As President Joe Biden and his administration participated in the much-anticipated Democracy Summit, the world watched closely to determine the extent of the United States’ commitment to combating corruption. The United States quickly provided the international anti-corruption community with room for optimism. In the days leading up to the Summit, the United States released a first of its kind Strategy on Countering Corruption (Strategic Plan), recognizing anti-corruption as a core U.S. national security interest and outlining a plan for global anti-corruption engagement. The Strategic Plan is a strong and important policy outline, exactly what advocates should expect from a competent government. But this country’s problems run far too deep to be addressed by business as usual proposals.
The United States is the epicenter of a global financial corruption disaster. This reality was thrown into sharp relief by the bombshell revelations stemming from the Pandora Papers, a trove of financial and legal data leaked to the International Consortium of Investigative Journalists (ICIJ). Like the Panama Papers and the Paradise Papers before them, the Pandora Papers reveal a global financial system that remains completely unable to curtail the flow of corrupt money. And at this system’s center is the United States. This is why the administration’s Strategic Plan can only get us so far: a meaningful anti-corruption plan requires far more robust U.S. anti-corruption laws. One of the most effective ways for the United States to do that would be to harness the power of civil society and create a truly transparent public beneficial ownership registry.
Biden labeled corruption as a core national security threat — and he is right to do so. With the United States and its $22 trillion economy now the second-worst tax and financial secret haven in the world, trailing only the Cayman Islands, the country’s propensity to ignore financial corruption will necessarily undermine any global anti-corruption effort. The United States’ embarrassingly deficient corporate transparency laws have become not only an international but also a domestic security concern. The country’s status as a haven for illicit finances has shaped the U.S. economy and had a real impact on U.S. citizens, from the South Dakota trusts that harbor alleged money launderers, to the luxury real estate boom driven by the super-rich who park their wealth in Malibu mansions. All of this has the effect of driving up income and social inequality by allowing bad actors access to unlimited cash, and even pricing out families from home ownership. And this corrupt behavior is driven by the United States’ outdated and deficient corporate transparency and financial regulatory regimes.
The administration committed at the Democracy Summit to rebuilding the United States’ anti-money laundering laws, a process that began in the Trump administration with the passage of the bipartisan Corporate Transparency Act (CTA), overriding a presidential veto. The Biden administration has already begun the process of writing regulations implementing the central feature of the CTA — a registry of the beneficial owners (the real people who enjoy the benefits of or own) of nearly all American corporations. The Financial Crimes Enforcement Network (FinCEN) recently published a strong proposed rule implementing these provisions, an important step that shows the administration’s commitment to its Strategic Plan.
These are all good steps. But under the CTA, information in the beneficial ownership registry must remain confidential and can be shared only for law enforcement purposes. True transparency would require the public release of beneficial ownership information. In its section on addressing deficiencies in the nation’s anti-money laundering laws (Strategic Objective 2.1), the Strategic Plan recognizes the immense value of having as many people, institutions, and other actors have access to this information as possible. The Strategic Plan discusses this in a section titled “Beneficial ownership transparency.” But the details of Strategic Objective 2.1 don’t actually include any functional commitment to transparency. Instead, it simply commits to building an improved information sharing procedure within the government. While that is important, it is not transparency. Beneficial ownership transparency—real transparency—is a crucial part of a state-of-the-art anti-money laundering regime, and by embracing the value of sharing this information widely, the administration agrees. That’s why Congress and the Biden administration need to build a centralized, public beneficial ownership registry.
This is an ambitious, but not a radical, idea. The United Kingdom and the European Union (via a directive to member states) have both implemented some version of a public registry in the past five years. CREW, our nonpartisan anti-corruption and good government organization recently outlined the benefits of a public registry to FinCEN, highlighting the successes of the systems in place in the UK and the EU. For example, when Luxembourg, the first EU member state to comply with the directive, opened its public beneficial ownership registry, journalists and accountability groups quickly identified numerous shell entities owned by notoriously corrupt individuals. These included “an arms dealer at the center of one of the biggest corruption scandals in France, the Kremlin-connected leader of one of the largest Russian criminal organisations, an ex-son-in-law of Tunisia’s former dictator under sanctions between 2011 and 2020, and several members of the ’Ndrangheta, Italy’s most powerful crime syndicate.” And the UK public beneficial ownership registry was critical to the Organized Crime and Corruption Reporting Project’s May 2021 report exposing a scheme by which the President of Turkmenistan awarded a lucrative food import contract — during a food shortage — to a company owned by his nephew, who promptly bought a mansion.
Civil society’s ability to help decode and decipher this type of data is a core lesson of the Pandora Papers. The obvious corollary, then, is that non-governmental organizations, from media to civil service groups, can play a critical role in the fight against corrupt and illegal cash flows — as the examples of the UK and EU demonstrate. Creating a public beneficial ownership registry would also allow civil society groups like newspapers, nonprofits, and other non-governmental organizations to help resource-strapped government officials take on the critical task of analyzing the vast troves of corporate data. FinCEN estimates there are now approximately 30 million domestic corporations that would need to report beneficial ownership information in the United States, and approximately three million more domestic entities are created each year. That amount of data will be nearly impossible to parse without help from outside institutions that have experience decoding that amount of information. The ICIJ and its partner organizations prove that other institutions have what it takes to help law enforcement make sense of these webs of interlocking corporate interests and decode the larger schemes that may not be immediately obvious in the data.
Unfortunately, there is reluctance to make use of civil society’s potential to help law enforcement expose and respond to the problem of corrupt cash flows. This reluctance stems from the fact that a public registry would require the public release of information that the United States currently considers private. Information about who benefits from a corporation’s activities has been considered sacrosanct for so long that the United States has become an international tax and illicit money haven.
The bipartisan congressional coalition committed to fighting kleptocracy and corruption has already had one major success, the passage of the CTA, and FinCEN’s impressive CTA rulemaking shows how a committed executive branch can turn strong legislation into a strong regulatory regime. The collaboration that resulted in the CTA proves that Congress can design a truly state of the art anti-money laundering regime, and it should use that ability to marshal the power of civil society by amending the CTA to make the new beneficial ownership registry available to the public.
The fight against corruption is one that the United States can’t afford to keep losing. Yes: it is critically important that FinCEN adopt a final rule as strong as its current proposal, that the United States passes common-sense laws that require financial intermediaries to conduct basic due diligence reviews before moving money across borders, and that the Congress appropriate money for FinCEN so it can begin to approach the level of funding needed to adequately implement its regulations. But these steps alone won’t stem the tide of illegal and corrupt money. If the Biden administration wants to succeed in its fight against illicit finance and corrupt cash flows, it will need to think a little bigger. The United States’ laws and regulations were central elements in creating this disaster of international corruption. It’s time U.S. lawmakers embrace solutions that are as ambitious as the scale of the problem. President Biden and Congress have the tools to make that happen. Let’s hope they use them.