For years, investigations such as the Panama Papers have revealed how dictators, criminal organizations and corrupt foreign officials use the U.S. financial system to launder their dirty money with impunity. Yet watchdog groups say the United States is still the No. 1 money-laundering country in the world. How is that possible?
The answer is that our leaders are failing to stop our enemies from abusing our democratic institutions — and failing to stop Americans from helping them. Right now, a perfect example of this dysfunction is quietly unfolding in Congress, where an important effort to close a huge international money-laundering loophole is being thwarted.
The war in Ukraine has forced Western societies to acknowledge that when kleptocratic leaders and their cronies use democracies to wash their illicit proceeds, it’s not just a moral failing but a national security threat as well. One reason Russian President Vladimir Putin has enough cash to wage unending war while resisting international sanctions is that the U.S. and other international financial systems have long been helping his officials and oligarch friends store their ill-gotten gains as offshore wealth. That Putin and others then use that cash, in part, to undermine Western democracies merely underlines our stupidity for participating in this scheme.
In 2020, Congress passed a law mandating more transparency for corporate shell companies, which are one part of the problem. This year, the Justice Department launched a “KleptoCapture” task force, devoting more resources to the issue. But one glaring loophole remains — and a bipartisan drive to close it is being blocked in the Senate.
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Republicans and Democrats have joined together to pass a bill called the Establishing New Authorities for Businesses Laundering and Enabling Risks to Security (Enablers) Act. It would require lawyers, financial consultants, art dealers and any other businesspeople who deal with large amounts of foreign cash to perform basic due diligence on their clients before helping them access the U.S. financial system.
The bill passed the House as part of the National Defense Authorization Act, which is currently the subject of House-Senate negotiations. But inside those negotiations, the GOP staff of the Senate Banking Committee, who work for outgoing Sen. Patrick J. Toomey (R-Pa.), are blocking the legislation’s inclusion in the final package, several lawmakers and staffers told me.
“The Enablers Act should not be jammed into the NDAA without first being thoroughly vetted by lawmakers,” a GOP Senate Banking Committee staffer told me, defending Toomey’s stance. Congress should wait and hold hearings on the bill before giving more authority to the Treasury Department, the staffer said.
The ranking Republican on the House Financial Services Committee, Patrick T. McHenry (N.C.), also opposes the bill, but Toomey’s staff is the main obstacle, sources said. The American Bar Association and some trade groups have also expressed opposition to the bill, arguing it could impose onerous reporting requirements and infringe upon their confidentiality with their clients.
“There are people out there who like their suitcases full of cash with no questions asked,” said Rep. Tom Malinowski (D-N.J.), who co-sponsored the House bill with Rep. Joe Wilson (R-S.C.). “But given those suitcases of cash often come from Russia, China and other adversaries trying to influence our politics, the national security imperative here vastly outweighs any slight inconvenience these minimal reporting requirements would create.”
In the Senate, the push to pass the legislation is led by Sens. Sheldon Whitehouse (D-R.I.) and Roger Wicker (R-Miss.) and supported by several national-security-minded Republicans, including former secretary of state Mike Pompeo, who last month publicly called on Congress to include the Enablers Act in the defense legislation this year.
On Wednesday, a group of conservative national security experts and former officials sent a letter to the leaders of both parties in Congress arguing that the United States cannot press other countries to clean up their financial systems while leaving large loopholes in the U.S. system unaddressed.
“Fentanyl traffickers, [Chinese Communist Party] agents, and Chinese kleptocrats operating within the United States cannot navigate the U.S. financial and legal systems by themselves. Neither can Russian oligarchs or Iranian sanctions evaders,” the letter stated. “Instead, they have often taken advantage of unwitting or unscrupulous Americans to facilitate harmful activities.”
Even though there is ample evidence of the threat, widespread awareness about how to address it and bipartisan agreement on the proposed solution, the expectation right now on Capitol Hill is that Toomey’s staff will prevail in blocking the legislation, leaving the next Congress to start the process over again. Killing an idea in Washington is much easier than solving a problem.
But the good news is that it’s not too late. Negotiations are still possible. There’s still time to do something real to drain the money-laundering swamp here at home. If our democracy can’t function well enough to stop our adversaries from using our financial system against us, we will have nobody to blame but ourselves.