This Week in AML

2024 National Risk Assessments and a Real Estate Reporting Proposal

This week, there are several important items from the US Treasury. It issued its 2024 risk assessments for money laundering, terrorist financing, and proliferation financing. FinCEN sent a draft Notice of Proposed Rulemaking on residential real estate transactions to the Federal Register for publication. John and Elliot discuss these issuances and their meaning for the financial crime compliance community. 


2024 National Risk Assessments and a Real Estate Reporting Proposal - TRANSCRIPT

Elliot Berman: Hi, John. How are you today?

John Byrne: I'm good, Elliot. One of the things that you and I have hopefully been throughout these conversations have been nimble. So when we talk about a couple things that we want to cover, late breaking news changes that. So we want to make sure we're as current as possible given that we do these things midweek and post on Fridays.

But you have something that you just learned and then we want to spend a little bit of time talking about Treasury's publishing of their 2024 National Risk Assessment for money loaning, terrorist financing, and proliferation finance that just came out. But you have some breaking news that I know is relevant to our audience.

Elliot Berman: Yes. The notice of proposed rulemaking from FinCEN on anti money laundering regulations for residential real estate transfers has been sent to the Federal Register and is queued up to be published officially on the 16th of February, but the draft coming from Treasury is actually available to take a look at.

And I took a quick look because I've only had it for about 25 minutes. There's a lot of history and all that other stuff which you would expect, but the focus is and I'm quoting here from the from the executive summary proposed rule would require certain persons involved in residential real estate closings and settlements to file, and to maintain a record of, a streamlined version of a Suspicious Activity Report.

The important thing to understand here is that the transactions that would be covered are residential transactions, which were not financed, so essentially in cash, and where the buyer was a legal entity or a trust. So that's a very narrow slice, but as you read through the document, it's clear that FinCEN is looking to try to extract the, key data that is helpful in tracking illicit transactions as opposed to getting a SAR about, every in cash residential real estate transfer in the United States.

I did think that it was interesting that it's limited to residential because we're aware of the fact that there have been many illicit transactions on the commercial side, but I think this is very much focused on dealing with transactions that we hear about, oligarchs and other, bad actors who acquire high end real estate for cash and they stick it into an entity. It's going to have a 60 day comment period.

There's a lot in here that will be worthwhile for people who are new to the real estate conversation because the entire history, the various exemptions that have been created, the use of the geographic targeting orders, GTOs is well documented in here. We're finally going to have something and I'm going to usurp your normal comment, take a look at it when it publishes on the 16th, and absolutely, if you have comments, send them in. Because FinCEN will pay attention to the comment. Doesn't mean they'll change it the way any one commenter talks about it, but given the importance of this, it'll be important for the financial services side, not just the real estate industry, to be commenting on this.

John Byrne: That's right. And it'll be interesting to see what, if anything, gets said about the lack of the commercial side, but you're obviously spot on regarding the the focus on things like oligarchs purchasing property and that sort of thing.

Before we talk about the Treasury report, just one other quick item we wanted to mention. It's just an example of continued focus on corruption specifically in the US, but the IRS on their website posted I noticed that there were additional offenses charge in a fraud case in Alabama that involved the Jefferson County Community Service Fund. The reason it's referenced is because a state representative was indicted by a federal grand jury for committing conspiracy, wire and mail fraud, obstruction of justice, and those sorts of things. I read it, I think it's interesting that this fund was created to help the community, and it's been charged that this particular defendant received close to $500,000 and there were kickbacks and all sorts of things.

But again, the IRS CI, primary agency that deals with financial crime. It's a good example of fraud being committed at all sorts of levels. But again, going after elected officials with a ton of evidence based on this press release, we thought we would just mention that as just another item that our law enforcement agencies are doing in conjunction with working with local law enforcement. But this particular one was IRS, FBI investigated the case with investigators from the Alabama Attorney General's Office, AUSAs and others.

Elliot Berman: And I have one other quick one before we go to the risk assessments, and that is it's being reported by AML Intelligence that the UAE will be coming off the FATF gray list at the February plenary. February plenary is toward the end of the month, and you and I will certainly talk about the results after they're published. FATF isn't commenting on it, but AML Intelligence is saying that UAE has gotten the green light to move off the gray list.

John Byrne: And going to the highlight here, that's the Treasury publishing three 2024 national risk assessments. These are always tools for compliance officers to map what they are doing internally in terms of dealing with these risk categories. And so the money laundering, terrorist financing, proliferation financing, there'll be a strategy issued in a few weeks to deal with all these.

But I'll mention with some of the things I saw in the terrorist financing one, but I know you've been able to take a quick look at the money laundering risk assessment.

Elliot Berman: Yes. Just a couple of highlights. Fraud remains the largest and most significant proceed generating crime for which funds are laundered in or through the United States. When you and I talk, as we often do, about this fraud scheme or that fraud scheme, it's important to remember for all of us in the community that leads often directly to a money laundering event.

Corrupt officials, which you just talked about, continues to be an important challenge. The prevalence of professional money laundering organizations, groups that is their business and Chinese money laundering organizations, CMLOs are called out specifically. Of course illicit drugs and particularly fentanyl are called out. And there is a call out for the fact that some regulated financial services organizations remain a money laundering vulnerability, even though they have an adequate program. It's always the, what else can we do? What have we not thought of? There's a reference to the fact that cash, even though, we feel like we've moved beyond cash is still a major component of the results of illicit activity.

And virtual assets pops up, of course, as well. Not surprisingly we continue to have to deal with it. The other thing, and the last thing I'll mention, is I thought it was very interesting, in the fraud space, investment fraud schemes represented the highest aggregate reported dollar loss to victims for the first time.

And it replaced business email compromise, which was a focal point for a really long time. And I'll quote from the report, social media influencers have contributed to and have facilitated investment fraud by using their large audiences and fans rapport to solicit funds for investment fraud schemes. Many of those deals are done in virtual currencies. A lot going on there. So just again, reading the whole thing and the documents that will follow is important, but those are my highlights from the money laundering risk assessment.

John Byrne: So on the proliferation of finance, real quick, Russia and North Korea presented high risks since the 2022 assessment. So take a look at that. But on terrorist financing, consistent with the last risk assessment for 2022, the most common financial connections is between individuals in the U. S. and foreign terrorist groups when they directly solicit funds to send funds to foreign terrorist groups, utilizing cash, registered money, services, businesses, and in some cases, virtual assets, although it makes clear that not a lot of these terrorist groups spend a lot of time with virtual assets yet.

The report also discusses Hamas and the ways they exploit the international financial system through the solicitation of funds from witting and unwitting donors worldwide. And that goes to our constant conversations about de risking and all of that. So take a look at that.

And then the thing I wanted to highlight, which is so important, so sad is that domestic violent extremist movements have proliferated in recent years, and the section is very dramatic in its characterization, and this, as has been on the rise for a number of years, and the government uses five categories based on ideological motivations to these domestic violent extremists.

Racially or ethnically motivated violent extremists, which is the most prevalent group according to law enforcement. Anti government or anti authority violent extremists that include militia violent extremists. Animal rights, environmental violent extremists, abortion related violent extremists, and then other ones that don't fit in any of the four categories.

But they say that, again, the most concerning threat is the domestic violent extremists, and those are particularly driven by a belief in the superiority of the white race. As discussed in more detail in the report, and they pose the most consistent threat of lethal and non lethal violence against religious, cultural, and government targets.

This is an increase in focus since 2022, although they did mention it last time, and there are some specific examples in the report. They talked about February of last year, where two individuals were charged federally with conspiracy to destroy an energy facility. In April of last year, they sentenced several for material support to terrorists.

That was to attack power grids and that, that sort of thing. So again this is a heightened focus. Something that needs to be considered by our community in terms of reporting. They do give you some sense of what those financial footprints may look like, but this is a sad evolving area.

So wanted to mention that. I just did a podcast with Ari Redbord on digital virtual assets. And he talked a little bit about this report as well. And that's a separate conversation. You'll learn more about that when we post that interview. But again, take a look at all of these risk assessments, map it to your own institutions, talk to your colleagues, see what they are doing. And then obviously we're would anticipate very shortly the 2024 National Strategy for Combating Terrorists and Other Illicit Finance from the Treasury Department, with consultation from all the federal agencies, the banking agencies, law enforcement, and other related federal agencies.

Elliot Berman: A lot in a short time John this month's webinar. You want to talk about that? Want me talk about that?

John Byrne: Why don't you talk about that?

Elliot Berman: All right. This month's webinar is February 22nd. You can register at the website and it's a focus on banking as a service. The intersection between traditional financial services companies and financial technology companies and how they work together and the risks to each. Our colleague Chuck Taylor will be moderating, and he has two great panelists both working at banks that offer banking as a service as a product line, and they're gonna talk about, What are the risks? How do they manage them? What are the regulators thinking these days? I was logged into their prep session yesterday, and it's going to be a great conversation, so I urge everybody to do that. John, you mentioned your podcast that we're going to post in the near future, what else do you have in the pipeline?

John Byrne: We mentioned this last week. There was a research academic paper from a professor at George Mason University's Schar School of Policy and G overnment, which I also teach at, on the use of misinformation that severely impacts Muslim organizations. So I'm gonna do that interview tomorrow, and we'll obviously host that in a few weeks.

I also mentioned that RightSource's own Rachel Dettmer wrote a piece that's on our site, a recap of the human trafficking webinar that we did last week. Excellent analysis and recap. So I urge people to take a look at that when they have the time.

Elliot Berman: Yes. And we would be remiss if we didn't give one of our other projects a push. And that is the AML Partnership Forum for 2024. That event will be in Washington DC, March 18 through the 20. It's an organization and an event that's focused on building public private partnerships between the private financial sector and federal law enforcement. You can still register for the event at amlpf.com and just click on the registration link, and it'll take you both to register to the event, and if you're coming from out of town to get a hotel room at the Mayflower Hotel, which is where the event is being held.

John Byrne: And just a reminder about that program. No press, there's no vendor exhibit halls, it's really designed to have an exchange of important information and networking between the private and public sectors. It's our third annual, and I know if you have the opportunity to attend, you're going to get a lot out of it.

Elliot Berman: Agreed. Okay, John I know that you're away from your home base, so in your travels, do them safely, and I will talk to you next week.

John Byrne: Sounds good Marquette, seventh in the nation, folks. We'll talk to you next week.

Elliot Berman: Bye bye, John.