Advisory on Human Rights Abuses Facilitated by Foreign Corrupt Political Elites and Their Financial Facilitators (FinCEN Advisory FIN-2018-A003 (Spanish))

This advisory shall be shared with: • Chief Executive Officers • Chief Operating Officers • Chief Risk Officers • Legal Departments • Compliance/Bank Secrecy Act Directors • Legal Departments • Anti-Money Laundering Authorities • Sanctions Compliance Officers

FIN-2018-A003 June 12, 2018

Advisory on Human Rights Abuses Facilitated by Foreign Corrupt Political Elites and Their Financial Facilitators

The United States Department of the Treasury (the Treasury) is committed to protecting both the U.S. and international financial systems not only from those who commit acts of corruption and human rights abuses, but also from those who facilitate such activities. High-level political corruption undermines democratic institutions and public trust, harms economic growth, and fosters an environment in which financial crimes and other forms of anarchy thrive. Through their corrupt conduct, foreign corrupt political elites, as well as their subordinates and facilitators, often contribute directly and indirectly to the commission of human rights abuses, which has a devastating effect on individual citizens and society by undermining markets and economic development, and generating instability in a region.

The use of financial facilitators is one of the ways in which foreign corrupt political elites access the U.S. and international financial systems to move or hide illicit gains, evade U.S. and international community sanctions, or otherwise engage in illegal activities, including related human rights abuses.

The Treasury employs its unique tools, in accordance with relevant legal mandates, to impose economic consequences on those who plunder the wealth and resources of their people; generate ill-gotten gains derived from corruption, cronyism, and other criminal activities; and commit human rights abuses. These tools include the authority to sanction corrupt subjects and human rights violators worldwide under a presidential decree implementing the Global Magnitsky Act of 2016,1

1. See Presidential Decree 13818, “Blocking the Property of Persons Involved in Serious Human Rights Abuse and Corruption,” of December 20, 2017; see also United States Sanctions Human Rights Abusers and Corrupt Actors across the Globe, of December 21, 2017. by taking coercive measures against financial facilitators of foreign corrupt political elites, as well as issuing alerts to financial institutions to help them identify, mitigate, and report these risks. The United States Department of the Treasury will also continue to collaborate with other active agencies in this matter, such as the U.S. Department of Justice, the Financial Action Task Force (FATF), civil society, and non-governmental organizations (NGOs) to identify, coerce, and disgorge corrupt subjects and those who facilitate their access to financial systems.

The Financial Crimes Enforcement Network (FinCEN) is issuing this advisory to U.S. financial institutions to underscore the nexus between foreign corrupt political elites and their enabling of human rights abuses. The advisory describes a series of typologies used to access the U.S. financial system, and to hide and advance their illicit activities. The advisory also indicates red flags that can help financial institutions identify the methods employed by foreign corrupt political elites,2

2. “The term ‘foreign senior political figure’ means a senior official who is or has been in office in the executive, legislative, administrative, military, or judicial branches of a foreign government (whether or not by election); a senior official of a major foreign political party; or a senior executive of a commercial enterprise that is owned by a foreign government; a company, business, or other entity that has been formed by or for the benefit of any such person; an immediate family member of any such person; and a person widely known and publicly (or in fact known by the financial institution in question) as a close associate of such person. 31 CFR § 1010.605(p). For purposes of this definition, ‘senior official or executive’ means a person with considerable authority over government policy, operations, or the use of resources, and ‘immediate family member’ means spouses, parents, siblings, and children, as well as the parents and siblings of a spouse.” 31 CFR § 1010.605(p). See also generally 31 CFR § 1010.620. Note that the term ‘foreign senior political figure’ connotes a subset within the concept of “Politically Exposed Persons” (PEPs). The term PEP is not included in FinCEN regulations and should not be confused with “foreign senior political figure.” In the United States, AML obligations regarding PEPs include, collectively: 1) specific due diligence obligations for private banking accounts established, maintained, administered, or managed in the United States for foreign senior political figures, and 2) general due diligence procedures required for all politically exposed persons, incorporated into the institution’s AML program as appropriate. See “Trends, Tips, and Issues,” in The SAR Activity Review, May 19, 2011 edition. , such as the use of facilitators, to move and hide proceeds from their corruption, which directly or indirectly contributes to human rights abuses or other illicit acts through the U.S. financial system.

FinCEN will update these typologies and red flags as it investigates the methodologies used by foreign corrupt political elites and their financial facilitators. This advisory also reminds U.S. financial institutions of their obligation to exercise due diligence and file Suspicious Activity Reports (SARs) related to such elites and their facilitators.

Financial Sanctions Targeting Corruption and Human Rights Abuses

The Office of Foreign Assets Control (OFAC) has a full range of authorities to impose certain designations on corrupt foreign elites, human rights violators, and their financial facilitators. OFAC has numerous international sanctions programs, such as those imposed against Venezuela, South Sudan, Iran, Russia, Syria, the Democratic Republic of Congo (DRC), North Korea, and Somalia, which broadly prohibit U.S. persons, including U.S. financial institutions, from participating in transactions involving designated persons and entities that have committed acts of corruption, undermined democratic processes, or been part of human rights abuses. All assets of designated persons and entities subject to U.S. jurisdiction are frozen, and U.S. persons, including financial institutions, are prohibited from dealing with the designated person.3

3. See Sanctions Programs and Country Information, on the OFAC portal.

The Magnitsky Act sanctions program provides the Treasury with a powerful tool to target corrupt officials, human rights violators, and corrupt subjects, as well as their facilitators, regardless of the country in which they reside or from which they operate.4

4. See Presidential Decree 13818, “Blocking the Property of Persons Involved in Serious Human Rights Abuse and Corruption,” of December 21, 2017; see also United States Sanctions Human Rights Abusers and Corrupt Actors across the Globe, of December 21, 2017. The presidential decree implementing the Global Magnitsky Act authorizes OFAC to disconnect from the U.S. financial system any person whom the Secretary of the Treasury, in consultation with the Secretary of State and the Attorney General, determines, among other things, has abused human rights or committed acts of corruption. The prohibitions of the Global Magnitsky Act can be expanded to include those who provide goods or services to such subjects, including financial institutions.

FATF Initiatives and Recommendations Regarding Politically Exposed Persons (PEPs)

To address financial risks related to Politically Exposed Persons (PEPs), FATF issued Recommendation 12, which requires countries to ensure that financial institutions implement measures to prevent PEPs from misusing the financial system and to detect possible abuse if it occurs.5

5. See FATF Guidance: Politically Exposed Persons (Recommendations 12 and 22), June 2013. FATF recommends that family members and close associates of PEPs also be considered PEPs, due to the potential abuse of this relationship to move illicit funds, facilitating the allocation and concealment of proceeds, as well as financing terrorism.6

6. See FATF Guidance: Politically Exposed Persons (Recommendations 12 and 22), June 2013, page 13. FinCEN regulations also include known family members and close associates within the definition of foreign senior political figure. 31 CFR § 1010.605(p).

In the United States, Recommendation 12 is implemented through FinCEN rules and guidance, and complemented by supervisory expectations articulated in the Federal Financial Institutions Examination Council (FFIEC) Examination Manual regarding the Bank Secrecy Act (BSA). Among other things, regarding foreign PEPs, banks must exercise reasonable judgment in designing and implementing policies, procedures, and processes regarding them as part of their Anti-Money Laundering (AML) program. This could include obtaining information on PEPs with risk-based due diligence, such as the countries of residence of the account holder(s) and beneficial owner(s), as well as the level of corruption and money laundering risk associated with those countries, the source of funds and wealth, and data on direct family members and close associates.7

7. See 31 CFR § 1010.620. See also FFIEC BSA Examination Manual, “Politically Exposed Persons - Overview”; 2015, page 87.

How Corrupt Foreign PEPs and Their Facilitators Access the U.S. Financial System

To further assist U.S. financial institutions in safeguarding against corruption and protecting the national financial system from the illicit use of foreign PEP facilitators, this advisory highlights a series of typologies employed by these PEPs to access the U.S. financial system, and to hide and launder proceeds from high-level political corruption. Appendix 1 provides additional general case studies of financial facilitation methods.

For example, typologies employed by financial facilitators of corrupt PEPs may include embezzlement of state resources, the use of shell companies, exploitation of the real estate sector, or any combination thereof.

Embezzlement of State Resources

Corrupt foreign PEPs, through their facilitators, may amass fortunes through the embezzlement of state resources and often abuse their own official positions to engage in drug trafficking, money laundering, embezzlement of state funds, and other corrupt activities.8

8. See Treasury Targets Influential Former Venezuelan Official and His Corruption Network; May 18, 2018. These PEPs may abuse companies, including financial institutions wishing to do business with the government, in order to divert resources from the latter for their own benefit. For example, some PEPs have resorted to overseas leasing companies to sell a product like oil, in a manner that benefits specific politically exposed persons (e.g., through shell companies with misleading names to give the appearance of being related to the government), and not the government as a whole.9

9. See United States Sanctions Human Rights Abusers and Corrupt Actors across the Globe; December 21, 2017.

Use of Shell Companies

Facilitating PEPs typically use shell companies to obscure ownership and hide the true source of the fruits of corruption. Typically, shell companies are unlisted corporations or limited liability companies (LLCs) that have no physical presence beyond a postal address and generate little or no independent economic value. Shell companies are often formed by individuals and entities for legitimate purposes, such as holding shares or assets of another commercial entity, or facilitating currency exchanges, asset transfers, and corporate mergers both nationally and internationally. Financial institutions should refer to previous FinCEN publications to better understand the risks associated with these entities.10

10. See FinCEN Guidance, FIN-2006-G014 “Potential Money Laundering Risks Related to Shell Companies,” November 2006); and The SAR Activity Review: No. 1 (October 2000), No. 2 (June 2001), and No. 7 (August 2004).

Corruption in the Real Estate Sector

Real estate transactions and the real estate market have certain characteristics that make them vulnerable to abuse by illicit participants, such as corrupt foreign PEPs or their facilitators. For example, many real estate transactions involve high-value assets, opaque entities, and processes that may limit transparency due to their complexity and diversity. Additionally, the real estate market can be an attractive vehicle for laundering illicit gains, as real estate appreciates in value, “launders” large sums of money in a single transaction, and protects ill-gotten gains against currency fluctuations and market instability.11

11. See Alert for Financial Institutions, and for Real Estate Firms and Professionals, August 22, 2017. For these and other reasons, drug traffickers, corrupt officials, and other criminals have used real estate to hide the existence and origin of their illicit funds.

Red Flags Related to Corrupt Foreign PEPs and Their Facilitators

The red flags mentioned below can help financial institutions identify suspicious schemes involving corrupt foreign PEPs and the facilitators they may rely on. Financial institutions are advised that, when applying the following red flags to transactions, a single one does not necessarily indicate suspicious activity. Financial institutions should consider additional indicators, as well as the facts and circumstances surrounding them, such as the customer’s financial activity history and whether they exhibit multiple red flags, before determining that a transaction is suspicious. Financial institutions should also conduct additional inquiries and investigations as appropriate.

1. The use of third parties when it is not a normal business practice.

2. The use of third parties when it appears to conceal the identity of a PEP.

3. The use of family members or close associates as legal owners.

4. See FATF Guidance: Politically Exposed Persons (Recommendations 12 and 22), June 2013. Designated Non-Financial Businesses and Professions (DNFBPs) include: real estate agents, dealers in precious metals, lawyers, accountants, and corporate formation agents. who would generally not serve foreign or highly valuable clients.

Reminder of Supervisory Obligations for U.S. Financial Institutions Regarding Foreign Senior Political Figures and Reporting of Suspicious Activities

In accordance with existing supervisory obligations, financial institutions must take reasonable, risk-based measures to identify and limit contact they may have had with funds and other assets linked to persons or entities involved in the illicit laundering of funds, including funds from foreign corruption. However, financial institutions are reminded that the majority of PEPs are dedicated public servants, and concerns about the criminal and corrupt conduct of some should not be used as a basis for incurring generalized or indiscriminate exclusion of any class of customers or financial institutions representing a risk. FinCEN also reminds financial institutions of previous interagency guidance regarding services to foreign embassies, missions, and consulates.13

13. See “Interagency Advisory: Guidance on Accepting Accounts from Foreign Embassies, Consulates, and Missions,” from the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Financial Crimes Enforcement Network, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision (March 24, 2011); and “Interagency Advisory: Guidance on Accepting Accounts from Foreign Governments, Foreign Embassies, and Foreign Political Figures,” from the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Financial Crimes Enforcement Network, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision (June 15, 2004).

Due Diligence Obligations

FinCEN provides the information in this advisory to help U.S. financial institutions comply with their risk-based due diligence obligations to identify persons providing financial facilitation to or on behalf of corrupt PEPs, and not to help such individuals knowingly or deliberately. Financial institutions must establish risk-based controls and procedures that include reasonable steps to determine an individual’s status as a foreign PEP, and to scrutinize assets held by such individuals.14

14. See 31 CFR § 1010.620(c) and Guidance on Enhanced Scrutiny for Transactions that May Involve the Proceeds of Foreign Official Corruption, January 16, 2001. See also FFIEC BSA Examination Manual, “Politically Exposed Persons - Overview”; 2015, pages 290-293. Financial institutions must assess the risk of money laundering from public corruption in relation to specific customers, products and services, countries, industries, and transactions.

Since May 11, 2018, FinCEN’s Customer Due Diligence (CDD) Rule requires banks, securities brokers or dealers, mutual funds, and futures commission merchants and introducing brokers in commodity futures to identify and verify the identity of beneficial owners of legal persons that they accept as customers, subject to certain exclusions and exemptions.15

15. See Customer Due Diligence Requirements for Financial Institutions, May 11, 2016. Among other things, this must facilitate the identification of legal persons that may be owned or controlled by PEPs.

Enhanced Due Diligence Obligations for Private Banking Accounts

In addition to these general risk-based due diligence obligations, pursuant to Section 312 of the U.S. USA PATRIOT Act (§ 5318(i) of Title 31 of the United States Code [U.S.C.],

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