How art dealers, real estate agents and hedge funds promote corruption

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If Biden is serious about fighting corruption, he needs to regulate 10 key white-collar professions

Josh Rodolphe; Foreign police

September 28, 2021, 3:00 p.m.

Last modification: September 28, 2021, 3:07 PM

Josh Rodolphe. Illustration: SCT

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Josh Rodolphe. Illustration: SCT

The FBI has long viewed obscure private equity funds as dangerous financial avenues for malicious foreign activity. Almost a decade ago, the bureau caught Moscow trying to use venture capital funds in Boston and Silicon Valley to steal U.S. military secrets. Last year, a leaked FBI intelligence bulletin warned of Russian cryptocurrency scammers, drug cartels and organized crime increasingly using poorly regulated investment vehicles for crime and corruption in the United States.

The same FBI leak also highlighted the threat of foreign governments using investment funds for politically influential operations. Russia and the United Arab Emirates have reportedly tried to influence the Trump administration’s foreign policy through investment fund managers who are friends of then-President Donald Trump and his family, including by offering them lucrative deals.

Private investment firms such as hedge funds and private equity firms are just one industry among 10 types of white-collar professions whose loose rules present serious dangers to the national security of the United States, such as I detailed it in a new research report. Others are real estate title insurers, founding agents, art dealers, lawyers, accountants, secret public relations firms, real estate agents, luxury car salesmen, and insurance companies. cryptocurrency. Very little transparent and insufficiently regulated, these financial professions have long been used by hostile regimes and their acolytes to arm corruption, launder funds or circumvent sanctions. In order for US President Joe Biden to advance the anti-corruption agenda he has announced, he must ensure that the US Treasury Department forces these professional facilitators to monitor dirty money in the same way that commercial banks are. already required to do so.

One industry that particularly threatens the security of the United States is real estate, where property hidden by foreign oligarchs and corrupt officials is common. In addition to providing a safe haven for illicit money laundering, real estate is also a potential means of financing and influencing political actors. It is still unclear whether the Kremlin and his cronies deliberately enriched Trump by investing in his properties. According to his former personal lawyer Michael Cohen, Trump privately admitted that a windfall of $ 54 million he received from a property sale during the 2008 financial crisis was “Putin’s money.” The special advocate in charge of investigating the president, Robert Mueller, allegedly assumed that if Trump were compromised by Russian President Vladimir Putin, “it would be about the money.” The fact that no journalist or prosecutor has come to a definitive conclusion despite investigations over the past six years demonstrates the urgent need for more transparency regarding real estate ownership in the United States. The easiest way for the Treasury to shed light on this market would be to ask title insurance companies to tell the government who owns all U.S. properties, permanently extending a now-temporary requirement to share targeted data.

Additionally, obscure high-priced art markets also provide covert channels for hostile regimes and their cronies to launder the proceeds of corruption and undermine U.S. national security interests, including bypassing laws. sanctions. For example, when Russia invaded Ukraine and the US Treasury sanctioned Kremlin officials and oligarchs, email records obtained by Senate investigators suggest that an official at the largest auction house in the United States. world auction, Christie’s, saw an opportunity to sell works of art to Russians who needed to put their money down. in “safe” assets. The same Senate investigation alleges that just a few weeks after the sanction of the Arkady brothers and Boris Rotenberg, shell companies and related intermediaries began buying $ 18 million worth of works of art from major houses of auctions and private dealers. Senate investigators found that the transactions were facilitated by their Moscow-based art advisor, who was a U.S. citizen and therefore had to comply with sanctions, but not anti-money laundering rules, as art advisers are not. regulated.

These three sectors – private equity funds, real estate title insurers and art dealers – are the lowest fruit where the US Treasury Department already has all the information and resources it would need to finalize the process. regulation in a few months. Because even though the section of the Treasury in charge of combating money laundering is severely underfunded, it is authorized by a well-developed statutory framework to require financial professionals to seek out dirty money in identifying customers, scrutinizing transactions, keeping records and reporting suspicious activity to the government.

The Absinthe Drinker or Portrait of Angel Fernández de Soto by Pablo Picasso on sale at Christies in London. Photo: Reuters

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The Absinthe Drinker or Portrait of Angel Fernández de Soto by Pablo Picasso on sale at Christies in London.  Photo: Reuters

The Absinthe Drinker or Portrait of Angel Fernández de Soto by Pablo Picasso on sale at Christies in London. Photo: Reuters

The problem is that the Treasury has traditionally been reluctant to extend these rules to most white-collar facilitators outside of banks. Particularly for the most ubiquitous and problematic (in terms of corruption) professions – such as real estate agents, lawyers and car dealers – it would take a lot of time, resources and political support to defeat corporate groups. entrenched interests, and regulations should be carefully calibrated to avoid undue economic costs or protracted legal battles. An unfortunate result of this hesitation is that the United States is among only about 10 percent of countries in the world that fail to comply with the international standard on the regulation of facilitators. The Financial Action Task Force, an international standards body, calls this the worst vulnerability in the US financial system. This, in turn, creates a global threat, given that the United States is the world’s largest provider of offshore financial services.

The good news is that this may change now that Washington has recognized corruption as a major threat to national security. Regulating catalysts has become an urgent priority for U.S. lawmakers, law enforcement, and civil society. Biden’s memorandum establishing the fight against corruption as a fundamental national security interest highlighted that “professional service providers allow the movement and laundering of illicit wealth, including in the United States and in d ‘other democracies based on the rule of law “. Likewise, the main political priority identified by the White House was to reform the regulatory structure that governs illicit financing. The US Treasury cited Biden’s memo when it classified corruption as the main US financial threat and specifically warned of the role of “financial facilitators.”

The time to move from rhetoric to implementation will come in December, when the White House unveils its comprehensive anti-corruption strategy and Biden hosts its first of two planned democracy summits. The US Treasury should take the opportunity to launch a major campaign to impose anti-money laundering regulations on non-bank facilitators. The ministry should credibly demonstrate that it is serious by officially announcing that new rules will come into force in 2022 and will cover a first set of professions. It could start with the three white-collar sectors described above: private equity and hedge funds, real estate title insurers and art dealers.

In time for Biden’s second Democracy Summit, slated for late 2022, the administration is set to begin the second half of this campaign, which focuses on the toughest political battles. These include regulating the Four Horsemen of Dirty Money: lawyers, founding agents, accountants, and secret public relations firms. If lawmakers on both sides are uncooperative and prefer to shield these corrupt-prone professions from scrutiny, the administration could focus on the perhaps easier agenda of repealing regulatory exemptions for real estate agents, luxury vehicle sellers and cryptocurrency service providers.

Twenty years ago, Congress’ smartest initial response to the 9/11 attacks was legislation requiring professional facilitators to establish anti-money laundering compliance programs. A year later, unfortunately, the George W. Bush administration granted exemptions for key professions and refocused its energies on the wars in Afghanistan and Iraq. With the Biden administration seeking to take a more effective approach to national security than militarized nation-building attempts, it could do worse than restarting efforts to regulate the catalysts, preventing the United States from being the world’s biggest haven for dirty money, and start showing how democracies can fight crooked opponents and powerful vested interests.


Josh rudolph is a member of the Alliance for Securing Democracy for Malicious Finance.


Disclaimer: This article first appeared on Foreign Policy and is published under a special syndication agreement.


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