The Biden administration’s heightened commitment to the elimination of bribes to, and other improper transactions with, foreign governments stands in stark contrast to what entities and individuals had become used to under the Trump administration, and may prompt multinational organizations to re-examine their risk assessment and re-commit to enhancement and/or remediation of their compliance programming.

A few weeks ago the Biden administration quietly, and with minimal fanfare, began the process of increasing enforcement activity surrounding corruption-related conduct to its highest level since the US adopted the Foreign Corrupt Practice Act in 1977. In a swift and decisive action, the administration dramatically increased the enforcement risk global companies face, and did so at the very time companies are grappling with additional ESG obligations.

Specifically, on June 3, 2021, the White House issued a Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest (the Memorandum), initiating a process of enhanced identification, deterrence and punishment of corruption through a federal government-wide approach, with support from international allies and US states and municipalities. The administration’s game plan will also include increased efforts to track down and recover the proceeds of the corruption.

In making its case for a broadening of anti-corruption efforts, the administration laid out the consequences for nations led by corrupt leadership and corruption’s effects on a free, fair and open global economy. The Memorandum also points out that the disruptive economic impact such corruption has on rule-of-law democracies, therein creating a national security issue.

Couching the effort in terms of national security will bring assets and capabilities from the government’s defense and intelligence communities beyond the traditional enforcement agencies. But it also raises real concerns whether the importance placed on national security will neutralize legal limitations on law enforcement activities.

In this alert we address some of the recommendations in the Memorandum that promise to bring new government actors into the anti-corruption effort, and the corresponding need for expansion of business organizations’ risk identification and remediation efforts.

I. In an effort to have the widest net possible, the Memorandum appears to be purposefully ambiguous regarding what conduct constitutes corruption.

It appears that the Memorandum intentionally avoids providing a definition of what constitutes actionable corruption. But viewed in its context, the Memorandum appears to be targeting government actors misusing their official positions for personal gain and those who facilitate the transfer of money to or for these actors. Presumably the relevant conduct is to be interpreted as broadly as possible but includes all of the corruption-related conduct considered illegal under US laws.

II. Expanding the anti-corruption effort to a wider group of government entities will introduce enforcement risks to global business organizations that may not presently deal with corruption issues, and increase funding to groups that have not historically received significant financial assistance to fight corrupt conduct falling within their mandates.

Historically, the US approach to anti-corruption investigations has generally focused on the arms of the government with large enforcement authority, such as the Departments of Justice and Treasury and the US Securities and Exchange Commission. In the new initiative, the effort is broadened to include the Departments of State, Defense, Commerce and Energy; the Agency for International Development; and the most high-profile entities responsible for collecting and analyzing intelligence in its various forms. In other words, a significant chunk of the federal government will now be fully tasked with addressing corruption conduct. Thus, more people may need to be at the table to achieve corporate resolutions, and new and potentially more aggressive stakeholders may nowbe a part of these discussions.

The presence of some of these new enforcement actors raises the possibility that organizational components that interact with this much broader list of government entities will have to identify, assess and remediate corruption enforcement risk in activities that have not heretofore focused on corruption. For example, those interacting with government and non-government organizations on international development may now need to pay more attention to the bribery and money laundering conduct of the political leadership where they operate. The Agency for International Development, a government entity with little historical relevance to criminal enforcement, may now generate criminal referral and leads for investigations. Likewise, individuals and organizations participating in the international development activity must now appreciate the heightened risk in this activity. And intelligence agencies that regularly operate in, and compile/share information between or among, a number of countries via more informal or back channels may now also be sharing anti-corruption and anti-money laundering information among their agencies for referrals for formal prosecutions.

III. By building greater enforcement capability outside of the US, the new approach will raise corruption enforcement risks across the globe.

The Memorandum makes clear that the administration’s approach to fighting corruption will be multilateral in nature; working with international partners, including increasing the level of investigative and financial resources, as well as general assistance, to countries that exhibit a desire to reduce corruption. This approach forecasts that a stated position in opposition to corruption will be a threshold requirement for a healthy relationship with the US.

As more countries join this effort there will be an increase in the number of investigations and prosecutions that start outside of the US. Why? The Memorandum’s policy shift to “local” anti-corruption fighting is a recognition that the “go it alone” approach was never going to result in wide-spread systemic change. As a result, much of the Memorandum is focused on the development of national capacity to do investigations, prosecutions and retrieval of corruption-generated assets in the countries where the bribery conduct occurs.

As a result of this “anti-corruption infrastructure” development, the legal risk for corruption activities is increased in each country where there is a national commitment ferreting out corruption and a corresponding increase in the country’s ability to carry out its commitment. For real life examples of how this works, look to how US investment in Brazil and other Latin American countries’ anti-corruption prosecution capabilities over recent decades is paying off in current local anti-corruption enforcement actions. Simultaneously there are parallel regional and global risks because those commitments often trigger information-sharing. Add in the use of sophisticated analytics from the intelligence community and the risk multiplies again.

IV. The increase in intelligence community leads could generate significant legal issues.

The notion that a resource within the US intelligence community can assist with a criminal investigation by providing a lead or tips is not a new one. Actively promoting an enforcement approach that utilizes more direct involvement by domestic and/or international partners does however raise the issue whether the current safeguards at the Department of Justice governing collecting and using information in a prosecution will be up to the task, as the volume of information from domestic and international intelligence sources not operating under those same safeguards could dwarf what the DOJ has faced in the past.

Further complicating the situation is the long-time prohibition against sharing grand jury information with someone other than a government attorney and the definition does not include an attorney for an administrative agency. See In re Grand Jury Proceedings, 309 F.2d 440, 443 (3d Cir. 1962). The practical effect of this limitation is that the information collected by the grand jury cannot be supplied to the intelligence community to help steer their efforts.

V. Repeated references to anti-money laundering laws, shell companies and financial systems suggest that the US will use laws with broad extraterritorial jurisdiction to expand its international anti-corruption reach.

The Memorandum notes that anonymous shell companies, opaque financial systems, and professional service providers enable the movement and laundering of illicit wealth, including in the US. Couched as anti-corruption enforcement, this suggests that additional regulatory mechanisms may be employed by the Department of Treasury, the SEC and other agencies to force listed entities to increase disclosure of corporate beneficial ownership, and to impose additional Know Your Customer (KYC) obligations on financial institutions. The Memorandum also suggests increased information-sharing and reforms to reduce offshore financial secrecy and to combat illicit finance at a global level. Finally, it suggests that recent trends of using money laundering and kleptocracy initiatives to pursue recapture of bribe payments and to punish bribe recipients will continue.

VI. There remain a number of unanswered questions about the Memorandum and its execution, including:

1. How will the newly engaged government actors respond to the Memorandum in terms of recommended regulatory and enforcement actions designed to detect and deter corruption conduct, including greater compliance commitments for those contracting with the federal government?
2. How far will the administration go in the investigation and prosecution of foreign government officials for money laundering violations that are related to others’ illegal bribery and corruption charges?
3. Given the increased interest in non-US enforcement actions, will the US allow for greater cooperation credits for those investigations that are initiated/prosecuted in non-US settings?
4. How will information obtained via informal or intelligence channels (outside of historic MLAT processes) be verified, meet evidentiary burdens or otherwise become usable in a court setting?

VII. Organizations should consider a series of actions to get ahead of this new anti-corruption enforcement emphasis.

Although there is a short window of time for government actors to respond to the Memorandum, organizations should commence proactive risk and remediation activities before enforcement agencies act.

Organizations should consider taking the following steps:

1. Revisit third-party relationships that were at a minimum disrupted and in some cases expanded by the pandemic, as well as substitute relationships, for corruption and anti-money laundering risk.
2. Perform a new, and legally privileged, corruption risk assessment based on the new and forecasted heightened domestic US and global anti-corruption and anti-money laundering enforcement activities, to minimize the organization’s risk points.
3. Confirm that legally privileged anti-corruption risk assessments are closely connected with the organization’s ESG strategies and procedures.
4. Reexamine, and expand where appropriate, current anti-corruption and anti-money laundering employee, management and board training to remind higher risk populations within the organization of the company’s values and risk identification/mitigation techniques.
5. Prepare for expanded ownership reporting and KYC obligations.
6. Evaluate the capabilities of your organization’s internal controls designed to address these risks, in light of the expanding enforcement environment.
7. For further risk identification, keep watch for the reports that trickle in from these agencies over the next 200 days.