This Week in AML

Beneficial Ownership, Export Controls, Sanctions, and More

It has been a busy week. FinCEN issued an alert and final rule, OFAC issued sanctions against cartel activity on fentanyl, and Canada and the UK adopted new laws on beneficial ownership reporting. John and Elliot discuss these actions and what they mean for the future.


Beneficial Ownership, Export Controls, Sanctions, and More - TRANSCRIPT

Elliot Berman: Hey, John. How are you?

John Byrne: Hey, Elliot. Good. We're approaching the holidays, a couple of weeks, and a lot of activity prior to that in the US and elsewhere. So let's just jump right into it. Wanted to mention first in the legislative side the House of Representatives, the House Financial Services Committee has just postponed a hearing. They haven't rescheduled yet on sanctions issues and terrorist financing. So that'll be obviously relevant to our audience.

And then I believe there'll be one which is not yet scheduled, but sometime next week on the abuse of digital assets to move illicit funds. Definitely in our world, the relevant committee in the House is certainly our next step paying attention to additional issues that not only are relevant, but talking about digital assets, you're trying to figure all of that out. So it'll be something to see. And we'll, and we will certainly pay attention to that.

But also know that FinCEN , been pretty active and done a few things in the past couple of days . The first that I'll mention, then turn it over to you FinCEN and the Bureau of Industry and Security at Commerce issued a joint notice, which seems like administrative, but actually it's pretty valuable, and that's helping filers when they report evasion of US export controls to use key terms in the SAR narrative so that they're more easily reviewable by the users of the SAR database.

This is an issue that has come up before regarding Russia, but this is to deal with other uses of evasion of US exports besides those that occur based on the Russian invasion of Ukraine. So the thing that I would focus on besides the fact that they're telling you how to fill out the SAR, there are some red flag indicators in the joint notice, which are valuable.

There's several of them, I'll just reference a couple very quickly. And these are based on the analysis from Commerce and FinCEN. They believe show potential export control evasion. And transactions involving entities with little or no web presence, such as a website or domain based email account. I thought that was interesting.

Transactions involving customers with phone numbers with country codes that don't match the destination country. The item, the commodity, software, technology, doesn't fit the purchaser's line of business, which would seem to be a pretty easily understood red flag, but you have to obviously pay attention. And then transactions involved a purported civil end user. So basic research indicates the address is a military facility or co-located with military facilities in what they're calling a country of concern.

So a whole host of that, I would argue that's a great training tool for institutions those that have sanctions reporting responsibilities. Just came out and would urge people to take a look at the joint notice.

Elliot Berman: Yes. And it's another reminder of something we've chatted about a few times, and that is, there is a lot of overlay between export controls and sanctions and the export control side is getting more visibility for people who aren't expert in that area.

So this is another opportunity, as you said, for training to remind all of us in the community that there's really, multiple regimes here to control negative activity. The other FinCEN thing that happened this week is they posted, a final rule and it's the Use of FinCEN Identifiers for Reporting Beneficial Ownership Information of Entities.

And the purpose of this final rule is it amends the Beneficial Ownership Information Reporting Requirements Rule, which has had a long and a little bit tortured history. You and I have talked about a lot when we've had other guests and experts participate in conversations about it. But this is a very narrow change.

I'm not going to try to articulate it but I would urge everybody to go take a look at it. I would say the good news in my view is from the big picture perspective is this change is directly the result of FinCEN's response to comments that were received as part of the reporting rule, and the use of identifiers. And identifiers are a unique number issued by FinCEN once it receives beneficial ownership information from an entity or from a required filing individual, but...

John Byrne: Yeah, I'm sorry to interrupt, but the thing that does strike me here is they say in the release that the final rule that they just issued, will be effective January 1st, 2024, to align with the effective date of the reporting rule. A lot of us have been skeptical that they will be up and running to be able to do that then, so that's obviously another indication from FinCEN that's their plan.

Elliot Berman: Yes I'm looking forward to their announcement, which hasn't come out yet, of here's where you can go and see how the interface works. Because I think all these filings are going to be done through some kind of online interface as opposed to send us a postcard or put something in an envelope. And the other thing that struck me about that was, FinCEN came out with this because they're racing for this January 1st, 2024 deadline.

But two other countries that you and I talk about regularly are also been active very recently in the beneficial ownership space. One is Canada, which several weeks ago finished the process of getting approval of what they call Bill C-42. And it authorizes the creation of a publicly searchable federal database of beneficial ownership information and it amends a number of laws in Canada to touch all the spots where companies are created and various types of reporting are required so that it all flows well.

There'll need to be some discussion between the federal government. and the provincial governments about whether they're going to direct feed to this registry, or they're going to create their own registries that would follow the federal model. That'll all get worked out, as they do in Canada, between the the federal government and the provinces. But it's interesting that that's going on in Canada.

And the UK has just adopted the Economic Crime and Corporate Transparency Act, which authorizes the agency in the UK, which is called Companies House, that deals with corporate filings and corporate creation, to do verification of the data they receive as people send in their BOI. And that's interesting because one of the challenges that people have identified in the US regime is that there's no data verification mechanism.

Transparency is critical to stemming the use of shell companies and many other mechanisms that have allowed the bad actors to take advantage of ways to hide their money. And I don't think this issue is going away. And I'm going to go out on a limb and say, what the U. S. is doing is a good start but I have a sense that somewhere down the road it's going to have to get tuned up significantly from what the statutory authorization allows to really meet what is an emerging international standard.

John Byrne: Yeah, I think that's obviously right. In addition unrelated, but an international struggle is that what with illicit fentanyl. Wanna mention a couple things. OFAC through the Treasury Department, sanctioned the Sinaloa cartel in Mexico and 13 members of that cartel, several of them are actually fugitives, and four Sonora, Mexico based entities. And the sanctions were coordinated with the government of Mexico and that is an ongoing effort by the US and others.

In addition, in the release, they say the White House this week is hosting representatives from FinCEN, Mexico's FIU, Canada's FIU what is called the Seventh North American Drug Dialogue. And they're going to review the progress related to working together on illicit finance issues designed to confront those that are associated with the manufactured trafficking of illicit drugs, such as fentanyl. So there's information in there. So I wanted to mention that.

And then the FBI announced out of Florida on their website today, that the federal jury has found an individual who from St. Petersburg, guilty of conspiracy to distribute fentanyl and two counts of other distributions of fentanyl. He faces 60 years imprisonment and he was arrested back in 2020, but this person supplied opioids in Pinellas County way back since 2017. There was a conspiracy charge there as well. So this case was investigated by DEA, the local sheriff's office there, and the FBI, all part of their Organized Crime Drug Enforcement Task Force, OCDETF. We love acronyms. That mission of that group I think we mentioned this before, is to identify, disrupt, dismantle drug trafficking, money laundering organizations.

So the point here is OFAC sanctioning based on the distribution of fentanyl, but also prosecutions are happening. There's obviously task forces working on this. And there's certainly bipartisan concern about what fentanyl has done to our country and elsewhere.

Elliot Berman: So you mentioned that you're doing some other podcasts. I know that you did one earlier today. So why don't you just talk about the pipeline for a moment?

John Byrne: I'm sure everybody that listens to us saw the article in the New York Times, pretty lengthy article about banks exiting certain account relationships. Many of us felt that article was incomplete. To be kind. And Chuck Taylor, who is EVP here at RightSource and a former BSA officer and very actively involved with the mid sized bank coalition spoke to me about some of the concerns about how this is characterized. So we talk about that.

Also, I'm going to be interviewing later today, two separate experts, one on sanctions, former OFAC staff member, who has done quite a bit of work, and actually Dan Tannenbaum, Dan has been frequently on Bloomberg television and CNBC and that, so he's kind enough to give us some time today to talk about some of his thoughts regarding the value proposition of sanctions, which we constantly talk about, but also some recommendations on how to make sure your sanctions programs work.

And then Mark Friedman, who runs a company called Rebel Global Security, and they look at physical and cybersecurity challenges in general, but specifically regarding the attacks by Hamas in Israel and how that's clearly going to spill over to the states and other parts of the world and how corporations can protect themselves and protect their employees. So both of those will, interviews will happen today and we'll get those up in the next couple of weeks.

Elliot Berman: And then lastly, our November webinar is coming up really quickly because of Thanksgiving, so it's going to be Thursday the 16th of November, and John, you've got a great panel of folks talking about managing regulatory examinations. An important element of an effective compliance program. And I'm looking forward to it for those in our audience who want to register and get a link to join us, you can do it at our website, amlrightsource. com.

And as John usually says, but I'll say it this week, please, if you've got topics you want to hear us talk about, send us an email. John and I are happy to take shout outs from the audience and shape some of the conversations based on that.

John Byrne: Yeah, that's great, Elliot, and to all those that follow sports, college basketball has started, and so Elliot and I will be closely watching Marquette and see how we do this year. Maybe you don't have your football teams where you want them to be. It's time to transition to college basketball.

Elliot Berman: That's right. There's always another sport that gives you a chance to be hopeful at the beginning of its season.

John Byrne: Exactly. All right, Elliot, take care of yourself.

Elliot Berman: You too. Have a great week. Bye bye.