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The Justice Department’s shift away from combating foreign graft will have a downstream impact on anti-money laundering compliance and possibly expose banks to litigation from clients whose assets they have frozen, former prosecutors told ACAMS moneylaundering.com.

In a five-page letter published Thursday, newly appointed U.S. Attorney General Pam Bondi announced her decision to shut down the Justice Department’s Kleptocracy Asset Recovery Initiative, Kleptocracy Team and Task Force KleptoCapture, and redirect their resources towards “the total elimination of cartels and TCOs [transnational criminal organizations].”

Prosecutors within the Kleptocracy Initiative worked with the FBI, IRS and other investigatory agencies in tracing and seizing billions of dollars of assets linked to overseas corruption, including funds hidden behind complex corporate and financial structures, and returning them to the countries harmed by such acts.

Banks have played a crucial role in those efforts, but will follow the Justice Department’s lead in reallocating resources away from tackling graft and towards combating the trafficking of narcotics, especially fentanyl, particularly if instructed to do so by the Financial Crimes Enforcement Network, said a former prosecutor who served with the Kleptocracy Initiative.

“Banks might now shift their priorities, but this is going to come from FinCEN,” the former prosecutor said on condition of anonymity.

The Justice Department launched the Kleptocracy Initiative in July 2010 as part of then-Attorney General Eric Holder’s emphasis on identifying and returning embezzled funds and other assets to their countries of origin.

Through the program, prosecutors managed to recover $1.1 billion stolen and laundered from Malaysian sovereign wealth fund 1MDB more than a decade ago after JPMorgan Chase, Deutsche Bank, Citibank, HSBC and other banks flagged at least some of the underlying transactions to FinCEN.

The transactions involved the transfer of funds of unknown origin to and from offshore companies for no apparent commercial purpose, and payments for luxury real estate and other high-end goods, including yachts, private planes and even movie rights.

Frozen assets that for various reasons the U.S. has yet to repatriate to their countries of origin could end up funding federal priorities that have no bearing on grand corruption, such as illegal immigration and the drug trade, the former prosecutor told moneylaundering.com.

The second target of Bondi’s memo, Task Force KleptoCapture, which the Justice Department launched in March 2022 amid the early days of Russia’s full-scale invasion of Ukraine, was tasked with hunting down and taking the assets of Kremlin-friendly oligarchs into custody.

FinCEN issued a notice of proposed rulemaking in July that would direct banks and other financial institutions to regear their compliance programs to account for eight crimes, including corruption, whose finances rise to the level of a national priority, while also taking their own, unique levels of exposure into account.

Absent new guidance on corruption from FinCEN, most banks will refrain from diluting the corruption-focused elements of their AML programs “anytime soon,” said Seth Waxman, a former federal prosecutor who worked on cases involving domestic and foreign corruption.

“Corruption investigations are long-term, and financial institutions have to look at this in terms of the coming decades, not the next three years and 11 months,” said Waxman, now an attorney at the Dickinson Wright law firm in Washington, D.C. “On the other hand, who knows what kinds of laws are going to be instituted and what will be held as constitutional by the Supreme Court?”

Banks may not absorb and respond to Bondi’s shift away from corruption immediately, and the dissolution of the Kleptocracy Initiative does not amend their responsibility to not violate or enable violations of federal anti-corruption statutes.

Both developments do, however, signify a sea change in the federal approach that could motivate targets of corruption-related asset freezes to sue banks for the release of their funds, Waxman said.

Their lawsuits could find a more sympathetic ear with federal judges influenced by Bondi’s decision.

“Corrupt actors could argue that whatever grounds banks had to seize assets before, they don’t exist anymore,” said Waxman. “Before, a judge could rule that there was no way you could get your money released, whereas now you might very well succeed.”

Contact Chelsea Carrick at ccarrick@acams.org