Biden Must Go Beyond Sanctions to Rid the U.S. Financial System of Dirty Money

Russian President Vladimir Putin’s February 27 announcement raising the alert status of Russian nuclear forces in response to increasingly strong Western sanctions—especially those placed on himself and his key oligarchs—reinforces the role that limiting illicit financial flows must play in a larger Western strategy of containment.

Corruption and illicit financial flows directly contributed to the invasion of Ukraine in three ways. First, they are tied to Putin and his cronies’ ultimate goal of political survival and the money, lifestyle, and impunity that goes with it. Putin and his oligarchs have stolen eye-watering amounts of money from their own people and stashed it safely away in countries renowned for high standards of the rule of law, including the United States, the United Kingdom, Switzerland, Germany, and other European Union countries. Western sanctions threaten this governing scheme.

Second, corruption and the illicit finance associated with it have helped to keep “near abroad” governments largely compliant with Putin’s wishes, especially Ukraine. As the Ukrainian people rose up and voted out their own kleptocratic regimes, Putin resorted to violence, culminating in the invasion.

 

Moreover, corruption helps to partly explain some equipment issues that hamper Ukraine’s defenses today. Ukraine’s civil society and reform-minded politicians have been cleaning up its defense sector after venal Ukrainian senior leadership had hollowed out the country’s forces, selling the best equipment on international arms markets and leaving the leftovers for their own troops. Its military has come a long way, but it is hard to undo decades of damage in such a short time.

Third, Russia has used dirty and dubious money to advance its foreign policy priorities in Western countries with the help of various enablers, including leading law firms, accountants, public relations firms, consulting firms, lobbyists, art dealers, arms dealers, and banks. Former German chancellor Gerhard Schroeder pushed for the Nord Stream 2 gas pipeline and is on the board of Russian energy giant Rosneft. Former French prime minister François Fillon is on the board of Russia’s largest petrochemical company. In 2020, the British Parliamentary Intelligence and Security Committee documented Russian interference in the British Parliament, including the Brexit referendum. In the United States, Russian interference has been documented in the Mueller report, former president Donald Trump’s real estate transaction scandals, President Joe Biden’s son and his Burisma business ties, and more. 

As a result, the increasingly strong Western financial sanctions are an important development. Coordinating such broad and wide-ranging sanctions was certainly no easy task, and Western governments should be applauded. Especially noteworthy is the establishment of a transatlantic task force to identify and seize the assets of sanctioned individuals and companies, as well as identifying and freezing assets of oligarchs’ families and those of their enablers.

But these sanctions will not be helpful unless governments immediately publish lists of assets already known to be owned or controlled by oligarchs. They rarely hold their offshore assets in their own names, instead relying on anonymous shell companies, trusts, foundations, and so on. Every day that goes by without banks, real estate firms, accountants, and other financial gatekeepers being able to check transactions against lists of known oligarch assets is another day those assets can be moved to where Western authorities cannot reach. Partial lists of assets publicly available today are better than complete lists of assets a year from now.

In the long term, the financial pillar of power must be an important component of a containment strategy against Russia and not an afterthought. There are important actions that the Biden administration and Congress can take now to make this more effective.

First, the Biden administration should immediately end a “temporary” exception to the USA Patriot Act in place since 2002 that allows real estate professionals and luxury car, ship, and aircraft dealers to avoid anti–money laundering checks. The Treasury Department should also expand current requirements for title insurers to provide information on all-cash purchases of high-value residential properties in some specific metropolitan areas to cover all transactions throughout the country, whether commercial or residential.

Second, the Treasury Department should move quickly to end the ability to form anonymous shell companies in the United States. The draft rules that the department released in December were a good start, but as numerous anti-corruption and anti-crime groups have pointed out the language could be much stronger. The government will also need to create databases of this information for law enforcement and the intelligence community, as well as training programs on how to access and use these sources.

Third, to minimize the likelihood of federal contracts inadvertently going to Russian oligarchs and other sanctioned entities, the Biden administration should prioritize the implementation of Section 885 of the 2021 National Defense Authorization Act. This requires companies that receive federal contracts or grants over $500,000 to report their beneficial owners into the Federal Awardee Performance and Integrity Information System (FAPIIS). Just as with much FAPIIS information, the beneficial ownership information must be publicly available.

The United States, working with its allies, should also put pressure on countries that have not signed on to sanctions to not act as a conduit for Russia to skirt financial and other restrictions. This most notably applies to the United Arab Emirates (UAE). The UAE—and especially Dubai—has been used as a playground, residence, and money-laundering destination for Russian oligarchs. It is perhaps no surprise that many aircraft owned by Russian oligarchs have landed in the UAE since the new sanctions were announced on February 26, according to aircraft tracking websites. In fact, the UAE has just been placed on the Financial Action Task Force’s gray list for its lack of money laundering controls. Sanctions on oligarchs will be of little use if U.S. allies act as a go-between for them to hold onto their illicit gains.

Congress plays an important role, too. It should immediately pass the ENABLERS Act, which would require lawyers, accountants, investment advisers, public relations firms, and others to identify the sources of funds crisscrossing their accounts. Congress should also provide emergency appropriations to the Treasury Department, other key government agencies, and to the new anti-oligarch task force so these agencies have the staff and funding to track down oligarch wealth. It must vastly expand the resources and authorities of the U.S.’s financial intelligence unit, the Financial Crimes Enforcement Network (FinCEN), along with associated intelligence and law enforcement capabilities against white collar crime and corruption. Even though the American dollar is the world’s reserve currency and underpins the global economy, FinCEN is only about the size of Australia’s’ financial intelligence unit. While Congress authorized some additional funds last year, it was not nearly enough. 

None of this is a cure-all for financially containing Putin and his oligarchs, but it would show the world that the United States is serious about ridding its financial system of dirty money. These programs will yield additional benefits in that they will help keep dirty money from Chinese oligarchs, organized crime, human traffickers, and other bad actors from easily accessing the U.S. financial system, as well as deter some tax dodging schemes. The best time to start these measures would have been decades ago, before Putin and his oligarchs were able to take advantage of lax U.S. rules. The second-best time to start is now.

Join Jodi Vittori and Vox’s Jonathan Guyer on Friday, March 11, at 11:30 a.m. EST for a Twitter Spaces discussion of this piece and additional measures the United States can take to rid its financial system of dirty money. A Twitter account is not necessary to join. Find out more here.