2023 was a turbulent year that contained an extensive number of events that correlate to our broad-based AML community. Whether it be corruption, sanctions, money laundering, or other parts of financial crime, our challenges to prevent, detect, and report actions that move illicit funds have increased. Here are some of the issues we spotted each month during 2023 and touched on in our weekly “TWIA.”
Right out of the gate, the US banking agencies issued a joint statement on “crypto asset” risks to banks. Included were:
- Risk of fraud and scams among crypto-asset sector participants
- Risk management and governance practices in the crypto asset sector lack maturity and robustness.
Transparency International published its 2022 Corruption Perceptions Index, concluding that most countries fail to stop corruption. TI recommends that governments:
Treasury’s FinCEN issued an alert on human smuggling along the Southwest border with several illicit finance typologies.
FinCEN also issued an alert in February on a surge in mail theft-related check fraud schemes, a surprising criminal development given that many of us feel check fraud is not as prevalent in today’s payment environment. (Note: at the 2024 AML Partnership Forum, we will cover this important topic with law enforcement representatives from the US Postal Service)
Another theme we covered throughout 2023 was the work of the Wolfsberg Group, an association of 12 global banks committed to addressing financial crime. In February, Wolfsberg filed comments with the European Banking Authority (EBA) on the issue of “derisking” when managing money laundering/terrorist financing risks.
There are a number of recommendations and views outlined in the comment letter that all should review. Two that stand out to me are:
- Due to the significant complexities in sanctions and AML regimes and the risk of FIs being held liable for their customers' activity, FIs need to be confident that higher-risk NPOs are aware of their obligations and have implemented effective compliance regimes. Competent authorities have an essential role in helping NPOs build risk awareness and risk management capabilities
- Just as NPOs can engage with their financial services provider(s) openly and proactively on operational issues, such as sanctions licensing, FIs need to work with NPOs to understand their structure and how they operate. Competent authorities have an important role in fostering dialogue at an industry level.
The posting of the FATF February Plenary was out in March, and the primary focus was the suspension of the Russian Federation due to its clear aggression against Ukraine. Besides the usual coverage of mutual evaluation reports, FATF delegates debated and agreed to new steps to address “opaque corporate structures,” ransomware, virtual assets, and crowdfunding to enable terrorist financing.
Department of Justice’s Assistant Attorney General Kenneth Polite told the National Institute of White Collar Crime the importance of the changes in DOJ’s corporate enforcement policy that emphasize incentives such as a presumption of declining to prosecute and “possible reduced financial penalties of up to 75% off of the Sentencing Guidelines fine range – for companies that voluntarily self-disclose misconduct, fully cooperate with their investigations, and timely and appropriately remediate.”
Separately, Polite mentioned the work of the Bank Integrity Unit (BIU) and added:
“But if you want to access the U.S. financial system – or you provide access to our system – you must play by the rules or else face the consequences. In fact, since 2010, the BIU – with just 12 attorneys – has imposed more than $13 billion in financial penalties in 10 corporate criminal resolutions with global financial institutions for sanctions violations.”
As FinCEN in the US prepares for an eventual regulation covering antiquities dealers, the art industry (for now) does not have to be prepared for requirements regarding source of funds or similar assessments. It was interesting, however, to see the release of the Art Basel and UBS Survey for 2023 with 42% of art collectors bemoaning the increase in regulation and identification requirements such as those under the Bank Secrecy Act (BSA).
Wolfsberg remained active with the release of their Anti-Bribery and Corruption Programme Guidance. The global banks recommend, among other things:
- a firm-wide policy
- periodic risk assessment
- training and awareness throughout the firm
- and monitoring and testing for compliance with controls.
The US Treasury Department released a much-anticipated report on derisking, and we did a lengthy interview with one of the principal authors. Unfortunately, the report clearly set the wrong tone and premise by starting with:
“De-risking occurs when financial institutions terminate or restrict business relationships indiscriminately with broad categories of customers rather than analyzing and managing the risk of those customers.”
No one in our community accepts this, so it becomes difficult to see a satisfactory solution to how certain high-risk customers, especially humanitarian groups, are treated.
Fortunately, the report does finally acknowledge the need to
-- Promote consistent supervisory expectations, including through training to federal examiners, that consider the effects of de-risking, as mandated by Section 6307 of the AMLA; and
-- Encourage ongoing public and private sector engagement with MSBs, NPOs, banks, and regulators (federal and state) to provide greater clarity on risk-focused BSA/AML supervision and regulatory requirements and encourage information exchange.
This should be a 2024 mission, especially in the wake of the continuing conflicts in the Middle East and the war in Ukraine.
With the plethora of sanctions being issued here in the US and abroad, academics and policymakers have debated the efficacy of sanctions as either a deterrent and/or a national security tool. We discussed this critical topic with sanctions experts and covered the various hearings and articles.
June also saw the release of the State Department’s “Trafficking in Persons Report.” The information in the report can assist all AML officials in understanding this global problem better. (Note—AMLRS will host a webinar on human trafficking on January 25th). Secretary of State Anthony Blinken provided some good news when the report was released, pointing out, “This year’s report shows a picture of steady progress around the world, with dozens of countries making significant strides in preventing trafficking, in protecting survivors, in prosecuting those who carry out this crime.”
Europol issued the 2023 Terrorism Situation and Trend Report, and among their key findings:
The internet and technology remained pivotal enablers of propaganda, as well as radicalisation and recruitment of vulnerable individuals into terrorism and violent extremism. In addition to social media platforms, openly available messaging applications, online forums and video gaming platforms, decentralised platforms appear to have gained popularity in terrorist and violent extremist circles, significantly undermining law enforcement monitoring and investigations.
Right-wing terrorists and extremists propagate a plethora of narratives, mainly online. There is little consensus on themes and ideologies, which are always mixed and often contradictory. Contemporary offline developments that resonate with their own grievances drive the online discourse.
As for the 2024 outlook,
“Right-wing, left-wing and environmentally inspired terrorism and violent extremism are expected to gain further prominence.”
The Treasury Department announced the progress being made by the Internal Revenue Service through budget increases from the Inflation Reduction Act, including the ability to ensure that high-wealth individuals pay their fair share of taxes. Specifically mentioned were:
“IRS Criminal Investigation has closed a lengthy list of cases in which wealthy taxpayers have been sentenced for tax evasion, money laundering, and filing false tax returns. Instead of paying taxes owed, these evaders spent money owed to the government on gambling, vacations, and luxury goods.”
Surprisingly, certain US policymakers continue to oppose the IRS doing its mission.
In a significant development sought by humanitarian groups, the Office of Foreign Assets Control (OFAC) released detailed guidance for providing humanitarian assistance to Syria. The guidance and related FAQs were designed to ensure that sanctions do not hinder the ability to provide legitimate assistance to Syria from NGOs and government agencies.
For example, the FAQs covered a myriad of issues and concerns:
Are NGOs authorized to provide humanitarian assistance in areas controlled by the Government of Syria?
Yes. The authorization in the Syria NGO general license is not limited to specific regions in Syria. Note that GL 22 authorizes all U.S. persons to engage in additional transactions beyond humanitarian aid across a range of economic sectors in certain non-regime held areas of northeast and northwest Syria. For more information on what activities are authorized under GL 22, please review FAQs 1041, 1042, 1043, 1044, and 1045.
Can U.S. financial institutions process transactions related to authorized humanitarian assistance by NGOs in Syria?
Yes. As explained in FAQ 937, U.S. depository institutions, U.S. registered brokers or dealers in securities, and U.S. registered money transmitters can process such transactions and may rely on the statements of their customers that such transactions are authorized unless they know or have reason to know a transaction is not authorized.
Can U.S. banks and money services business (MSBs) process remittances to Syria?
Yes. U.S. depository institutions, U.S. registered brokers or dealers in securities, and U.S. registered money transmitters are authorized to process noncommercial, personal remittances to Syria, subject to certain conditions. These entities may rely on the statements of their customers that such transactions are authorized unless they know or have reason to know a transaction is not authorized.
With the constant criticism of FinCEN for not providing sufficient information to small businesses on the upcoming beneficial ownership regulation, the Treasury bureau released a “small entity compliance guide.” The guide, translated into 12 languages, covers six questions with a chapter devoted to each and will be updated as appropriate.
Also in September, the State Department released its update on the US strategy for countering corruption. The report reviews the progress made on the five pillars with timelines:
- Modernizing, Coordinating, and Resourcing Efforts to Fight Corruption
- Curbing Illicit Finance
- Holding Corrupt Actors Accountable
- Preserving and Strengthening the Multilateral Anti-Corruption Architecture
- Improving Diplomatic Engagement and Leveraging Foreign Assistance Resources to Advance Policy Goals
Corruption continues to be a global focus.
Sadly, the month began with the attack on Israel by the terrorist Hamas. Immediately, the Treasury Department and FinCEN issued an alert to financial institutions on identifying funding streams that Hamas could be using. The possible “red flags” include:
A customer conducts transactions with a Money Services Business (MSB) or other financial institution, including one that offers services in virtual currency, that operates in higher risk jurisdictions tied to Hamas activity, and is reasonably believed or suspected to have lax customer due diligence (CDD) requirements, opaque ownership, or otherwise fails to comply with anti-money laundering/combatting the financing of terrorism (AML/CFT) best practices.
A customer that is a charitable organization or nonprofit organization (NPO)10 solicits donations but does not appear to provide any charitable services or openly supports Hamas’s terrorist activity or operations. In some cases, these organizations may post on social media platforms or encrypted messaging apps to solicit donations, including in virtual currency.
In a related action, FinCEN also issued a NPRM that identifies international Convertible Virtual Currency Mixing (CVC mixing) as a class of transactions of primary money laundering concern. FinCEN expressed concern that the lack of transparency could assist malicious actors like Hamas.
The 2023 Basel AML Index was released, and we interviewed the project director for her views on what we can glean from that well-known global index. The report shows both an increase in risk levels and a “drop” in effectiveness by many jurisdictions.
The Biden Administration also issued an Executive Order establishing new Artificial Intelligence (AI) security and safety standards. The Order will “Establish an advanced cybersecurity program to develop AI tools to find and fix vulnerabilities in critical software.”
We ended 2023 as we began, still focusing on countering corruption. The Treasury Department released an update on the US strategy for countering corruption and pointing out the progress with the regulations from the Corporate Transparency Act, pending a 2024 proposal covering investment advisors, sanctions against oligarchs and kleptocrats, and ongoing work with FATF tackling global corruption.
The Internal Revenue Service’s Criminal Investigation group (IRSCI) issued its 2023 report, which contains a detailed view of the many challenges and successes that are so important to our community. Their agents and staff identified $5.5B in tax fraud and $31.6B in other financial crimes. Whether cryptocurrency, cyber fraud, or money laundering, the IRS’s work is admirable and essential. We are hoping to interview several of their key staff throughout 2024.
Believe it or not, we have only scratched the surface of important events in 2023 for the AML/CTF/Sanctions community. As the year ended, our community saw more events and announcements relevant to our daily challenges. There have been a number of enforcement actions in the US and abroad that deserve study and analysis, as well as political maneuvering that could (and some do) indicate corruption, fraud, and other forms of financial crime.
For 2024, buckle up your seatbelts. It will be a long, strange trip, and the answers to the many challenges we will face may be blowin’ in the wind…[i]
[i] Blowin’ in the Wind, a Bob Dylan song that asks, among other things, “how many times can a man turn his head pretending he just doesn’t see?”