This Week in AML

Charged Corruption, FinCEN Speech, the Value of Sanctions, 3rd Party Risk Management, and More

John and Elliot discuss several recent announcements and actions significant to the financial crime prevention community this week. These include the indictment of Congressman Henry Cuellar on money laundering and bribery charges. The US sanctioned the LockBit ransomware group, Remarks by Andrea Gacki at the SIFMA AML conference, a new FinCEN advisory on Iran-backed terrorist organizations, and more.


Charged Corruption, FinCEN Speech, the Value of Sanctions, 3rd Party Risk Management, and More - TRANSCRIPT

Elliot Berman: John, how are you today?

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

Elliot Berman: Good. We're having a beautiful spring day here after a day of rain and fog yesterday.

John Byrne: A lot of stuff going on. We're not going to mention things that are going on in New York. That's good enough media coverage, but there's been a few other things that as they say, foreign and domestic that we want to highlight.

One is late last week after we recorded DOJ charged Congressman Henry Cuellar out of Texas with bribery and acting as a foreign agent. According to the press statement, the indictment was unsealed in the Southern District of Texas, charging him and his wife with bribery; accepting approximately $600,000 from Azerbaijan's state owned oil company and a Mexican bank in exchange for official acts as a member of Congress.

So there's money laundering charges, unlawful foreign influence, bribery charges. He is, of course, denying the charges. There's been some talk from some members that he should resign. He has, according to stories I saw today, refuses to resign. But again, like I said, there's a whole host of financial crime related stuff, wire fraud, money laundering, and then of course the Foreign Agents Registration Act, which includes a five year imprisonment on if you're convicted.

As well as two counts of bribery of a federal official. Wanted just to highlight that was out there. The press release and there's been some obviously media coverage can be found on the DOJ website.

Elliot Berman: Unfortunately, this is not the first member of Congress recently or over many years who has been accused of using their office for something other than helping the American public.

John Byrne: So sticking with DOJ, earlier this week the US charged the Russian national with developing and operating LockBit ransomware. So a lot of stories about that as, as well. There's been sanctions in this space. Again, unsealed charges against the Russian National for that person's alleged role as the creator, developer, and administrator of LockBit Ransomware Group from the beginning of September 2019 through the present. So again website goes into much more detail, but bottom line is they're working Justice with UK enforcement partners on this. There's been over 2,000 victims, more than $100 million in ransomware payments. So more specific information on the website there, but wanted to make sure we mentioned that as well.

Elliot Berman: And separate from the DOJ action and the Treasury action with sanctions, Department of State announced a reward of up to $10 million for information that leads to the identification or location of any of the individuals holding leadership positions in the LockBit group. This is a, full court press by multiple departments in the government going after this group and others when the opportunity presents itself.

John Byrne: What else are you seeing?

Elliot Berman: Director Andrea Gacki from FinCEN spoke this week at the SIFMA, which is the securities industry organization. They have an annual AML conference. She spoke about a broad range of things, but of course started with the Investment Advisors Notice of Proposed Rulemaking, which I give her a lot of credit for because that's not a group that is necessarily populated with people who were excited about the proposal.

There's a couple of paragraphs in her prepared remarks that I thought were interesting because it is a good reminder, of the why. She talked about the fact that currently in the securities area, there's a real patchwork of regulatory coverage. Some advisors implement because they're owned by banks for other reasons. But not everybody is covered. As part of putting together the notice of proposed rulemaking, they did a risk assessment and they looked at the gaps that allow what she calls illicit investors to quote, shop around, close quote, for an advisor that does not need to inquire about their source of wealth.

And so the proposal in her view and in FinCEN's view and I agree with this view, was intended to plug up those gaps. So it'll be interesting. She then talked more broadly about the residential real estate proposal, some things on the Corporate Transparency Act, general AMLA implementation, and a wide variety of other things.

But I think nothing surprising, but speaking to a group that's important, in the same way that she often speaks to, at least at one of the major banking focused AML conferences. Worthwhile to take a look at, just another opportunity to see what FinCEN's thinking.

And while we're on FinCEN, you pointed out something that literally was published about 20 minutes before we started recording.

John Byrne: So that's the advisory on Iran backed terrorist organizations. So that advisory is for financial institutions to look for or give them information on detecting potential illicit transactions that relate to that.

And the advisory says the means by which certain organizations receive support from Iran and several typologies in there. The organizations include Hezbollah, Hamas, the Palestinian Islamic Jihad, the Houthis, or I never do that correctly, and several other Iran aligned militia groups. So there's red flags in there, there's typologies in there, just issued by FinCEN again, it's their advisory on Iran backed terrorist organizations.

Elliot Berman: If you're can't find it any other way, it's FIN 2024 A001. Great.

John Byrne: Just real quick we didn't talk about this before we recorded, but I also wanted to highlight I saw this posted on LinkedIn from the the Basel Institute of Governance, who we've talked to and interviewed in the past. But they have with their partners at Europol published five recommendations for law enforcement to combat the use of cryptoassets in and other for other serious crimes.

So the recommendations are listed there. I think the recommendations are dated because they've issued them a couple years ago, but they reissued them again. And it's on the Basel website. This is designed besides their support for more resources and better training, better collaboration. They're designed to look at five different areas, accelerate innovation for investigative and monitoring tools, boost enforcement capacity and training, reorganize to foster collaboration and prioritization, engage proactively in multi sector collaborations, and consider the whole chain, from prevention to facilitators.

So again, self described broad recommendations, but since we continue to look at crypto and how it challenges the financial institution compliance professional, I thought we'd highlight that. So that's also on the Basel Institute for Governance website posted this week.

Elliot Berman: I don't know this from anything other than going that's interesting, but interesting timing in the context of the EU's activities of bringing more consistency across the member states AML regimes and creating a sector wide FIU, as part of its most recent update to the AML processes in the EU. They may not have been prompted by that, but they certainly intersect with that.

John Byrne: Now you also highlighted there's a Fed order this week for a bank, I believe in Montana, what was in that?

Elliot Berman: Yes a joint written agreement between Montana Division of Banking and Financial Institutions, the Federal Reserve Bank of Minnesota, and a bank, First Citizens Bank of Butte, in Butte, Montana.

And generally speaking, it's a regular "boy things weren't going very well in your AML program." It's an $80 million bank. There's no clear indication of the why, and many of these orders really talk more about the what. There's directives to the Board of Directors and Management in terms of their oversight.

But it covers a broad swath of AML. So it's program compliance, customer due diligence. These are all sections in the agreement and suspicious activity monitoring and reporting. And then there are a series of steps that are not unusual about reports to the Board of Directors on a periodic basis, using adequate resources to make all this stuff happen.

Having worked with much, much larger banks who received similar written agreements, this is a big lift. And for an $80 million bank, this is a very big lift. Because if you think about, the amount of resources they can afford to pour into this it's pretty limited. They will, I'm sure, work on this and they'll be under continued scrutiny because there's periodic reporting to the Fed and to the state. And then they'll be examined again, likely next year, because many of those banks run a one year cycle if they're with the Fed.

Interesting. But it's basic blocking and tackling. And you and I have talked about this, and we've often talked about this with our colleague Chuck Taylor, that while there are occasionally what I'll call exotic orders related to AML, a new product or service, this one reads like just good old basic AML. Stuff you and I have been talking about and working on, either where we worked or with clients for 30 years. So apparently the word hasn't gotten to everywhere.

John Byrne: So a couple other things. The Treasury Department reposted an article in Financial Times this week because there's always been continued debate about the value proposition of sanctions. Are they working?

And the piece in the Financial Times that's on the Treasury website as well, talks about, that the crackdown on banks financing trade and goods for Putin in response to Putin's invasion of Ukraine, has definitely made it more difficult to move money in and out of Russia. The trade volumes with key partners such as Turkey and China have slumped in the first quarter of this year, so clearly there is the value proposition that is being advocated or discussed by Treasury, these, this separate independent analysis includes that it's concludes that it is in fact true.

So while there are still attempts ongoing to get around the restrictions, which need middlemen and that sort of thing, it's harder, according to one of the quotes in the story, harder and harder every month. One month it's dollars, next month it's euros. I'm reading from the quote here. Within six months, you basically won't be able to do anything. And that's from a senior. Russian investor.

Interesting article, Financial Times, obviously solid reporting there. So since we've talked about sanctions in other outlets, the Economist had some pieces on it and some other, obviously we thought it was important to reference that. But again, the headline from Treasury in their press release, Russian finance flows slump after the U. S. targets Putin. Wanted to mention that.

And another thing in terms of the media reports, I have not read the report, so leave that to you folks, but there's been an outside review of the FDIC, the Federal Deposit Insurance Corporation. That we all know, obviously, one of the major regulators, and according to the review, toxic workplace where hundreds of employees complained of a whole host of things that went, according to the report, largely ignored by the agency's management.

So I've seen some other pieces today that suggest there's a, party line buckets here, if you will. The Dems on one side, the R's on the other side. They said that's not exactly true. Some Democratic congressmen have said that the current chair Gruenberg needs to resign. Others have said, that these issues continued other previous chairman.

I don't have any idea one way or the other Elliot, but I think it's important that when something like this happens, there's going to be some fallout that could affect oversight in some fashion. So I'll just leave it at that.

Elliot Berman: Yeah. Last thing that I have is last week after we recorded our episode the Federal Reserve, the FDIC, and the Office of the Comptroller of the Currency issued shared guidance on third party risk management practices for community banks.

And this is something that certainly has continued to evolve. I've been in the business, and so have you, long enough where third party risk management, at least the vendor part of that, was really limited to your top tier, high risk vendors. High risk in terms of to the business, not that they were high risk. Like your core processing vendor, your internet access vendor, people like that.

Now it's much broader, but this is particularly targeted for community banks. And I think it's worth people taking a look at. You can find it on the website from any of those regulators. Worth taking a quick look at.

John, I know that by the time people hear this episode, either our May webinar will be starting in a minute or will be done.

John Byrne: So There may be a chance to still register if you're listening to us, right?

Elliot Berman: Yeah, if you listen really early on Friday morning, that's right. If you want to hear a great session on IRS CI, with the current chief Guy Fico and former chief Don Fort and John, you can quickly run to our website if it's early enough and sign up and listen.

It'll be live streamed 1 o'clock ET. If you've already missed it, it'll show up on our website in about a week and you'll have a chance to do that. And then our June webinar is going to be on compliance in the EU and the UK looking at their compliance regimes broadly. Looking at themes that are similar to in those two areas as well as similar with the Us. And what are some of the differences and that will be live streamed on June 27th, a Thursday at 1 p. m. ET as well. And you can go to our website by the time you hear this and register for that one.

John Byrne: That sounds good. Elliot have yourself a good safe week and we'll talk next week.

Elliot Berman: You too. Bye bye.