Axing DOJ’s Kleptocracy Team Is a Boon for Foreign Bribe Takers

The Trump administration’s pause on Foreign Corrupt Practices Act enforcement has received much publicity. What has received much less attention, though, are the administration’s actions to weaken enforcement of the flip side of the FCPA—the bribe takers. That’s the Kleptocracy Asset Recovery Initiative, established in 2010 by the Department of Justice.

While the FCPA focuses on the bribe payers— the supply side of corruption—the initiative focused on the demand side: foreign officials who received bribes or stole public funds from their countries and then laundered their ill-gotten gains through the US financial system, sometimes with the help of US fixers and intermediaries. 

The initiative launched the 1MDB investigation, which ultimately resulted in a guilty plea from Goldman Sachs Group Inc., with an agreement to pay over $2.9 billion, and the seizure of funds around the world of over $1.7 billion. The latest agreement to recover $20 million was announced just days before President Donald Trump’s inauguration.

Attorney General Pam Bondi disbanded the initiative on her first day in office and directed prosecutors assigned to that initiative to focus on “the total elimination” of cartels and transnational criminal organizations. The DOJ’s money laundering and asset recovery section (the longtime home of the Kleptocracy Asset Recovery Initiative) advertised the sentencing of a man who laundered drug trafficking proceeds.  

Focusing solely on money laundering that involves drug trafficking or transnational criminal organizations excludes many of the Kleptocracy Asset Recovery Initiative’s most significant investigations, such as 1MDB, because Bondi has directed the dedicated money-laundering prosecutors to focus only on cases with a nexus to drug trafficking or transnational crime. 

The prototypical kleptocracy cases, where a foreign official steals public funds, extorts money from companies seeking to do business in their country, or takes bribes, and then sends money to or through the US financial system, have fallen outside of that.

With the unit disbanded, businesses can expect fewer inquiries from the US government or requests to seize funds or other assets tied to politically exposed persons. Companies abroad likely will see fewer requests to execute search warrants or seize funds as the scope of enforcement narrows dramatically.

If FCPA enforcement resumes, without dedicated kleptocracy prosecutors, companies facing investigations may not see the same types of requests related to asset tracing that they would have before.

Businesses shouldn’t view the administration’s refocusing as a release from liability for foreign corruption forever. Other jurisdictions can still enforce their laws, and the statute of limitations gives prosecutors five years to prosecute crimes committed today—a time period that stretches past the next presidential election.,

While the Kleptocracy Asset Recovery Initiative had special expertise and resources that made it uniquely well-positioned to conduct kleptocracy investigations, it didn’t have a monopoly on the enforcement of money-laundering laws. US prosecutors outside of Washington, D.C., could bring traditional kleptocracy cases. But it seems unlikely that their politically appointed supervisors, reading the administration’s clear de-emphasis on foreign corruption, would prioritize such cases, or have the resources to do such involved investigations.

Ceasing to enforce swaths of anti-money laundering laws may have effects on the international business community. Previous allies may see US law enforcement as a less dependable partner, which could affect their willingness to assist US investigations, including those that may involve corporate victims.  

The reduction in money-laundering enforcement also may jeopardize the country’s standing in the Financial Action Task Force, which evaluates countries’ anti-money laundering controls and can take actions that cause investors or financial institutions to reduce business in the country.

Corrupt foreign officials may have a different risk calculation than global companies. While there are many reasons global companies shouldn’t relax anticorruption controls, corrupt foreign officials may be subject to fewer countries’ laws and may have a different calculus.

If foreign officials believe the US government is no longer interested in policing their bribery and money laundering, their attempts to solicit bribes and exploit the US financial system could rise—testing the strength of businesses’ compliance programs. They also may consider the US a more accessible haven for their ill-gotten gains, given the lack of anti-corruption enforcement. 

If they do succeed in transferring corrupt proceeds to the US, it could distort markets in several ways. Their purchases of residential and commercial real estate can drive up prices, warping markets for residents and legitimate businesses. It’s well documented that increased corruption breeds instability, causes the diversion of resources, reduces governments’ effectiveness, and increases conflict—all factors that can make doing business abroad riskier.

Disbanding the kleptocracy unit and reassigning prosecutors effectively is another signal of the Trump administration’s de-emphasis on international anti-corruption efforts. The ultimate effects may depend on how foreign actors choose to see this signal from the administration—and how businesses and other jurisdictions respond to the challenge.

Alexis Loeb is a partner in Farella Braun + Martel in San Francisco, focused on white-collar defense and government, internal investigations, antitrust matters, and complex civil litigation.

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Link to article on Bloomberg Law: https://news.bloomberglaw.com/litigation/axing-dojs-kleptocracy-team-is-a-boon-for-foreign-bribe-takers