Today’s release of Transparency International’s annual Corruption Perceptions Index brought disturbing, though unsurprising, news. After four years of the Trump administration, the United States received its worst score for perceived corruption in almost a decade. Fortunately, the end of the Trump era brought with it not only damage to America’s reputation and institutions, but a promising new vehicle for their repair: the state-of-the-art anti-corruption provisions attached to the National Defense Authorization Act (NDAA). Fittingly, passing the NDAA required an override of then-President Trump’s veto of the bill, but its enactment represented the first major act of Congress in the new year and a profound lift to the United States’ damaged reputation for fighting corruption. Contained within the legislation’s 1,480 pages are anti-corruption measures that advocates within and outside of government have championed for more than a decade; with its passage, the United States joins the community of nations working to combat the transnational scourges of shell companies and money laundering. Anti-corruption opportunities for 2021 and beyond abound.
Since the passage of the Foreign Corrupt Practices Act of 1977, which was the world’s first piece of domestic legislation outlawing transnational bribery, the United States has played a leading role in global anti-corruption efforts. However, the ease with which domestic and foreign actors alike can create anonymous shell companies based in the U.S.—a 2019 study found that forming a company requires the disclosure of less personal information than a library card in every state in the country—has facilitated a range of malign activity. By not mandating the disclosure of companies’ true owners, controllers, or financial beneficiaries—known as beneficial owners—the United States has become a hub for money laundering, terrorist financing, tax evasion, and other forms of corruption.
Fortunately, bipartisan supermajorities in Congress decided to do something about it. Title 64 of the NDAA—known as the Corporate Transparency Act—changes this state of affairs. The measure mandates (with some exceptions) that those seeking to form a company in the U.S. report their beneficial owners—which the law defines as the global norm of a 25% or more ownership stake or “substantial control over the entity”—to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). FinCEN will maintain an “accurate, complete, and highly useful” database of beneficial ownership information, which federal, state, local, and tribal law enforcement authorities can access in the course of authorized investigations (as can financial institutions with customer consent).
The collection of this data and its access to law enforcement agencies will have profound ramifications for financial crimes investigations: Beneficial ownership opacity has previously hindered investigations into kleptocratic behavior, drug trafficking, political corruption, tax evasion, sanctions evasion, and more. It will also impede the ability of terrorist groups and other illicit actors to use shell companies to financially support their operations in the first place.
In addition to beneficial ownership transparency, the Corporate Transparency Act and other measures of the NDAA strengthen a range of other anti-money laundering provisions. The antiquities trade, long known for its use as a money laundering vehicle, will now be subjected to increased federal scrutiny under the terms of the 1970 Bank Secrecy Act, from which it had previously been exempted. Meanwhile, other provisions improve information sharing among government agencies, create an anti-money laundering whistleblower reward and projection program, and require FinCEN to work to increase communication between law enforcement and bankers.
Each of these provisions, and especially those relating to beneficial ownership transparency, bring the United States ever-more in line with international best practices for anti-corruption efforts. Indeed, due to the privileged place that the U.S. holds in both finance matters and global leadership, these changes will have ripple effects beyond the country’s borders. In the short term, U.S. action on beneficial ownership transparency may spur similar initiatives in Canada, while, as Clark Gascoigne of the FACT Coalition notes, State Department officials can now fend off charges of hypocrisy to push more effectively against money laundering in posts abroad. That gives the new administration a springboard to restoring U.S. moral authority on these issues globally at a time when that is badly needed. Longer term, as FinCEN and others implement the regulations in the bill and those start to take effect, global investigations run by the FBI (which has already been expanding its international corruption unit in recent years) and others will begin to bear fruit.
Of course, no bill is perfect, and the American anti-corruption agenda still has further to go. The beneficial ownership registry that FinCEN will create will be inaccessible to the public, unlike many others around the world that enable citizens to look up beneficial ownership information and so identify political conflicts of interest. The new administration should consider urgently working with Congress to fix this omission.
In addition, the threshold for requiring registration of beneficial owners is, at a 25% ownership stake, too high, according to many experts. This will likely cause some number of beneficial owners to remain in the shadows. While numerous other countries also use the 25% level, the U.S. should show more leadership. In addition, exemptions for trusts and partnerships leave some money laundering concerns outstanding.
Those issues notwithstanding, the NDAA’s anti-corruption provisions are an enormous boon to integrity around the world, as well as creating an opening for a new American anti-corruption agenda. Beneficial ownership disclosure issues have long been furthered by organizations like the International Consortium of Investigative Journalists (ICIJ), whose 2016 Panama Papers investigation opened many peoples’ eyes to the breadth and depth of corporate ownership issues. Indeed, ICIJ’s more recent FinCEN Files investigation, based on thousands of documents obtained by Buzzfeed News, delved into the ways in which global banks contribute to money laundering and provided the final impetus for the Corporate Transparency Act’s passage. In addition, the FACT Coalition—an alliance of more than a hundred organizations working to promote fair taxation—has spent nearly a decade assembling and activating a broad-based group of activists, researchers, national security professionals, law enforcement officials, banks, labor unions, and more to endorse and promote this legislation.
These organizations and others doing essential anti-corruption work are not going away, and they have reason to believe that their work will be bolstered by the new Biden administration, which has signaled that it will put anti-corruption at the heart of its agenda. Biden himself has pledged to combat corruption domestically by pushing for ethics and campaign finance reform and other policies, while promoting anti-corruption efforts abroad as one of the pillars of a new foreign policy. He has made an important down payment by adopting the best ever internal ethics plan for a new administration.
Biden’s choice for national security advisor, Jake Sullivan, has promised to “rally our allies to combat corruption and kleptocracy, and to hold systems of authoritarian capitalism accountable for greater transparency and participation in a rules-based system.” The administration contains many other champions in the battle against corruption.
In this effort, the broad-based alliance that successfully worked to enshrine these new anti-corruption measures into law via the NDAA will undoubtedly prove an important ally. And all those working to combat corruption—including those of us in the Leveraging Transparency to Reduce Corruption initiative—can take heart that the United States’ role in creating a more transparent and accountable world seems poised to grow in 2021 and beyond. Hopefully, these NDAA provisions, together with other initiatives like the Biden ethics plan and such legislative anti-corruption efforts as H.R. 1, will create a rebound for the United States in Transparency International’s annual rankings in 2022.