A bipartisan group of lawmakers plans to introduce legislation this week that for the first time would require trust companies, lawyers, art dealers and others to investigate foreign clients seeking to move money and assets into the American financial system.
Stories by The Washington Post and the International Consortium of Investigative Journalists (ICIJ) showed that little-known trust companies in Sioux Falls, S.D., established nearly 30 trusts holding assets connected to people or companies accused of corruption, human rights abuses or other wrongdoing in some of the world’s poorest communities. The investigation also found that King Abdullah II of Jordan secretly used offshore companies to purchase three properties in Malibu and revealed the use of two offshore trusts by an art dealer, now deceased, who was accused by U.S. prosecutors of trafficking in looted Cambodian artifacts.
The proposed law, known as the Enablers Act, would amend the 51-year-old Bank Secrecy Act, by requiring the Treasury Department to create basic due-diligence rules for American gatekeepers who facilitate the flow of foreign assets into the United States.
Banks are already required to investigate their clients and sources of wealth, but trust companies, lawyers, investment advisers, accountants, art dealers, public relations firms and other professionals have been excluded from due-diligence rules — a loophole regularly criticized by financial crime experts and international watchdogs.
The proposed legislation, experts say, represents the most significant change of anti-money-laundering rules since 9/11.
“If we make banks report dirty money but allow law, real estate, and accounting firms to look the other way, that creates a loophole that crooks and kleptocrats can sail a yacht through,” Rep. Tom Malinowski (D-N.J.), co-sponsor of the proposed bill and co-chair of the Congressional Caucus against Foreign Corruption and Kleptocracy, said on Wednesday. “Our bill closes that loophole and encourages the administration to move in the same direction.”
Malinowski called on the White House to support the legislation, co-sponsored by Reps. Steve Cohen (D-Tenn.), co-chair of the bipartisan Commission on Security and Cooperation in Europe; Joe Wilson (R-S.C.), ranking member of the commission; and Maria Elvira Salazar (R-Fla.), a member of the caucus.
“All around the world, countries are being looted and the most vulnerable people victimized by their elites,” Cohen said. “These kleptocrats then launder that money to the West, where they enjoy the high life — spending the money on luxury cars, penthouses, jets and opulent parties. Some also spend it on intervening in our democracy … working to undermine the rule of law. In order to fight corruption, we must curb the enablers.”
If passed, the law would give the Treasury Department until December 2023 to create anti-money-laundering rules for the gatekeeper industries. A new national security task force would oversee the effort.
After 9/11, banks — criticized for serving and shielding terrorists, drug traffickers and dictators — shored up their due-diligence practices. Financial crime experts say that such measures encouraged wrongdoers to find other financial gatekeepers, including the U.S. trust industry.
“Global criminals, kleptocrats, dictators, they’re going to look for new ways to launder their money and we’re going to try to close them down, but the gap right now is just massive — we basically left our financial defenses wide open,” said Paul Massaro, a congressional anti-corruption adviser who helped work on the proposed legislation.
In South Dakota, now considered a top destination for global wealth, trust companies oversee more than $360 billion in assets, state data shows. The Post and the ICIJ investigation identified a series of international clients who moved their assets into trusts in South Dakota in recent years, including a Colombian textile mogul implicated in an international scheme to launder drug proceeds and a Brazilian orange juice executive accused of colluding to underpay local farmers.
“Regulating professional enablers is how the United States could stop being the world’s top offshore financial haven, begin treating dirty money as a leading national threat and start demonstrating how democracies can deliver against corrupt adversaries and powerful special interests,” said Josh Rudolph, a member of the National Security Council staff in the Obama and Trump administrations who recently published an analysis on the role of financial gatekeepers.
The proposed legislation comes as new information surfaces about Abdullah’s steps to contain the impact of the Pandora revelations before the articles about him were published.
Newly filed U.S. federal disclosure forms show that Abdullah hired a law firm and a crisis management public relations company after learning that his use of shell companies to purchase luxury properties costing more than $106 million was about to become public. The moves reflect apparent concern about the potential fallout both in Washington and in Jordan, where there has been scant coverage of the Pandora stories and at least one news outlet said it was contacted by the Jordanian intelligence service and told to take down an article about the Abdullah revelations.
The forms were filed by DLA Piper, a law firm hired by Abdullah, to comply with laws requiring U.S. firms to disclose when they have been hired to represent a foreign government. A letter attached to the filing shows that the DLA Piper was hired at an hourly rate of $1,335 to represent Abdullah “related to potential defamation and other legal remedies associated with inquiries and/or articles concerning His Majesty.”
A lawyer for DLA Piper did not immediately respond to a request for comment. The firm was quoted in The Post as well as news stories saying that Abdullah had not misused aid money and that his use of offshore companies was driven by security concerns.
A second federal filing shows that Abdullah and DLA Piper also hired Stripe Theory, an Atlanta-based consulting and public relations firm that describes itself online as a provider of strategic marketing advice “when your brand is on the line.”
Craig Kronenberger, listed on the letter as an executive at Stripe Theory, did not respond to an email sent to his company address requesting comment.
On Sunday, The Post and the ICIJ broke the story about Abdullah’s property purchases in the United States. All told, 150 media partners contributed to the Pandora Papers, which revealed the financial secrets of 35 current and former world leaders and more than 330 politicians and public officials with assets around the world, including in the United States.
“If we are serious about fighting dictatorship, we need U.S. professionals to do the most basic due diligence — no American should be accepting money from Chinese Communist Party operatives, Iranian mullahs, Russian oligarchs or others,” Wilson said. “The Enablers Act is a critical national security measure.”
Will Fitzgibbon is a reporter for the International Consortium of Investigative Journalists.
The Pandora Papers is an investigation based on more than 11.9 million documents revealing the flows of money, property and other assets concealed in the offshore financial system. The Washington Post and other news organizations exposed the involvement of political leaders, examined the growth of the industry within the United States and demonstrated how secrecy shields assets from governments, creditors and those abused or exploited by the wealthy and powerful. The trove of confidential information, the largest of its kind, was obtained by the International Consortium of Investigative Journalists, which organized the investigation. Read more about this project.