This Week in AML

A Challenging Decision, a Strong Message from the FCA, Risks in the Global Art Market, and Shell Companies

There are many things to talk about this week. A US District Court issued an opinion disrupting the beneficial ownership registry. The UK Financial Conduct Authority issued a letter to CEOs about the inadequacy of compliance with money laundering regulations. An op-ed about avoidance of sanctions in the US art market. An investigative article into facilitating shell companies. John and Elliot discuss all these items and their meaning for the financial crime compliance community. 


A Challenging Decision, a Strong Message from the FCA, Risks in the Global Art Market, and Shell Companies - TRANSCRIPT

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

John Byrne: I'm good, Elliot. How are things?

Elliot Berman: They're okay. Busy. Our weather's continues to be much warmer than we expected. We had a big rainstorm here instead of a big snowstorm.

John Byrne: That's better.

Elliot Berman: Yeah, it is better. You don't have to shovel it.

John Byrne: That's right. Speaking of shoveling, we have a number of things we want to cover. As always go dive deep into several of these if not all these issues But we'll just give you a quick snapshot.

The first is, I've mentioned before on this podcast and obviously when we've had webinars, the Antiquities Coalition and the work that several of us have done over time with with that organization. Their founder and chair, Deborah Lehr, has an op-ed piece in the Financial Times. And interesting both the headline and obviously the story. Headline is the US art market is a sanctions black hole and Deborah goes into why she makes that statement regarding the amount of value that is exempted because of the AMLA law from a couple of years ago, which did not include the art market, but also from a sanction standpoint.

And she says in the piece that market's worth more than $30 billion and argues that it's exempt from standard laws and regulations. It's not exempt from sanctions, obviously. We all have sanctions obligations. But she talks about the Treasury study, and she also says, from her perspective, the reason she uses the term black hole is she said there, the art market's not required to assist the federal government with detecting and preventing crime.

Obviously the antiquities world is, but that's not happened yet. And she cites several members of the Senate some of their comments, but the bottom line is, Deborah ends this way. She said that there's real likelihood that collectors, dealers, and auction houses may unknowingly continue to help further crime armed conflict, and even terrorism through the apparently legal purchase of art. That's too high a price to pay.

So I thought that was interesting. Deborah has agreed, her staff have agreed to an interview in a few weeks. We're going to talk to her at length about this. But this is obviously an important issue. And then related to that, France's Commission of Sanctions, the CNS, just the other day disclosed fines against a pair of art galleries that they say have been caught violating AML rules two years after warning that the sector too often views AML compliance as a, quote, secondary, unquote, obligation.

The first gallery happened after an examination by French Customs. They said that the company didn't conduct adequate due diligence prior to selling artwork for an extensive amount of dollars, and then the second gallery said that famous clients don't require any vetting. I want to give credit to moneylaundering. com, they reported on this. But again, this is from CNS in France. And I thought that was not only related to what Deborah talks about, but shows that the art market internationally has gaps, not just in the US.

Elliot Berman: Yes, and you and I have talked about this, as you mentioned earlier it has been a very slow walk to get the art markets brought under some portion of the BSA. And I don't know that we really see any momentum in moving that. Certainly, I haven't seen it on a FinCEN few things we're gonna look at in the near term kind of thing. I know they're very focused on real estate as we've already seen, and investment advisors. But art hasn't gotten to the first page on the list yet. So we'll have to see when that happens.

John Byrne: Right. And, we'll talk about some US related activities in a second, but first, I also want to add that just the other day, the the FCA warned a number of firms about AML related failings. So this you can get on the fca. org. uk website. And some of the issues that they have found include discrepancies between firms registered and actual activities, controls that have not kept pace with business growth, failure to risk assess, and inadequate resourcing and oversight of financial crime issues and requirements.

So I think that's important. Again shows the outside the US, the focus that continues. I would also say that the other thing that they called out in that Dear CEO letter deals with training. So they said that they've identified that some firm's financial crime training has not been given the importance that it demands. So the instances where there wasn't role specific training and some of the training failed to cover topics such as suspicious transaction reporting guidance and that's another issue as well. I would imagine that these DEAR CEO letters are relevant to guidance documents that we see in the US. So those of you that are involved in the U. K. market to take a look at that letter.

Elliot Berman: Yeah, and I, just two things. One, for our listeners in the U. S., FCA here is Financial Conduct Authority. That's the principal financial services regulator in the U. K. And you've mentioned it a couple times that it was a Dear CEO letter, but I think that's an interesting perspective that in addition to publishing regulations and putting out guidance and things like that, that to have the regulator write directly to the CEOs is another kind of heightened example.

We see the US regulators do that once in a while but not very often. And in addition to the details, just the fact that FCA used that channel struck me as, that's very interesting. They're going right to the top of the shop and getting, ideally, getting attention to this issue from someone who can do something about it.

John Byrne: The other issue I know you want to mention is Alabama, a federal district judge in Alabama. This doesn't equate to their other recent decisions in Alabama regarding IVFs, but this one impacts the Corporate Transparency Act. So an interesting opinion that was issued on last Friday.

Elliot Berman: Yes. Was a long opinion and one quote in the New York Times article, and there have been many articles about this decision in the last few days. This is a quote, Congress sometimes, enacts smart laws that violate the Constitution. That's from the judge's opinion. The case was filed by the National Small Business Association, which is a non profit trade group that represents over 65,000 member companies. Essentially the judge's opinion is that the requirement to comply with the BOI registration requirements for the members of this organization so that's a limitation.

There's lots and lots of companies. I know, John, you have a small company, and I have a small company, and neither one of us belong to that organization. At least for now, this opinion, if it survives appeal and all the other things would exempt those member companies from having to comply with the BOI registration requirement.

It seems to me that when the dust settles, it's all going to have to get sorted out so it's not this funny subset because those were the litigants. But I've been a lawyer a long time and I've been wrong a lot. So this might be another one of those.

John Byrne: And one of the advocacy groups that pushed hard for the Corporate Transparency Act and the regulations was the FACT Coalition. On their website they talk about the ruling and obviously don't support it. I thought that their their quote was eye catching to say the least. They said, this is a pro crime, pro drug cartel, pro fentanyl ruling, which undermines the rule of law and allows criminals to use anonymous shell companies to hide their dirty money from law enforcement. They go on to say close to a million law abiding companies have already complied with the law, and this ruling should be stayed and overturned on appeal.

So it'll definitely be interesting, and I would imagine, as you've already said, we'll get covered by the without using the, instead of a journal, the mainstream press. So this will get covered in the business section of the Post and Journal and all those other papers because it is, has that broad connection to, as you just said, to everyday small business requirements.

Elliot Berman: Yes. And actually that quote that you just read from the FACT Coalition's website is a nice link to the other thing we wanted to talk about. WIRED Magazine published on its website an article this week called The Secrets Factory. And I'm reading from the tagline here, Registered Agents Inc., that's an organization, has for years allowed businesses to register under a cloak of anonymity. A WIRED investigation reveals its secretive founder has taken the practice to an extreme. Registered Agents Inc. is a one stop shop for people seeking to incorporate a business in any US state, often in those with advantageous tax policies while obscuring their identities.

And it goes on to talk about a lot of activity similar to activity that we've seen reported in previous investigative efforts about the states in the US that really have made a business of allowing for obfuscation about ownership and business purpose.

John Byrne: And one of our colleagues is actually quoted in the piece. Sarah Beth has done a lot. I've interviewed her, we've done work with webinars, she's actually also going to be joining us at the AML Partnership Forum.

I talked to her about this, she spent a good deal of time with the reporters here. And she, so she's quoted in here. Also Gary Kalman from Transparency International, he's someone else that we've talked to. So an interesting piece. So you look at this in connection with the court case in Alabama, interesting to say the least Elliot?

Elliot Berman: Yes, I think when you look at the decision in isolation, got you may have one perspective. When you then lay it side by side with this article and some of the previous things by Transparency International and others and think about the overall issue about corruption and hidden illegal activity. It gets a little harder to go, yeah, that seems fair in terms of the decision and the opinion. By the way, just for clarity for our listeners who don't know her as well as you and I do, Sarah Beth Felix.

John Byrne: Yeah, I know. Let me interrupt you because I was sitting there going, why did I say, because we call her Sarah Beth Felix. That's right. She has her own consulting firm, does a lot of good work. Also has organized a bank that she's working on in Vermont. And her quote in the piece is there's no federal requirement there's no state level requirement that the registered agents have any code of ethics. There's no anything. So for being essential gatekeepers, they're grossly unregulated. So Sarah Beth Felix, you can follow her on LinkedIn as well. So thanks Elliot for helping me there.

Elliot Berman: Okay, John. So let's see, what have we got coming up? You've got some interesting interviews, not fully scheduled, but definitely in the loop. Why don't you talk about those?

John Byrne: All right, so the one that is scheduled, we're going to do the interview after the AML Partnership Forum. Diane Foley, who I'm sure some of you are aware, runs the Foley Foundation. Her son Jim Foley, a Marquette grad photojournalist, was assassinated, executed by ISIS back in 2014, and she's created this foundation that's worked on hostage negotiations ever since. She's just come out with a book called American Mother. And we're going to interview Diane about that book and about the foundation.

And then we are working with some folks from FATF on an interview on a report that they've worked on. I don't want to say too much about it yet, but hoping to have that conversation before the end of the month. But we're happy to see that FATF is coming to us and asking us for the opportunity to talk about a report they've worked on a good portion of the past year and how it relates to the AML CTF sanctions community.

Working on that as well.

Elliot Berman: Yes, and our next webinar in our AML Voices webinar series is March 28th. It'll start at 1, the live stream is at 1 p. m. Eastern Time, and it's on countering terrorism financing and its use of virtual assets. So you can register for the webinar at our website and we recommend you do that, that's amlrightsource.com. John, what else?

John Byrne: The AML Partnership Forum, March 18th to the 20th. This year, as we've done in the past previous years, we're also going to be acknowledging award winners that the steering committee have identified as people that have had career work in private public partnership.

That's always a big part of what we try to do in addition to obviously have a conversation, not just among the panelists, but with the audience. Really looking forward to this. Can't believe it's coming up in just a couple of weeks, but again, March 18th to the 20th in Washington, D. C.

Elliot Berman: And there are still spots available. So you can register at amlpf. com and we'd love to have you join in the conversations. There's a number of interactive sessions this year, a little different than prior years. So I think there's a great opportunity there. So John, you have a great rest of the week and I will talk to you soon.

John Byrne: Take care. Stay safe.

Elliot Berman: You too. Bye bye.