flag” indicators to aid them in doing so.
The advisory from the Financial Crimes Enforcement Network (FinCEN), issued as part of the White House-issued U.S. Strategy on Countering Corruption from last December, provides typologies and potential indicators of kleptocracy and other forms of foreign public corruption, specifically bribery, embezzlement, extortion, and the misappropriation of public assets.
“Foreign public corruption erodes public trust and disproportionately harms the most vulnerable in societies. Russia’s further invasion of Ukraine is a yet another example of how a kleptocracy like Russia – a country whose government has been characterized for years by corruption, money laundering, malign influence, sanctions evasions and armed interventions abroad – harms not only its own citizens, but those living beyond its borders,” FinCEN Acting Director Himamauli Das said in a statement with Thursday’s release. “Financial institutions play a crucial role in identifying corrupt activity and associated money laundering on the part of foreign public officials and should remain vigilant and promptly report suspicious financial activity.”
In its release, FinCEN noted that unlike other criminal actors, corrupt public officials launder the proceeds of their corruption in many ways, including by funneling money through shell companies or by purchasing various high-end assets, such as real estate, yachts, private jets and high value art.
The advisory gives an overview of typologies of kleptocracy and public corruption, such as wealth extraction (bribery and extortion, misappropriation or embezzlement of public assets) and laundering of illicit proceeds (use of shell companies and offshore financial accounts; purchase of real estate, luxury goods, and other high-value assets).
The FinCEN advisory also identifies the following financial red flag indicators to assist financial institutions in detecting, preventing, and reporting suspicious transactions associated with kleptocracy and foreign public corruption:
- Transactions involving long-term government contracts consistently awarded, through an opaque selection process, to the same legal entity or entities that share similar beneficial ownership structures.
- Transactions involving services provided to state-owned companies or public institutions by companies registered in high-risk jurisdictions.
- Transactions involving official embassy or foreign government business conducted through personal accounts.
- Transactions 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.
- Transactions involving public officials and funds moving to and from countries with which the public officials do not appear to have ties.
- Use of third parties to shield the identity of foreign public officials seeking to hide the origin or ownership of funds, for example, to hide the purchase or sale of real estate.
- Documents corroborating transactions involving government contracts (e.g., invoices) that include charges at substantially higher prices than market rates or that include overly simple documentation or lack traditional details (e.g., valuations for good and services).
- Transactions involving payments that do not match the total amounts set out in the underlying documentation, or that involve vague payment details or the use of old or fraudulent documentation to justify transfer of funds.
- Transactions involving fictitious email addresses and false invoices to justify payments, particularly for international transactions.
- Assets held in the name of intermediate legal entities whose beneficial owner or owners are tied to a kleptocrat or his or her family member.
“Because no single financial red flag indicator is determinative of illicit or suspicious activity, financial institutions should consider the relevant facts and circumstances of each transaction, in keeping with their risk-based approach to compliance,” the advisory states.