Policy Recommendations: Combatting Corruption
The rise of modern authoritarianism over the past two decades has been accompanied by an expansion in corruption and kleptocracy, which poses a significant threat to democracy around the world.
Combatting Corruption and Kleptocracy
The rise of modern authoritarianism over the past two decades has been accompanied by an expansion in corruption and kleptocracy, which poses a significant threat to democracy around the world. The theft of public funds gives corrupt elites both the incentive and the means to consolidate power and suppress voices of opposition. Corruption undermines the freedom and the interests of ordinary citizens, and the effects are especially harmful in developing countries with limited resources and weaker anticorruption mechanisms.
Kleptocrats and other corrupt foreign officials frequently exploit the United States’ open financial system by funneling stolen funds into and through US markets. They benefit from loopholes in current law that permit this sort of money laundering, most often by employing anonymous shell corporations and the purchase of luxury real estate. Kleptocrats also take advantage of the security provided by democratic jurisdictions, particularly the United States’ privacy protections.
To address these problems, Freedom House offers the following recommendations for US policymakers:
- Impose sanctions on corrupt foreign officials. Existing laws permit the US government to penalize foreign officials who are found to be complicit in grand corruption. For example, the Global Magnitsky Act allows sanctions not only for gross violations of human rights, but also for significant acts of corruption. Such sanctions block or revoke US visas for the targeted individuals and bar them from all US-based property ownership or transactions. Sanctions enforcement is a critical tool for addressing kleptocracy, and while it does not entirely prevent foreign corruption, it does deny perpetrators physical and financial access to the United States, making it more difficult for them to launder, hide, and spend stolen funds. Working in conjunction with allies’ sanctions regimes, US sanctions could go a long way toward cutting off kleptocrats and other corrupt actors from the global financial system.
- Pass the Corporate Transparency Act (H.R. 2513) or the similar ILLICIT CASH Act (S. 2563). These bills would require the disclosure of true, beneficial owners to the US Treasury’s Financial Crimes Enforcement Network (FinCEN) at the time a company is formed. The Corporate Transparency Act requires continued annual reporting, while the ILLICIT CASH Act requires updates when there are any changes to beneficial ownership. The legislation provides civil and criminal penalties for violators who fail to submit or provide incomplete or inaccurate information. Establishing a beneficial ownership registry would ensure that kleptocrats are unable to hide behind anonymous shell corporations, protecting the US financial system from corrupt influence and strengthening the effectiveness of existing US sanctions. The Corporate Transparency Act passed the House with the inclusion of Representative Cleaver’s COUNTER Act, which adds to and amends the Banking Secrecy Act (BSA) by codifying an information-sharing program to enable greater detection of illegal activity and by closing a number of loopholes. The ILLICIT CASH Act also includes reforms designed to modernize FinCEN and the US AML-CFT (anti–money laundering and countering the financing of terrorism) regime.
- Pass the Countering Russian and Other Overseas Kleptocracy (CROOK) Act (H.R. 3843). The legislation would establish an action fund to supply extra resources during historic windows of opportunity for anticorruption reform in foreign countries. Five percent of the fines and penalties imposed under the Foreign Corrupt Practices Act (FCPA) would be dedicated to this fund. The law would also facilitate a whole-of-government approach by establishing an interagency corruption task force, anticorruption points of contact in US embassies, and online tools to better track and understand corruption around the world.
- Pass the Combating Global Corruption Act (S. 1309). This law would make fighting international corruption a national security priority, in part by requiring the State Department to produce a public country-by-country report summarizing the extent of corruption and assigning a tier classification based on government efforts to combat the problem. In addition, the bill would establish various transparency and accountability measures for the State Department, the Department of Defense, and USAID to implement regarding US foreign assistance to the countries that are least engaged in anticorruption efforts.
- Pass the Foreign Extortion Prevention Act (H.R. 4140). The legislation would criminalize bribery demands made by foreign officials, filling a gap in the FCPA and deterring cross-border bribery schemes. Currently, the FCPA requires an individual to have some connection to the United States to be indictable. This legislation would expand the US government’s ability to prosecute foreign nationals for requesting or accepting bribes from US companies and individuals.
- Raise public awareness about kleptocrats and corruption by passing the Kleptocrat Exposure Act (H.R. 3441) and the Justice for Victims of Kleptocracy Act (H.R. 4361). The Kleptocrat Exposure Act would give the secretary of state the authority to publicly reveal the identities of foreign nationals who are subject to US visa bans in connection with corruption, human rights abuses, and other malign activity. The Justice for Victims of Kleptocracy Act would make public the assets recovered through antikleptocracy investigations and prosecutions in order to demonstrate the harmful effects of corruption.