This Week in AML

Corruption is a Hot Topic This Week

It has been another busy week. The Center for International Private Enterprise issued a report on the importance of business integrity to the rebuilding efforts in Ukraine. The IRS issued an alert on charity scams. The US Treasury was urged to push the IMF to increase enforcement of its 2018 Governance Framework, and FinCEN issued a statement about the Counter Terrorism Financing Taskforce. John and Elliot discuss these communications and their meaning for the financial crime compliance community.


Corruption is a Hot Topic This Week - TRANSCRIPT

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

John Byrne: Good, Elliot. You and your family had a nice Thanksgiving, and I know folks are starting to wind down for the holidays, but obviously a lot going on in our world.

Elliot Berman: That is for certain. Yes, we did have a good Thanksgiving, and I know that you did too. Want to take just a moment and thank our colleague Joe McNamara for joining us last week when we did our session. Little different format, but now we're back to just you and me. So here we go.

John Byrne: Because it is the holidays, IRS does a lot of good announcements regarding scams and other things fraud related to be aware of, and they issued a notice the other day on international efforts to fight fraud and during something that is called Charity Fraud Awareness Week.

I thought you, I assume you saw that.

Elliot Berman: I did see that and that this week is Charity Fraud Awareness Week. This week includes Giving Tuesday, which is something that's unfolded over the last number of years following Cyber Monday. So go out and spend your dollars, and then the next day go out and make your donations.

IRS has put out other things about the risks of charity related scams. And this is a nice announcement. It also sends people to their their database where you can search tax exempt organizations. So if someone comes and asks for money, there's a place to actually go and see, at least in the US, that that charity is registered and has some legitimacy. Something worth taking a look and being aware of during the holidays, and actually year round. Holidays are certainly a heavy time of donations, again, particularly in the US, but something worthwhile and to pay attention to.

John Byrne: So a couple of other things we want to highlight, and as always, tell you to go into as a deep dive in these issues, if they are relevant to your institution or firm. FinCEN posted an announcement of a FIU task force on counterterrorism financing related to Israel. And so a number of countries are part of that. The four co-chairs are Germany, Israel, the Netherlands, and the US.

In response to the October 7th attacks, the FIU's are reminded of their core mission on preventing the financing of terrorism. And so a few things that they are recommending and working on financial intelligence, expediting and increasing the share of that intelligence and terrorist related matters and there is getting together to work on best practices and lessons learned.

And then relationships between the FIUs, competent public authorities, and importantly, the private sector to address this threat. We've always talked about the importance of private public sector partnering, especially in issues like this. An announcement of work being done, and obviously that work will lead to more I assume guidance and maybe some policy changes. So we thought we would flag that as well.

Elliot Berman: We talk a lot about information sharing and this is another indication that public private partnerships, but also information sharing, topologies, things like that and at the national FIU level, obviously intelligence as well is part of the response to the borderless nature of of terrorist financing. A good one to flag.

Another one is the Congressional Research Service came out with an update - Terrorist Financing, Hamas, and Cryptocurrency Fundraising. Did you see that?

John Byrne: Basically, it's a short three page report updating us, as you just mentioned, on what's going on since October 7th. And some of these things we've already referenced in previous conversations. Treasury has sanctioned additional Hamas operatives. They've issued an alert to FIs to counter the terrorist financing that FinCEN put out. We've talked about that.

And then earlier notice of proposed rulemaking. The transactions involving convertible virtual currency mixing are a primary money learning concern, and so there's a proposal related to that. So a number of other things, but a useful update. I think this is a short enough update that if I'm an AML officer with one of our clients or at a firm. I'm sending this around to those that need to be aware of what's going on.

Elliot Berman: Yes, and certainly it's got a nice overview of the U. S. Regulatory and Sanctions Framework for Countering Terrorist Financing. Again as you've often said, another opportunity to keep people fresh in terms of training. Might not be formalized training, but it's just keeping key issues top of mind.

John Byrne: And as we move to corruption issues a couple of things we wanted to highlight. The financial services committee in the House in the United States has always been very active regarding anti- corruption Policy Issues, AML Issues, Sanctions Issues. And Maxine Waters, who's the ranking member, the previous chair, sent a letter to IMF the International Monetary Fund on corruption issues and that also went to actually the letter, I apologize, the letter is, urging work with the IMF, but it went to Treasury Secretary Janet Yellen. You saw that, I assume

Elliot Berman: I did. And so back in 2018, the IMF adopted what is now known as the 2018 Governance Framework that is focused on recognizing that development loans and other assistance that the IMF participates in can be adversely impacted if there isn't good governance in the countries that it's working in.

Where there's corruption, bribery or other things like that, that are not adequately taken taken into account the development funds end up being squandered and not used for their initial purpose. I think ranking member Waters letter is urging Treasury in its activities with IMF to urge IMF to put some enforcement components into the framework.

Her letter gives an example about a significant $2.9 billion loan to Sri Lanka. And because of I'm quoting here, corruption, cronyism and mismanagement of funds, it played a significant contributing role to the country's current economic woes. And recognizes that IMF noted that, but without having an enforcement mechanism tied to the framework, that the framework is not fully effective.

John Byrne: So we'll be following that and related to corruption, Toni Gillich, who is a forensic expert at GAO, who we've interacted with for many years, posted a report on LinkedIn. So I wanted to give her credit for identifying the report. And the report is issued by an organization CIPE, which is the Center for International Private Enterprise. Interesting group. I admit I didn't know much about the group.

And the report talks about how Ukraine's private sector can strengthen the integrity of reconstruction and combat corruption. So they give you 23 recommendations for enhancing business integrity and oversight. And Toni's point, and it's borne out in the report, is that this is something that while it's relevant directly to Ukraine is also a model potentially for other private sector entities around the globe in terms of improving both their oversight and their anti-corruption activities.

And so just a couple things in the report, and obviously you should take a look at it. The top three recommendations are to support the development and sustainability of business associations. That group says those groups can spend time and money to support business integrity and anti-corruption. Particularly it's been useful in Ukraine with the tens of thousands of their companies. Encourage leading international infrastructure companies to mentor Ukrainian state owned enterprises. That's another recommendation.

But there's some broader ones in there like encouraging foreign companies to engage with Ukraine during reconstruction. This is all going to be so important, and it goes, obviously, some of this goes beyond anti corruption, and it's more, business support or financial support. But I think what's important here is this organization spent some important time and energy saying you need some regulatory changes, some institutional and collective action, because as we know, there has been prior to the war, some concern about Ukraine in terms of corruption.

Everybody believes that Zelensky's done a tremendous job of rooting that out, but that's also a reputation hit that they have to deal with. And another, the last thing I'll mention, another thing they mentioned in the report is that Ukraine can't win their war without continued Western support which depends on the perception that Ukraine is adequately controlling corruption, and it spends financial aid efficiently and effectively. A really interesting report. Thank Toni for highlighting that. Again, relevant to our world in terms of anti corruption. If you get a chance, again, CIPE.org is the website.

Elliot Berman: Several of the things we've talked about today are related to corruption. It's also a theme that you and I have talked about that FATF is paying a lot of attention to. And of course the United States has the Foreign Corrupt Practices Act. And there has been some uptick in enforcement there. We're definitely seeing that corruption, money laundering, and financial crime all seem to be wound up together. Not a surprise. But it's getting more attention and that's I think that's a good thing. But it's also something that our community has to keep on the front burner so that we're sensitive to it and alert to it and sharing topologies and things like that so that we can help combat it.

John Byrne: This is good. So a couple things we posted this week, my recent conversation with the project manager of the the Basel AML Index. Katarina was kind enough to sit down and talk about the aspects of the report that can be valuable training tools, but also where she sees gaps and potential for improvement.

That is available for listening so I wanted to mention that. We have a couple more in the pipeline coming up, and I am trying, I am efforting two more conversations at least before the end of the year, one with an AML expert from Australia who has a career long involvement in this space. I'm hoping to be able to get that put together.

And then we have preliminary approval to sit down with Jim Lee, the IRS CI chief, before the end of the year and talk about issues within the IRS and in general, and Jim has recently received an award for his his career work. But more importantly, he's been a great partner for the private sector. So we're hoping to get that scheduled in the next couple of weeks.

Elliot Berman: We also have one more webinar yet this year. It's on December 19th and it's about where. compliance technology is going. Got a couple of top notch experts in the space, and I think you'll find it to be a worthwhile conversation. You can register at our website, and we're looking forward to that chat.

John Byrne: Sounds good. Elliot, have a great rest of your week. We'll talk again.

Elliot Berman: You too. Be well.