This Week in AML

Corruption, a Shutdown, and Bipartisanship, Oh My!

In a busy week, John and Elliot discuss the corruption and bribery indictment of US Senator Robert Menendez, an adverse ruling in the civil case against the Trump Organization, a recent package of bipartisan legislation from the House Financial Services Committee, and the looming shutdown of the US government.


Corruption, a Shutdown, and Bipartisanship, Oh My! - TRANSCRIPT

Elliot Berman: Hi John, how are you today?

John Byrne: I'm good Elliot, how are you doing?

Elliot Berman: I'm good too, thanks. So you and I are getting ready to go to The Assembly in Las Vegas. A bunch of our colleagues will be there as well. We have a booth in the vendor space and as we've mentioned in prior weeks we're looking forward to maybe meeting some of our audience members and interacting with them in person.

John Byrne: I think we should probably say right up front because I'm doing at least one panel, which includes a government representative, that because of the impending shutdown, some of the government panelists may not be able to make it to ACAMS, so I know they're dealing with that ACAMS, so just let us know there is a backup plan. They will provide virtual for folks, so they'll still get the great content, but unfortunately, that's, it's a small ish impact, obviously, from the shutdown. But the shutdown, as we talked about before we jumped on, definitely has the potential of being problematic for law enforcement, military, that sort of thing, right?

Elliot Berman: Yes, service members and law enforcement, among many others too in the government, are required to work during a shutdown, even though they will not be paid. As a note of irony, members of Congress, both the Senate and the House, do get paid because they're pay is actually governed by the Constitution and not by annual funding.

And the other thing is when any shutdown gets resolved, Congress needs to put a specific provision in to make sure that everybody gets their back pay. Otherwise they would not be paid for the period of time they worked during the, man, required to work during the shutdown. So it's got a lot of impacts that people are reading about in the paper and we're not going to go into it beyond this, but it's it does seem frustrating to me personally that one of the basic functions of the Congress continues to pop up as hard to accomplish.

This isn't the first shutdown. There have been a fair number of them over the last 25 years, but if you and I did our work that way, we probably wouldn't be working.

John Byrne: Yeah, we certainly didn't learn about this in civics class. That's an understatement. So a lot of things in the past week we're going to touch on briefly.

One of the clear themes, though, is corruption and bribery. Unfortunately, a mainstay in society, and we have two major examples of that. One is New Jersey Senator Robert Menendez has just been indicted for some bribery and corruption charges and a series of things, which also include potential national security implications because he's also being charged with providing information to Egypt or to benefit them.

Bribes included cash, gold bars, if you can believe that, payments toward a home mortgage, compensation for low or no show jobs, a luxury vehicle, and other things of value. The indictment in part reads that in and about June 2022, federal agents executed search warrants on their homes, the homes of Menendez and his wife, and again, they found those things that I mentioned, and also over $480,000 in cash much of it stuffed in envelopes and hidden in clothing closets and the safe was discovered in their home.

As we go to record today, a number of Senate and House Democrats are calling for Menendez to step down during this indictment, and he as they say, I hate the jargon, has doubled down and said he will not but it continues to become difficult. He's also chair of the Senate Foreign Relations Committee, which at least he's stepped down from that. So that's one item. Obviously we'll follow that closely.

It's clear, corruption and bribery. You wonder about the notion of as we've talked about in the past, domestic politically exposed persons. Those are categories. They're not currently a requirement. The financial institutions look and provide CDD or EDD on those. But I'm wondering if that will potentially change. So anything else on the Menendez things you want to mention? Because I think I want to jump into the Trump thing in a second.

Elliot Berman: As you pointed out both his interactions with the government of Egypt and his position as the chairman of the Foreign Relations Committee give him substantial connection to national security information. And if he misused it in some way, that's extraordinarily serious.

John Byrne: Right. And there has to be consistency in our outrage.

Elliot Berman: Yeah, I think that's right.

John Byrne: So also this week a judge ruled Tuesday that Trump committed fraud for years while building his real estate empire in a civil lawsuit brought by New York Attorney General Letitia James, found that Trump and his company deceived banks, insurers, and others by massively overvaluing his assets and exaggerating its net worth.

So the judge has ordered that some, not all, of his business licenses will be rescinded as punishment. So that would obviously make it difficult. There's also an independent monitor in this case that continues to oversee this. So I think this is just another example of fraud, right?

So there's fraud when there's bribery and corruption, there's fraud when you overvalue your properties, your appraisals, that sort of thing to get loans that might not have deserved if a financial institution actually knew the facts, right?

Elliot Berman: The attestation that most financial statements have on them is that you're, giving true and correct information and that the banks can rely on that for the purpose of evaluating the risks they're taking by making the loan or the pricing of the loan.

The number that I've seen in the press reports of this is that the inflated value was as much as $2.2 billion. So a significant impact. There are some appeal opportunities still available . The civil trial is scheduled to start on Monday, and if the decision, Monday, the 2nd of October, the decision that came down this week holds and isn't overturned by an appeals court, the trial would continue, but principally to determine the size of the penalty, since liability will be, have been determined by the judge's order.

John Byrne: One other thing that's interesting. The judge in this case also fined five of Trump's defense lawyers $7,500 each, which I assume is what's allowed under the statute, for, quote, engaging in repetitive, frivolous, unquote, arguments.

But the judge did deny the Attorney General's request to sanction Trump and the other defendants, but clearly this judge was pretty fed up with what these lawyers continued to make the cases for even after he had ruled on them. So I think that's important. We'll follow that, obviously.

Jumping back to Congress. Last week, the House Financial Services Committee passed, a series of of bills that were amended in a bipartisan way, for the most part, from what we can understand, that will go to the House floor at some point, but the fact that they're both bipartisan and full committee does give them some weight.

So I thought we'd mention a couple of them. One of them was called the Financial Access Improvements Act. Now we've talked about de-risking and access and inclusion for quite a bit. It's an interesting angle on this. So this bill which, Ranking Member Waters supported, would add components to the INSCR report, which is the State Department's international narcotics control strategy report that would include examples of improvements to AML concerns in certain countries.

I think the theory here being that if a country's improvements in AML are included in the report, that could lead a financial institution to think more directly that this particular, client, community, agency, whatever, may not be as high risk as they originally thought because improvements are going on.

So I think, that'll be interesting to see. There's also something that I certainly strongly support. It requires a report from Treasury in consultation with the federal banking agencies to determine how to build more consistent BSA exams across the agencies. We've talked a lot about examiner training, and we know they're trained, but to make some changes that would include the reason for BSA getting information in the hands of law enforcement and not check the box exams. This could be relevant, but down the line, obviously. So that's there.

And one other one I'll mention and see what you want to reference. Something called the Financial Privacy Act of 2023. Bipartisan Jim Himes of Connecticut with French Hill of Arkansas. That requires Treasury to report to Congress on how FinCEN governs access to BSA data. Obviously there's, felonies for disclosing SARS and that sort of thing, but just in general, who gets access? How do they collect it? What are the rights? of individuals? What happens if it's unauthorized access. I'd argue some of this is probably already baked into the regs, but obviously this is Congress saying there needs to be improvements.

Elliot Berman: The package, I believe, included 10 bills. One of which that you didn't mention, but I think was pretty hotly discussed in a hearing that I watched was FinCEN Oversight and Accountability Act of 2023.

And that one I'm just quoting here from the committee's announcement, this bill would enhance the ability of Congress to oversee the Financial Crimes Enforcement Network and its execution of the Bank Secrecy Act without unduly impeding the exercise of its authorities. So I like the concept, but my brain gets a little mushy when I think about the implementation, because oversight by its very nature has the impact of impeding the exercise of authority.

So I'm not quite sure how you thread that needle, but we'll see. I know when this package came out, you sent a message to me saying, Hey, did you see these? And I sent you a message back what do you think the chances are of these passing in the current congressional environment? And I believe your response was...

John Byrne: Zippo.

Elliot Berman: That was the response. So I think it's good that they're looking at it...

John Byrne: Although I should say, when you look at things like this, it's easy to be jaundice as we are, but based on fact, but the fact that it's bipartisan could give it some traction. To be fair, and obviously some of these things, the inclusion provision, I think makes a ton of sense, as does the exam report. There is a chance. It's not directed as much of the content of the bills, my thought. As it is, the way Congress has been so dysfunctional.

Elliot Berman: Oh yeah, on an average day, it feels like Congress couldn't get together and agree that it was, Wednesday or Friday or whatever day it was. The other thing these could do, even if none of them pass in their current form is they could provide a great foundation for, I hate to say this, but AMLA 2, if you will, to move some of these ideas through on a follow on schedule .Cause there's been some good bipartisan work here to identify ideas that need to be talked about and at least there's an effort at creating some language on how to do that.

John Byrne: Besides going to ACAMS next week and hopefully connecting with a lot of folks, there's a webinar coming up tomorrow. I realize people will have heard this and it already have happened, but let's mention it anyway.

Elliot Berman: Yes. So the September one which will have been live streamed by the time you hear this recording is on fraud.

And I think it's going to be a great panel talking about how to run a fraud program and how to think about fraud in a broader way in today's environment. The recording of the live stream will be posted in very early October to our website. So if you watch that in our LinkedIn feed, you'll know when that happens.

The one in October is on sanctions. And John, I think you've got an interesting panel there. And it's more about due diligence and things like that, as opposed to a technical discussion of specific sanction programs.

John Byrne: All right, take care.

Elliot Berman: You too. I will see you on Sunday in Las Vegas.

John Byrne: Sounds good. See you.

Elliot Berman: All right. Bye bye.