This Week in AML

Basel on Corruption, Help for Small Businesses in Cuba, the Vatican Improves, and More

This week, the Basel Institute on Governance published its 2023 Annual Report, OFAC published regulatory changes about Cuba, and MONEYVAL’s issued an update to its mutual evaluation of the Holy See. John and Elliot discuss these items and their meaning for the financial crime compliance community.


Basel on Corruption, Help for Small Businesses in Cuba, the Vatican Improves, and More - TRANSCRIPT

Elliot Berman: Hi, John. How are you this morning?

John Byrne: Hi, Elliot. Good. Obviously quite a bit going on, and we would be remiss if we didn't mention that when we are recording this, there's been no verdict in what has to be the most I won't say important case, but the most dramatic case in our nation's history. So by the time folks listen to this, perhaps there'll be a verdict, but we just mentioned that hasn't happened yet.

A lot of things going on. I thought I'd dive right into it because I know we've got seven or eight items we want to highlight. First, we've been fortunate to interview several times folks from the Basel Institute, and they issued their 2023 annual report. And there's a whole host of things in the report.

And I just picked one to just briefly mention, but everybody should take a look at it when they have some time. Obviously the Basel Institute does a lot of essential work on anti corruption and other related topics. But they have a section in the report that they recommend shifting the narrative on anti corruption.

And they say a few things like this, perception of corruption can themselves hamper the fight against these. They say when citizens believe corruption is widespread, anti corruption intervention may hit a wall of cynicism, anger, or complacency. And so they say, basically saying corruption is widespread, often backfires.

They also say negative messages then become mostly ineffective. Specific messaging is much more effective. And the last item, which I obviously agree with, but I thought was pretty compelling, people are more likely to change their behaviors and beliefs if they see how corruption concretely affects their welfare.

So I think that's pretty important. They talk about a national public integrity campaign with government partners, talking about the positive benefits of integrity, backing up the communication with real action and results. Thinking beyond traditional communication channels, which I think everybody's doing nowadays, but in any event, there's a lot in here.

I just would urge our listeners to take a look at that. They talk about asset recovery, talking about when you have asset recovery, publicizing that so it shows what happens when corruption is identified and prosecuted. And they have a whole series of things. The Basel group has been around back 20 years. And so they do a look back there as well. So again the 2023 report of the Basel Institute.

Elliot Berman: I saw and read the report and along the lines of what you started talking about, I thought one of the really interesting pillars that they laid out was their efforts to change behavior, to help shift social norms toward integrity and ethics.

And that's clearly the long play. The other thing that caught my eye was, they talked about the importance of people viewing corruption as more than just bribery. There are areas in which corruption occurs where it's not just the payment of money for someone to look the other way and things like that.

Taking a little broader scope, but a very valuable report, worth reading. Thanks for you pointing it out to me, actually.

John Byrne: All right, what do you got?

Elliot Berman: It's being reported in a number of different channels more about TD Bank's challenges.

I think we spoke some time ago about the fact that it was being reported that they had taken a significant $450 million dollar reserve related to their AML challenges here in the US. They issued a press release some time ago about that. The latest that's being reported is acknowledgment that Marcy Foreman who had been at Citi has joined TD, actually back in November, in a role as head of investigations, AML.

So that, that will be a cross company role, both relating to the FIU and their high risk investigations group. We both know Marcy. I know you know her quite well. She was at for about 13, but before that she had a number of prominent roles in U. S. federal law enforcement.

John Byrne: She was at what was then ICE. One of the leaders in customs, in the anti money laundering space in the CTF space. So clearly a mainstay of many of the programs that you and I were both involved in the 90s and early 2000s. So a good move by TD to bring Marcy along.

Elliot Berman: Yeah, and there's also reports of other personnel changes, people leaving no names have been named, but, just the the fact that it's obviously a pretty deep problem given all the press that we're hearing we're not getting any details, which is normal because it really is coming out of the examination process, but we are getting the kinds of things that a publicly traded company would want to disclose to make it clear that they were resolving an issue and not surprising the markets.

John Byrne: So a couple of other things. The MONEYVAL, which is the committee of experts that evaluates AML measures and the financing of terrorism. It's a permanent monitoring body of the Council of Europe. They've done a plenary just recently. And in that plenary, they published a follow up report on the AML/CTF measures of the Vatican, the Holy See.

According to reports and to the actual report itself, which we've both looked at the Holy See, which includes the Vatican City State, it improved its technical compliance with at least three of the 40 FATF recommendations. And so they moved from non compliant to compliant with correspondent banking, with beneficial ownership, and other related issues.

So the report itself is roughly 15 or so pages. MONEYVAL said they will come back in a few years and re reevaluate if that's even a word. So this was the first regular follow up report to the Vatican City State. Again, improvements from previous deficiencies. So that was one of several evaluations announced right after the plenary that that MONEYVAL just had.

Elliot Berman: Yeah, and they moved into the largely compliant or compliant in the number of the recommendations where they were having problems in the past.

John Byrne: That's right. I guess sticking with international groups and studies, the Royal United Service Institute, or RUSI, just issued a report in early May a policy brief, Disabling the Enablers of Sanctions Circumvention.

Now, we've certainly talked quite a bit about sanctions and sanctions evasion. This particular brief talks about recommendations that this research group has to minimize the use of enablers or professional service providers to circumvent sanctions. So a report worth looking at. They describe the enablers, they walk through how this occurs, and they identify a number of institutions in there.

So I think that's important as well. And then they talk about several recommendations, as I mentioned. The recommendations including enforcement actions, as you would appreciate, against professional enabler networks that violate the laws. They talk about the EU and the UK, actually lagging the US when it comes to designations of criminal and civil enforcement against some professional enablers, but as we know, that's not all of them are covered under our laws.

Enhanced coordination, so making sure sanctions designations across similar jurisdictions are required to prove compliance and we've talked about that for many episodes, the need to work together. Take a network approach. They say that sanctions must be imposed on an oligarch's entire network simultaneously and then that minimizes the opportunity to shift assets to family members and associates.

Publicize when you block property. Sometimes it becomes impeded because certain laws don't allow those announcements, but they're saying that should be changed. Harmonize ownership and control sanctions rules. And of course, the typical closed regulatory loopholes about evasion and then pressure these enabling jurisdictions.

They're calling some of those Cyprus, the British Virgin Islands, UAE, and Turkey are prime areas according to the research in terms of evading sanctions. Interesting report. RUSI has been around for quite a while. and well known to a lot of members of the global AML community.

So I thought I'd mention that as well. Again, just issued earlier in May.

Elliot Berman: Treasury this week also amended some regulations. There were actually OFAC regulations, the purpose was to increase support for Cuban people and independent private sector entrepreneurs in Cuba. They're actually amendments to the Cuban Assets Control Regulations.

They're being published this week and they're effective upon publication. They're in a number of different areas. One is access by People in Cuba from US providers of internet based services, including cloud storage services and things like that. A redefining of who is an independent private sector entrepreneur, the size of a company, co ops, sole proprietors. Again, the focus here is to help individuals and small businesses in Cuba.

It's allowing people who meet the definition of independent private sector entrepreneurs in the reg to open a US bank account and access it remotely. Which is interesting because access to US banking services has always been a very strongly controlled part of the Cuban sanctions program. Particularly for those folks who are at institutions that are doing business or have done business in Cuba recommend that you take a look at that.

And then another thing, and this is in an area that you and I have talked about often and that is antiquities. Last week the District Attorney in Manhattan, Alvin Bragg's office announced that 133 antiquities collectively valued at about $14 million were being returned to the people of Pakistan and these pieces were seized under during multiple investigations into trafficking networks targeting Pakistani antiquities and was a joint effort with the DA's office, and their investigative units, but also with HSI. You and I have talked about the the museums, these were private traffickers and good move in the right direction there.

John Byrne: Yeah, just another thing that came across my desk this morning is another sanction by Treasury. This is a cybercrime network that they say was associated with what they called 911S5botnet. So obviously a lot of sanctions get issued on a regular basis, if not daily. Just another one to take a look at when you get a chance a note both from the Treasury, main Treasury as well as from OFAC itself.

Elliot Berman: Okay, and anything you want to talk about that's in the pipeline?

John Byrne: Yeah, so I'm going to be talking to one of the preeminent experts in Australia and Asia, and generally on AML, Aub Chapman in the next week or so. We mentioned last week, I believe, the Attorney General of Australia's second consultation on AML reforms.

And so I'm going to talk to Aub on what the folks on the ground think of that and some of those reforms that the papers are addressing include real estate, professional service providers, which you just talked about, and dealers in precious metals. So we'll, talk to Aub in the next week or so. I know the comments are due, I believe, mid June, so hopefully whatever we get from Aub we'll be able to put out there in case any of our listeners are interested in, filing comments.

So we're doing that, and I would say, related to the Alvin Bragg thing that you just mentioned, I know today we also posted an article that I wrote a bit ago about the need to include art under the Bank Secrecy Act as we have with antiquities, even though the regs are not final yet.

So that's also up on our website and it's been disseminated through LinkedIn.

Elliot Berman: Yes. By the time our listeners hear this, you will have received your honor from Marquette University, but travel safely today and Karen and I are looking to seeing you and Sue and the family tomorrow at the ceremony.

John Byrne: That sounds great. Looking forward to it as well. Take care. See you soon.

Elliot Berman: You too. Travel safe. Bye bye.