In the final weeks of the September legislative session, the House passed a bipartisan bill to sanction nearly 200 close friends of Putin. The bill adds to President Biden’s aggressive actions to freeze the assets of hundreds of oligarchs and high-level Russian officials linked to Putin and his war in Ukraine.
We strongly support these measures. But their effectiveness is limited by a huge loophole in our sanctions efforts: you can’t freeze accounts and assets when you don’t know where they are.
When Putin’s friend and multi-billionaire Roman Abramovich wanted to hide his assets for the past two decades, he didn’t just buy yachts and British soccer clubs. He quietly turned to American investment vehicles. The New York Times reports that Abramovich used a series of Caribbean front companies under the direction of a Connecticut-based private equity adviser to place millions of dollars in a variety of US-based investment funds. He knew that these investment funds had no legal obligation to ask if his money was laundered or if it was linked to criminal corruption.
US law requires banks to look for signs of inbound money laundering, and banks routinely issue suspicious activity reports (SARs) when this occurs. Some of these requirements were put in place after 9/11 to prevent terrorists from using cash transfer services to transfer money across borders. Today, they help enforce sanctions against countries like Russia.
For example, the Pittsburgh Post Gazette reported this year that Bank of New York Mellon had issued multiple SARs to federal authorities regarding transactions related to Putin-linked oligarch Vladimir Potanin, a “61-year-old billionaire who heads one of the largest nickel companies in the world”.
But what if Potanin’s American lawyers, accountants, and advisers suggested he funnel his money to a private equity fund, hedge fund, or trust instead of a bank?
Probably nothing. Without congressional action, this Russian oligarch’s dirty money transfer to the United States would have been cleared for smooth sailing, with no questions asked by his American enablers.
It’s a loophole through which foreign kleptocrats can literally sail on a yacht.
These due diligence flaws directly undermine US efforts to help Ukraine by sanctioning Russia. It is likely that Putin, through his cronies and anonymous shell companies, will continue to pursue investment vehicles inside the United States. Since many U.S. facilitators or “facilitators” of these investments have no legal obligation to ask about suspicious funds, federal investigators have no sure way of knowing the money is there.
In other words, unless Congress wants to act.
We are leading a bipartisan effort to close these loopholes that Putin’s cronies and other criminals and kleptocrats have used to launder money in America. And our bill is moving forward: it passed the House as part of the annual defense bill and has bipartisan support in the Senate.
The ENABLERS Act would allow the Treasury Department to impose on U.S.-based intermediaries — investment advisers, certain legal and accounting advisers, and those who set up companies or trusts — the same simple due diligence requirements as banks must respect.
For too long, the United States has held the crown as the world’s top destination for dirty money. Most Western countries are far more transparent than we are, many with due diligence standards that US officials drafted and demanded after 9/11, even though our own laws have remained obsolete.
We operate a system that allows crooks to steal money from countries where the rule of law does not exist and then transfer it to the United States, where our property rights, courts and privacy rules help them store their lifelong loot.
Amid Russia’s brutal attack on Ukraine, the United States can no longer remain complicit in the theft that supports and enables dictatorships like Putin’s.
Punishing kleptocrats only works if we know where their money is. Passing the ENABLERS Act would be an important first step.
Senator Sheldon Whitehouse represents Rhode Island in the United States Senate, where he serves on the Judiciary Committee and the Committee on Security and Cooperation in Europe.
Congressman Tom Malinowski represents New Jersey’s 7th District, is vice chairman of the House Foreign Affairs Committee, and previously served as Assistant Secretary of State for Democracy, Human Rights, and work.
The opinions expressed in this article are those of the authors.