The Biden administration is well positioned to fight white-collar crime as trillions of dollars in dirty money courses through the US financial system
- The Biden administration that arrives in January is primed to crack down on white-collar crime after a steady drop under his two most recent predecessors.
- Signs point to an aggressive federal effort that includes a tougher stance on the financial industry considering Janet Yellen's upcoming nomination to lead the Treasury.
- "The buck stops with the Treasury secretary," said Moyara Ruehsen, a professor who studies financial crime. "It's really the Treasury secretary that's going to set the tone."
- The Democratic president likely will have a powerful new law at his disposal to fight financial crime aimed at helping pierce the veil of anonymity offered by shell companies to criminals.
- Biden is set to take office just months after hundreds of journalists published the FinCEN Files, an investigation that showed how the US government is failing to stop the flow of dirty money.
- Visit Business Insider's homepage for more stories.
The incoming Biden administration is poised to crack down on wealthy and well-connected lawbreakers, reversing years of decline in the federal government's enforcement of white-collar crime.
That would mark a sweeping shift for the Department of Justice compared to both recent Democratic and Republican presidents who have allowed prosecutions of white-collar crime to drop to an all-time low.
But as President-elect Joe Biden takes the reins in January, former federal prosecutors, academics, and lawmakers told Insider that there are two key reasons the new administration is well positioned to start reversing that trend.
They cite foremost Biden's Cabinet picks as a strong sign that the Democratic-led executive branch will more aggressively fight white-collar crime — in particular, financial crimes like money laundering and fraud that can rob everyday people of their savings and handicap entire cities by draining public funds.
One expert dubbed Janet Yellen, Biden's choice for the crucial post of Treasury secretary, "an incorruptible schoolmarm" who will take a tougher stance on overseeing the financial industry.
Two of Biden's top contenders to lead the Department of Justice — outgoing Alabama Sen. Doug Jones and former Deputy Attorney General Sally Yates — are also experienced former federal prosecutors with long records of going after white-collar criminals.
Biden's administration should also have a powerful new law at its disposal to go after people like Paul Manafort, the former Donald Trump campaign chair who admitted to using shell companies to hide the proceeds of his crimes in a 2018 plea deal with the special counsel Robert Mueller.
Earlier this month, Congress passed the biggest reforms to the US anti-money-laundering regime since the post-9/11 Patriot Act, including a rule forcing new shell companies to reveal their true owners to regulators. Lawmakers tucked the legislation inside a massive defense policy bill that Trump vetoed on Wednesday, though the bill appears to have enough support from members of both parties to override the lame-duck president.
Presuming the financial-crime language becomes law, the Biden administration "will have a once-in-a-generation chance to put an end to U.S. corporations with hidden owners — the U.S. shell companies being misused by criminals around the world," said Elise Bean, a former senior Senate staffer who investigated financial crime.
"The whole world will be watching what the Biden administration does to implement the long-awaited beneficial ownership law, so it's going to be a high-profile issue from day one," she said.
Journalists reveal a 'breathtaking amount of money laundering'
Biden has yet to name an attorney general pick or say how his administration will approach white-collar crime, and money laundering in particular.
But the new Democratic president will take office at a pivotal moment. In September, hundreds of media organizations published the FinCEN Files, a global investigative project that laid bare how the US fails to stop the flow of dirty money through its financial system, allowing drug cartels, terrorists, and kleptocrats to use American banks to clean their ill-gotten gains.
"The breathtaking amount of money laundering facilitated by major financial institutions across the globe that was exposed by the FinCEN Files, to me, evidenced the lack of political will and commitment of regulators and law enforcers to tackle the enormous problem," said Paul Pelletier, a former federal prosecutor who now teaches courses in international money laundering at George Washington University.
The FinCEN Files, led by BuzzFeed News and the International Consortium of Investigative Journalists, was based on thousands of pages of secret government documents known as suspicious-activity reports, or SARs. Financial institutions must file SARs to an agency within the Treasury called the Financial Crimes Enforcement Network, or FinCEN, when they spot possible evidence of wrongdoing in their accounts. Those SARs can then serve as critical clues in investigations by law-enforcement agencies across the country, including federal ones.
Whatever the new Biden administration's exact approach, it will be crucial to determining whether the US can finally turn the tide on the trillions of dollars in dirty money coursing through its financial institutions and corrupting the global economy — all while enriching the banks.
Despite its slick name, white-collar crime can also be just as dangerous — if not more dangerous — than violent crime. FinCEN Files allege that factory workers were severely injured and others lost their jobs after a Ukrainian oligarch used expensive Cleveland real estate to park his laundered funds.
That oligarch — Ihor Kolomoisky — is under investigation by a federal grand jury and, depending on the outcome, could face prosecution from the Department of Justice under Biden. Deutsche Bank, the troubled German lender with deep ties to Trump, has also reportedly been under federal investigation for possible failures in its money-laundering defenses.
Biden's long history with the financial industry
Biden has faced criticism for helping the financial sector during his 36 years in the Senate representing Delaware, a state notorious for its anonymous shell companies and corporate secrecy. Wall Street also was generous to his Senate and most recent presidential campaigns, and his transition team includes two former Goldman Sachs employees, Eric Goldstein and Monica Maher, among other banking-industry veterans.
But that team also includes figures like Gary Gensler, the former Commodity Futures Trading Commission chief who has called for stricter industry oversight.
Biden himself has also appeared to shift his attitude since his days on Capitol Hill. He told The New Yorker in 2014 that he regretted supporting the repeal of a banking law during the final year of the Clinton administration that would go on to help pave the way to the 2008 financial crisis. And in a 2020 Democratic presidential primary influenced by populists like Sens. Elizabeth Warren and Bernie Sanders — who've long advocated for tougher oversight of corporate crime — Biden called Wall Street "greedy as hell."
Meanwhile, Vice President-elect Kamala Harris touted her record of taking on financial institutions back when she was California attorney general in the fallout of the 2008 housing crisis, despite critics who have said she didn't go far enough. "I am the only one on this stage who has prosecuted the big banks for taking advantage of America's homeowners," Harris told Vice President Mike Pence during a debate in October.
'The cases aren't strong enough'
Lawmakers like Warren and Sanders have called for more prosecutions of bank executives in response to the FinCEN Files, while others have urged the Department of Justice to reduce the increasing number of deals it strikes with financial institutions caught breaking the law. Those deals, known as deferred prosecution agreements, allow banks to dodge criminal charges by paying a fine and promising to clean up their act — which they often fail to do.
The growing use of those agreements in major financial crime cases has, unsurprisingly, coincided with a drop in prosecutions. Though the Department of Justice has defended its record, white-collar-crime prosecutions have been declining since President Barack Obama's second term, according to the Transactional Records Access Clearinghouse at Syracuse University, which analyzes Justice Department data. Despite a spike in the years following the financial crisis, prosecutions have dropped more than 31% since 2008, the analysis shows.
"The reason that they're doing the deferred prosecution agreements instead of something that has more teeth is because the cases aren't strong enough," said Pamela Pierson, a former federal prosecutor who worked on dozens of white-collar crime cases in the 1980s.
Pierson, now a law professor at the University of Alabama, said the cases require a lot of resources, and that other priorities like terrorism take up a lot of those resources. On top of that, she said, white-collar cases are incredibly difficult to win with juries because of their complex nature.
"That burden of proof, beyond a reasonable doubt, is quite challenging to meet when you are talking about spreadsheets and numbers," she said.
Congress passes reforms years in the making
Over the past decade, as newsrooms published a series of investigations about dirty money, members of Congress and their staff were slowly pushing anti-money-laundering legislation closer to the finish line. Their challenge required working to build the needed coalition of support from key stakeholders like banks and law enforcement. The first version of the bill was introduced in 2008, so long ago that it was cosponsored by then-Sen. Obama of Illinois.
"Congress has been working on updating [money-laundering] regulations on a bipartisan basis for years," said Missouri Rep. Blaine Luetkemeyer, a Republican member of the House Financial Services Committee. "Personally, I have been working on this for nearly five years."
Then, this month, the legislative push finally reached the home stretch when a bipartisan group of lawmakers secured its inclusion in the must-pass yearly defense bill. Seeing another public reporting project "revealing the extent of the abuse of anonymous shell companies over the years" helped, according to a congressional staffer familiar with the process.
"The FinCEN Files came at a time when we were still involved in ongoing negotiations," said the staffer, who requested anonymity to discuss internal deliberations. "I think it did provide some additional impetus to getting it done."
The bill forces the Department of Justice to submit yearly accountings of their deferred prosecution agreements to Congress, and orders the Treasury to write new regulations to further crack down on illicit finance.
'They recognize that they have to move in a timely way'
The Biden transition team is already preparing for Treasury's new obligations, the congressional source said.
"We have been talking with them about the need to do the rulemakings that will be required, and implementation, enforcement that would be required by the new law, and to have strong and clear rules," the person said. "And they're quite amenable to that. They recognize that they have to move in a timely way and are seized of it."
The person also said they're confident that the Biden administration "will be more assertive" in tackling financial crime, citing the president-elect's Cabinet picks so far.
"Many of them have long served in government," the source said, "and have a record of more assertive enforcement and implementation of laws in this space."
Bean, the aforementioned former Senate aide, also said she has faith that the new administration possesses the "skills and savvy" to use the new law "to combat a long list of wrongdoing, from corruption to terrorism to tax evasion."
Virginia Sen. Mark Warner, one of the authors of the Illicit Cash Act — a more recent version of the anti-money-laundering bill — is "very pleased so far" with the nominations of Yellen to lead Treasury and Wally Adeyemo to be deputy secretary, a spokesperson said. Adeyemo, who has occupied senior positions at Treasury, also served as a deputy national security advisor to Obama.
"He will be a great person to oversee implementation of the Illicit Cash Act reforms," the spokesperson said.
Jones and Yates are seasoned in white-collar cases
Warner's bill also counts Jones as a cosponsor. The Alabama Democratic senator, who lost in November to Republican Tom Tuberville, now is seen as a top candidate to serve under Biden as attorney general. Jones is a former longtime federal prosecutor with extensive experience pursuing white-collar-crime cases.
Pelletier, whose work as a federal prosecutor focused on fraud, said Jones "has the experience and, as US attorney in Alabama, courageously tackled the tough cases" — essential qualities, he said, for anyone charged with reinvigorating white-collar prosecutions at the Justice Department.
Pierson, who says she has known Jones for more than 30 years, also cited his willingness to take on difficult cases as evidence of his abilities as an attorney general. She referenced Jones' work prosecuting two of the Ku Klux Klan members involved in the 16th Street Baptist Church bombing in Birmingham in 1963.
Though it wasn't a white-collar case, it took a "true act of courage" for Jones to take it on more than three decades later, in 2001, Pierson said. "It was not at all clear that he was going to be able to prevail," she said.
And he was "unbelievable," she added. Even her young son and his friends, whom she took out of school to watch the trial at the courthouse, thought so.
"I don't know if you've been around 11- or 12-year-old boys, but they are incapable of sitting still," Pierson said. "And they were as still as stone. They were captivated by that trial."
She said Jones "is a white-collar specialist" and "knows from the ground up how to pursue these cases," making him well qualified to beef up the Department of Justice's prosecutions in that area. Jones knows that using insiders and whistleblowers is key to strengthening cases, and he would also know how to propose more legislative fixes to make that work easier, Pierson said.
Another front-runner to lead the Justice Department is Yates, who served as deputy attorney general for two years until the early days of the Trump administration, when she was fired after refusing to enforce the president's travel ban against majority-Muslim countries. She's known for having written a memo in 2015 encouraging prosecutors to pursue charges against individuals when tackling corporate crime.
But Yates is unpopular with Senate Republicans for her role in the FBI's investigation into Russian interference in the 2016 presidential election, and she likely would need their support to be confirmed if the GOP retains control of the chamber after the Georgia runoff elections.
Either way, Moyara Ruehsen, an expert in investigating money laundering, says she hopes the new administration will re-embrace "the attitude that was developed in the 2015 Yates memo, holding actual individuals accountable."
'They just simply are overwhelmed'
But it's not just the Justice Department that the Biden administration needs to focus on if it wants to more seriously tackle financial crime. Ruehsen, a professor at the Middlebury Institute of International Studies, said FinCEN will need serious help.
"FinCEN is the most overtaxed, overburdened agency at the moment," she said.
The agency, tucked within Treasury, serves as the central hub for the country's financial intelligence. Its database of SARs is accessible to law enforcement at both the local and the federal level across the country, providing them with an essential tool for building and investigating all sorts of cases, especially white-collar ones.
In a way, FinCEN also acts as a depot for the world's financial intelligence. People across the globe choose to do business in US dollars because of the currency's relative stability. But to do so, their regional bank has to have what's called a correspondent relationship with a bigger bank operating in the US. The result is that those US banks have a view inside the global economy, and the thousands of reports they file to FinCEN each year reflect that.
Yet FinCEN only has as many employees as its well-regarded Australian counterpart — a much smaller country with a much smaller financial sector. "This is insane," Ruehsen said. FinCEN employees, who also analyze the SARs, "are working as hard as they can," she said. "They just simply are overwhelmed."
And since passage of the Patriot Act, which required more financial institutions to file SARs, the number FinCEN receives each year has grown significantly.
"So here's the question that all of us are wondering, and this will really determine whether or not we see the sea change that we hope to see with this new anti-money-laundering act of 2020," Ruehsen said. "And that is, are they willing to commit additional resources, in particular for FinCEN?"
She said the "good news" is that Yellen — "an incorruptible schoolmarm" — is Biden's pick to lead the Treasury Department. "The buck stops with the Treasury secretary," she said. "It's really the Treasury secretary that's going to set the tone."
Yellen, a longtime public servant who Ruehsen said is "many times more likely to" support more enforcement than a Wall Street veteran, came down hard on Wells Fargo in her final days as chair of the Federal Reserve.
Pierson says she, too, believes the direction of Biden's Cabinet indicates that the new administration will have a better handle on white-collar crime.
"Every indication is that they're appointing competent people," she said, "and allowing the competent people who are already in DOJ to do their work."
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