April 1, 2021 | Barron's

How to Protect America’s Heartland from Global Corruption

April 1, 2021 | Barron's

How to Protect America’s Heartland from Global Corruption

When outside real estate money moved into Cleveland in a big way starting in 2008, locals were upbeat. Investors were betting on the “upside of a Midwestern city” that had been passed by, The Plain Dealer wrote.

A decade later, that upside was hard to find. Cleveland’s AECOM Building, purchased by foreign-backed investors in 2010, fell into disrepair and saw its occupancy rate plummet. Ukrainian businessman Ihor Kolomoisky was tied to the purchase and several others like it. Often using anonymous shell companies, Kolomoisky and his associates bought a dormant Motorola facility in Illinois, the former headquarters of Mary Kay Cosmetics in Dallas, and nine steel factories across the Midwest, according to the International Consortium of Investigative Journalists. Four steel plants have since filed for bankruptcy, the ICIJ reported. An explosion at Warren Steel in Ohio sent five workers to the hospital, three of whom were airlifted to the burn unit. Hundreds of steelworkers at companies owned by Kolomoisky lost their jobs.

The U.S. State Department sanctioned Kolomoisky last month “due to his involvement in significant corruption.” A lawsuit filed in Delaware in 2019 alleges Kolomoisky and an associate used the Ukrainian bank they founded “as their own personal piggy bank.” The ICIJ found that more than $750 million had been moved into his U.S. business interests. The Department of Justice has filed civil cases to seize properties from Kolomoisky. They allege his American investments were less about acquiring profitable enterprises, and more about taking advantage of an opportunity to move questionable funds out of Ukraine into cleaner investments; in other words, money laundering.

Kolomoiskyy has said he broke no laws, according to BuzzFeed. There is no extradition treaty between the U.S. and Ukraine, so the chances of him having a day in court seem slim. However the accusations against him are adjudicated, they point to bigger issues in the way the money flows into the U.S. from abroad. While the U.S. conducts a formal review process for the foreign purchase of assets that impact national security, it is not clear that a similar examination occurs when foreign actors gobble up outdated factories and office parks. For precisely that reason, corrupt actors frequently turn to often-overlooked industrial assets and commercial real estate to launder their ill-gotten gains. America’s heartland is paying the price.

It is time for a more proactive approach to protecting and reviving America’s industrial core, not just by investing more domestic dollars, but by attracting productive foreign investment from trusted allies and vetted companies. There is nothing wrong with a foreign owner of a U.S. asset, but the acquisition process should be transparent, open, and informed. Distressed local communities, in fact, stand to gain the most by the viable and sustainable infusion of resources, whether domestic or foreign.

Congress has already taken one giant step toward fending off buyers who disguise their identity. The beneficial ownership reporting requirements in the 2021 National Defense Authorization Act bring greater transparency to the purchase of U.S. assets by outlawing the domestic use of anonymous shell corporations. But we should not merely be trying to stop shady purchases. We should also be actively encouraging long-term and viable investment in America’s industrial foundation. Part of that should come domestically, with long overdue investments in America’s infrastructure. A new infrastructure bill can and should revitalize America’s industrial capacity.

As I have written before, America can strengthen its security, its supply chains, and its economy through “ally-shoring,” that is, working with trusted allies to mutually strengthen our supply chains, trading relationships, and foreign direct investment. In the wake of Covid-19, reimagining our dependent supply chains is a national security priority. However, ally-shoring doesn’t stop with bringing vulnerable supply chains closer to home. For too long, the U.S. has lacked a strategic vision to support and develop its vast industrial assets. Bringing key American allies into the process can help ensure that American interests are protected while, at the same time, injecting life and cash into essential industries that employ millions of Americans while strengthening our global alliances.

Through the Committee on Foreign Investment in the United States, we have shown that we can monitor improper foreign control of key American industries and technologies. It is time to recognize that our critical assets include not only advanced technology and cutting-edge military hardware, but America’s critical industrial core, from our steel plants, to our skyscrapers and the workers employed there.

Read in Barron's

Issues:

Sanctions and Illicit Finance