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Rula Khalaf, editor of the Financial Times, selects her favorite stories in this weekly newsletter.
The writer supervises the anti-corruption program of the Human Rights Foundation
For many years, the United States has served as one of the world's leading centers for money laundering and offshore financing. Now, this reality is rapidly changing.
Without much fanfare, the United States in the past few weeks has announced or implemented new reforms across a range of sectors that have traditionally been ripe for money laundering. All of this is a product of the Biden administration's focus on fighting corruption.
The most significant action came last month, when the United States finally posted its new beneficial ownership registry online. The registry will shed light on the constellation of anonymous shell companies previously formed in the country. For many years, it enabled the United States to manufacture these shells at a much higher cost than competitors, led in particular by states such as Delaware and Nevada. To take just one data point, the World Bank found in 2011 that the United States created more anonymous legal entities than 41 tax havens combined — a trend that has, by all appearances, continued ever since.
Now, thanks to the new registry, no one – from corrupt people and oligarchs to cartel bosses and arms dealers – can get their shell of anonymity in Wilmington or Reno. Companies forming companies will have to identify so-called “beneficial owners,” or face possible imprisonment if they deliberately avoid providing information.
This step alone would have been commendable. After all, it is these anonymous shells that serve as the foundation for almost all offshore networks, helping to strip identifying information from the dirty money in question.
But the administration did not stop there. Earlier this month, officials with the Treasury Department's Financial Crimes Enforcement Network announced transparency requirements regarding US residential real estate. For a long time, the sector has been a sponge for questionable finance, converting kleptocratic wealth into stable, appreciating assets.
Those days will soon be behind us. US officials announced they would end a decades-old loophole that exempted real estate professionals from basic anti-money laundering checks. Now, those closing real estate deals — including lawyers — will have to identify the people behind the previously anonymous purchases.
That's still not all. The Financial Crimes Enforcement Network (FinCEN) announced a proposed new rule for the private investment sector, which served as an open sieve for illicit wealth. Private equity, hedge funds and venture capital markets have spent decades evading even basic anti-money laundering controls. The sector, which has nearly doubled in size over the past decade and is now worth tens of trillions of dollars, has in effect been a bright new flashing light for the world's worst actors to hide their wealth. A 2020 FBI memo pointed directly to “the ever-increasing opportunities for threat actors to co-opt investment funds without exposure to excessive scrutiny.”
Now, all SEC-registered funds will have to conduct basic due diligence checks on clients, including the sources of their wealth. It's a small burden, putting fund managers on par with US bank managers, who have long had to undergo anti-money laundering checks.
Of course, there are still many issues remaining. The registry of shell companies must be enforced – a lesson that Britain learned the hard way, not long ago. Real estate rules focus only on residential buildings, not commercial. It is possible that the private investment requirements will be rolled back by the Trump administration, which is likely to be less interested in such efforts.
But these are all issues for the future. For now, it is worth taking a step back and recognizing that the long-awaited end of America's role as a central vector for global money laundering is finally in sight.
