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Biden Administration Targets Global Corruption and Demonstrates Expansive Use of Magnitsky Sanctions

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The Biden Administration has signaled an expanded commitment to longstanding U.S. anti-corruption policies, and recent enforcement actions and policy announcements provide insights into what foreign officials, companies and investors can expect. Early signs indicate an intent both to bolster core anti-corruption enforcement through the Foreign Corrupt Practices Act (FCPA) and anti-money laundering tools (see here), and to explore administrative tools such as targeted sanctions.

On June 2, 2021, the Department of Treasury’s Office of Foreign Assets Control (OFAC) issued sanctions on three Bulgarian citizens for their roles in large-scale bribery and influence peddling schemes and on 64 entities owned or controlled by them. While the application of sanctions under the Global Magnitsky Human Rights Accountability Act (Global Magnitsky Act) to address corruption is not new, the scope of designated entities and the prominence of the former Bulgarian officials and well-known business persons was noteworthy.

The following day, on June 3, 2021, the Biden Administration issued a Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest (Anti-Corruption Memorandum) outlining its approach to pursue greater enforcement against corruption. These initiatives appear designed to strengthen traditional anti-corruption and anti-money laundering (AML) enforcement as well as foreign cooperation and capacity building, and are in line with the Biden Administration’s goals of combatting corruption globally and closing the financial channels that allow corrupt activities to be profitable.

Addressing Corruption within the Global Financial System
The Anti-Corruption Memorandum requires U.S. federal agencies to complete a 200-day interagency review process under National Security Memorandum/NSM-2 (Renewing the National Security Council System) and to develop a Presidential strategy that increases the U.S. Government’s ability to address corruption globally.

Specifically, the Memorandum lists the following central objectives of the review process:

  • Modernize and improve agencies’ abilities to combat corruption;
  • Combat all forms of illicit finance in the U.S. and international financial systems, including by “robustly implementing” current federal reporting requirements, reducing secret offshore bank accounts, and improving information sharing;
  • Hold corrupt individuals and their facilitators accountable through asset freezing and recovery;
  • Strengthen international and domestic institutions dedicated to cementing anti-corruption norms, encourage asset recovery, and combat money laundering, illicit finance, and bribery;
  • Enhance civil oversight and accountability mechanisms;
  • Cooperate with global partners to “counteract strategic corruption” and “closing loopholes” exploited to “interfere in the democratic process” in the United States and abroad;
  • Increase resources to assist a country in its desire to reduce corruption;
  • Expand domestic authority to implement transparency, oversight, and accountability measures intended to counter corruption;
  • Support public-private relationships as a way to promote preventative anti-corruption measures; and
  • Establish best practices and enforcement mechanisms such that foreign assistance and security cooperation activities have built-in corruption measures.

The aforementioned objectives span traditional enforcement, AML and Bank Secrecy Act rules, foreign cooperation and capacity building, asset freezing, corrupt cooperation in election interference, public-private partnerships, and corruption tie-ins for foreign assistance and national security support. By the end of 2021, the Assistant to the President and the National Security Advisor are expected to submit to the President a report of recommendations to “significantly bolster” the United States’ ability to target global corruption, money laundering, and illicit financing.

Global Magnitsky Sanctions Targeting Corruption
Sanctions offer a key example of administrative action that can target foreign corruption under U.S. law, whether or not FCPA jurisdiction arises. The Sergei Magnitsky Rule of Law Accountability Act of 2012 introduced human-rights-related sanctions, and the Global Magnitsky Act in 2016 created new authorities which specified corruption as a target of U.S. sanctions policies. In 2017, the Trump Administration built upon these Obama-era policies with Executive Order 13818, which implemented parts of the Global Magnitsky Act and specified “corruption” and “the transfer or the facilitation of the transfer of the proceeds of corruption” as a basis for sanctions designations.

The Biden Administration’s June 2 action targeting the Bulgarian businessmen (two of which are former government officials) and their network of companies with designations as Specially Designated Nationals (“SDNs”) represented the most expansive use to date of Executive Order 13818, and a rare use in a European country. Where jurisdiction applies, this is the type of foreign corruption that is often pursued by the Department of Justice under the FCPA or AML statutes.

As a result of these recent sanctions, all property and property interests of the recently designated persons will be blocked. Furthermore, any entity that is owned 50 percent or more by such persons, directly or indirectly, are blocked and U.S. persons may not transact with SDNs or blocked persons. U.S. dollar transactions that clear the U.S. financial system are prohibited for such sanctioned or blocked persons, even where related to underlying transactions that take place outside the United States. U.S. persons also are prohibited from facilitating transactions outside the United States in which U.S. persons would otherwise be restricted from engaging.

Looking Ahead
The recently issued Memorandum and ongoing enforcement actions against corruption during the Biden Administration underlines the heightened prioritization of anti-corruption efforts. U.S. and multinational corporations, as well as officials outside the United States, can anticipate continued U.S. enforcement as well as the potential development of further tools to address corruption and related financial flows.

*We would like to thank summer associate Arielle Heffez for her significant contribution to this alert.