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President Biden’s Crusade Against Money Laundering: Implications for the Middle East

President Biden’s Crusade Against Money Laundering: Implications for the Middle East

Due to new technologies and the rise of cryptocurrencies, money laundering has become easier and more accessible than ever before

US President Joe Biden has declared multiple times, during his electoral campaign and since he entered into office, that the fight against corruption and money laundering in the United States and globally is a core national security priority and an important part of his “foreign policy for the middle class.”

Biden intends to clamp down on the cryptocurrency industry, which is often described as “the Wild West,” to fight the global money-laundering chains and to highlight corruption as the greatest threat to democracies.

The change of attitude in the White House is well felt in the Middle East. The region’s rulers will have to adjust – or lose credibility and the support of the US administration – while the US will have to choose between its vital interests and a consistent foreign policy.

The money-laundering challenge

In 2020, seven Middle Eastern countries, some in the Gulf and others in North Africa and the Levant, were starring in the top 50 list of the Basel AML Index that ranks money-laundering and terrorist financing risks around the world. This phenomenon is certainly not new. However, it seems that due to new technologies and the rise of cryptocurrencies, money laundering has become easier and more accessible than ever before.

The recently leaked Pandora Papers shed more light on the incredible level of state-led corruption in the Middle East. One of the “stars” of the AML Index was Turkey, well-positioned at No. 41 between Barbados and Macao. In recent years Recep Tayyip Erdoğan’s AK Party has been severely hit by a series of corruption allegations, including money laundering, drug trafficking, and arms smuggling, while the state-run Halkbank was charged with taking part in a multibillion-dollar scheme to evade US sanctions on Iran. Earlier in October, the US Court of Appeals in New York ruled that Halkbank can be prosecuted over these accusations. After a few days, the international Financial Action Task Force (FATF) took action.

Under the Erdoğan government, Turkey has had a persistent illicit finance problem

“This is the second time that the Financial Action Task Force added Turkey to its gray list. In 2012, Turkey came close to being blacklisted, alongside Iran and North Korea. This shows that under the Erdoğan government, Turkey has had a persistent illicit finance problem,” Aykan Erdemir, senior director of the Turkey Program at the Foundation for Defense of Democracies and a former member of the country’s parliament, told The Media Line.

Mali and Jordan were also recently added to FATF’s grey list.

Erdemir explains that Washington fights illicit finance on two levels, saying, “There is an international effort through FATF listings and United Nations designations. At the same time, US Treasury designations and US Justice Department prosecutions put pressure on sanctions evasion and money laundering schemes.

“For US efforts to make greater impact, the European Union needs to become more vigilant in going after illicit financial transactions. There is an urgent need for concerted transatlantic action,” he says.

A threat to democracy and global development

How different is President Biden’s attitude on money laundering and illicit finance from that of his predecessor? In 2017, Donald Trump told then-Secretary of State Rex Tillerson that the Foreign Corrupt Practices Act (FCPA) is bad for US commercial interests and thus should be scrapped.

Corrupt money is the preferred tool of authoritarian regimes seeking to undercut democratic governance across the board − especially in fledgling democracies that lack robust institutions to defend the rule of law

While Trump’s administration apparently shared the view that is common among many in the business sphere about the FCPA “tying the hands of Americans abroad,” Biden believes that corruption is dangerous for global development and for democracies, and he intends to act on this belief. Speaking at a democracy summit in Denmark in 2018, he said, “Corrupt money is the preferred tool of authoritarian regimes seeking to undercut democratic governance across the board − especially in fledgling democracies that lack robust institutions to defend the rule of law.”

In the White House’s “Memorandum on Establishing the Fight against Corruption as a Core United States National Interest” that was published at the beginning of June, Biden promised to “lead efforts to promote good governance, bring transparency to the United States and global financial systems, prevent and combat corruption at home and abroad, and make it increasingly difficult for corrupt actors to shield their activities.”

If your country’s dynamism comes from dirty criminal or kleptocratic money and not legitimate money, it exacerbates inequality and corruption. Suddenly your government institutions become less responsive to ordinary people because all these politicians are currying favor with the moneyed classes. If this goes on long enough you can get to a situation where there is not really a difference between the criminals and the government, like in Russia

Simona Weinglass, an American Israeli journalist who writes about financial crime and corruption, explains that money laundering often comes in one package with organized crime, drug trafficking and human trafficking. Money laundering is dangerous to any country, she said, speaking to The Media Line.

“If your country is the destination of a lot of laundered money, it can be a kind of devil’s bargain − the immediate effects seem wonderful − you have all this money flowing into your country, into your real estate market, into the private sector. So it all seems wonderful at first. It can create what looks like a lot of economic dynamism,” she says.

“But with any devil’s bargain, there is a hidden price that the society pays later. First, if your country’s dynamism comes from dirty criminal or kleptocratic money and not legitimate money, it exacerbates inequality and corruption. Suddenly your government institutions become less responsive to ordinary people because all these politicians are currying favor with the moneyed classes. If this goes on long enough you can get to a situation where there is not really a difference between the criminals and the government, like in Russia,” she continues.

“Also, life starts to become more and more difficult for people who earn their money honestly. Corruption feels like it is spreading. For instance, if there is a lot of dirty money in your real estate market, this is one major factor that contributes to prices that are out of reach for regular citizens,” Weinglass says.

Erdemir adds, “The Turkish case shows the intricate links between money laundering, sanctions evasion, terrorism finance, narcotics trade and human trafficking. Once the problem becomes so pervasive, criminal networks make strong inroads into the political elite and the law enforcement system. Such a vulnerability is then exploited by state actors, such as Iran and Venezuela, and nonstate actors such as Hamas, Islamic State, al-Qaida, the IRGC, and others.”

Some Middle Eastern countries were quick to respond to Biden’s “foreign policy for the middle class,” looking to promote their interests in Washington and to improve their global record. On August 22, 2021, at the directive of Sheikh Mohammed bin Rashid Al Maktoum, vice president, prime minister and defense minister of the United Arab Emirates and ruler of Dubai, Dubai announced the establishment of a specialized new court that will focus on combating money laundering. The announcement came just months after the UAE cabinet approved the establishment of the Executive Office of Anti-Money Laundering and Countering the Financing of Terrorism.

“The UAE’s understanding of the risks it faces from money laundering, terrorist financing and funding of weapons of mass destruction is still emerging, following their recent national risk assessment. The risks are significant, and result from the UAE’s extensive financial, economic, corporate and trade activities, including as a global leader in oil, diamond and gold exports,” the FATF report said in 2020.

“The UAE’s strategic geographical location between continents, in proximity to conflict zones and its own jurisdictional complexity of seven emirates, two financial free zones and 29 commercial free zones further increase the UAE’s risk of attracting funds with links to crime and terror,” the report continues.

Some of the first big events to take place after peace between Israel and UAE were conventions for the forex industry. You have to wonder why. Why were they so desperate to get together during the coronavirus crisis?

Weinglass says, “Interestingly, some of the first big events to take place after peace between Israel and UAE were conventions for the forex industry. You have to wonder why. Why were they so desperate to get together during the coronavirus crisis?”

And on April 30, 2021, ministers in Saudi Arabia approved a new law for Combating Financial Fraud and Deceit that is designed to enhance the kingdom’s efforts to combat financial crime.

It remains to be seen how effective these new measures will be, and whether they will be used only against critics or political enemies rather than against regime cronies, many experts on money laundering in the Middle East say.

On December 9-10, Biden will convene a Leaders’ Summit for Democracy in Washington, where human rights, illicit finance and regulation will be discussed. All three issues are closely interconnected and are clearly prioritized by Biden’s administration, which promises to connect the dots and use all of its weight to protect democracy.

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