The United States Department of Treasury has outlined actions it plans to take to address illicit finance, saying Russia’s invasion of Ukraine had underscored the need to close regulatory loopholes and step up the fight against related financial crime and transnational corruption.

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Major international financial institutions have previously been caught red handed in scandal in banking sanctioned groups and individuals the most historically notable was HSBC Mexico facilitating a money laundering scheme on a grand scale for drug cartels, which resulted in a fine in excess of $2 billion. 

Most recently, a massive leak outlining Credit Suisse’s less than reputable client roster has shifted global regulators eyes to Switzerland and British territories on high alert for financiers helping Russian Oligarchs evade western sanctions.

The Treasury Department’s strategy for combating illicit finance, released last Friday, is the latest version of a report the Treasury Department produces every two years. However, this year’s strategy might be among the most important it has produced in regard to its impact to combat Russian aggression.

“Illicit finance is a major national-security threat and nowhere is that more apparent than in Russia’s war against Ukraine, supported by decades of corruption by Russian elites,” said Treasury Assistant Secretary Elizabeth Rosenberg.

Among its priorities for addressing the threat of Russian aggression, the Treasury Department is implementing regulations and policies that limit the ability of illicit actors such as Russian oligarchs to access the financial system through dummy corporations and cash bought real-estate assets.

The Treasury’s report responds to a number of illicit-finance risks to the global financial system identified by regulators. The Treasury at the time named fraud, drug trafficking and cybercrime as the crimes that generate the largest amount of illicit proceeds.

It also identified emerging risks, including the abuse of cryptocurrencies and the government’s perceived threat of rising domestic extremism.

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The White House has tied its work on illicit finance to larger political and national-security goals even before the Ukraine invasion.

The Biden Administration has stated that fighting corruption should be a core national-security priority in reinforcing the legitimacy of western soft diplomatic power, and more recently pointed to Russia’s aggression towards Ukraine as one example of how corruption destabilizes regions and poses a threat to western and global interests.

The Federal Government has imposed far-reaching measures against Russia and has stepped up sanctions against individuals and companies it alleges are involved in corrupt practices including new measures banning Americans from providing accounting and management-consulting services to Russian organizations and corporations. 

Since 2021 the Treasury Department has been implementing a broad focused corporate-transparency law, an effort the department said was its top priority in countering the various illicit-finance challenges it has identified.

The Anti-Money Laundering Act, passed in early 2021, calls for the creation of a corporate-ownership registry that policy makers are hoping will limit the use of complex shell corp. structures. 

In regard to Russia, the government is sending a warning shot to financial institutions that the penalties in assisting Russian Oligarchs navigate sanctions in the financial system will be met with penalties.

Building an Effective AML Framework

AML fines for failing to apply and/or maintain proper controls have been increasing across the world, and it is paramount for organizations to implement a framework and technology architecture that can sufficiently support AML compliance and align with business objectives and goals.

AML laws also are continually growing in scope and in importance even as regulatory bodies increase the extent of requirements and have instituted a vast array of different guidelines and procedures to assist organizations in preventing and detecting such nefarious activities.

Financial service firms that do not implement and follow the correct procedures and compliance processes can face incredibly harsh penalties for not having the proper governance, risk, and compliance (GRC) programs in place to protect the organization and financial system as a whole. 

Fighting money laundering activities and corruption is a serious task that organizations are confronted with. In order to remain compliant with AML regulations in the US and abroad, organizations need to build an integrated risk and compliance framework. Implementing GRC processes supported by a flexible technology solution equips institutions with the tools and data they need to make informed risk management decisions and keep pace with regulatory change. 

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