Counterfeit US Passport Cards, Money Laundering Through FanDuel Accounts, Less Risk Management, and More

FinCEN issued a Notice about fraud schemes using counterfeit US passport cards this week. The FBI uncovered a complex money laundering strategy using casinos, sportsbooks, and FanDuel accounts. New bi-partisan stablecoin legislation was introduced in the US Senate. John and Elliot discuss these and more happenings and how they impact the financial crime prevention community.

Counterfeit US Passport Cards, Money Laundering Through FanDuel Accounts, Less Risk Management, and More - TRANSCRIPT

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

John Byrne: Good, Elliot. Things going well. I want to make a brief mention that we're recording this middle of the week to tomorrow a strong friend of the AML community, Les Joseph, is retiring after 14 plus years at Wells Fargo and a good couple of decades at the Department of Justice.

So several of us will be honoring Les tomorrow. Again 30 plus years of work with the AML community. And looking forward to that, but just wanted to shout out for Les Joseph. Such an honor to work with him for all these years in various capacities that he's been in and I've been in but I wanted to just make that quick comment up top.

Elliot Berman: Les has also been involved in putting together the AML Partnership Forum and we appreciate his help there too.

John Byrne: Exactly. So a bunch of things this week and, since the U. S. Congress is back in, they're working on some things. One thing I just wanted to briefly mention, legislation was introduced this week on creating a regulatory framework for stablecoins.

So this is a Senate bill, a bipartisan bill, Senators Kirsten Gillibrand from New York she's a Democrat and Cynthia Loomis, Republican from Wyoming. According to the press statement, it's going to do a couple things prevent illicit or unauthorized use of stablecoins by issuers and users. Creates federal and state regulatory regimes for stablecoin issuers that is going to preserve the dual banking system and in terms of consumers, again, the press release says protects consumers by requiring stablecoin issuers to maintain one to one reserves and prohibiting unbacked algorithmic stablecoins.

Again, this is Loomis Gillibrand Payment Stablecoin Act, and you can find this on either of their websites, also senate. gov and key in it they'll give you a section by section analysis and a one page description.

Elliot Berman: The UK has already passed a consumer oriented stablecoin regime and again, we'll have to see what the final text of the law is if it gets all the way through Congress, but these types of pieces of legislation are becoming more prevalent, recognizing that stablecoins can be an effective tool in the financial services space, but they have to be run safely.

John Byrne: One of the points they make is that unregulated offshore stablecoins are a significant source of digital illicit finance. And the UN their office of drugs and crime has estimated that over one year period between 2022 and 2023, offshore stablecoins were used for 17 billion dollars in transactions connected to illicit finance, illicit commodity trades, and other criminal activities. Because it's bipartisan, that's why we thought we'd mention it. Elliot's right we'll have to see if it gets through the system and we will keep you posted on that.

And since we're sticking with federal related issues, the other thing I just wanted to quickly highlight and give credit to moneylaundering. com for putting this out in their daily newsletter, there is a letter from one of the SEC commissioners to FinCEN basically attacking the recently introduced Investment Advisors Advanced Notice of Proposed Rulemaking. And this just comes from one of the commissioners. Just to remind folks that this proposal would subject certain investment advisors to AML obligations by classifying them as financial institutions under the BSA.

And this is also something that we've talked about quite a bit, that way back when the Patriot Act was passed, many of us in the AML community urged Congress and urged the regulators to include everybody, real estate, investment advisor, you name it. And so this is 20 years in coming. This particular commissioner name is Hester Pierce, according to the moneylaundering.com description to one of the five SEC commissioners. She wrote this letter to FinCEN claiming that there's not enough evidence showing that registered investment advisors have been used to launder the proceeds of corruption and other crimes, which many would dispute. Anyway, so I wanted just to highlight that was also something that we saw this week.

Elliot Berman: The proposal, the advance notice would bring in the advisors who advise hedge funds which is the biggest piece of the what I'll call wealth management space that is not covered. So broker-dealers are covered and mutual fund advisors are covered. The big missing piece here is hedge fund advisors, and that is a huge market a huge piece of the investment advisory market. It's a comment letter my view is FinCEN should evaluate it in the same, in the context of all the other comment letters and just decide how they want to react. But I think the fact that they already put out the proposal would indicate that they're not just going to go, Oh, sorry.

John Byrne: And FinCEN also put out some guidance this week that I know you want to highlight.

Elliot Berman: They did. They put out a notice and these notices are often about specific money laundering or fraud schemes, and they tie directly into reporting. So there's usually something about, how to highlight in a SAR that you're identifying this kind of activity.

In this case, the notice is the use of counterfeit US passport cards perpetrate identity theft and fraud schemes at financial institutions. And it's done in conjunction with DSS which is the Department of State's Diplomatic Security Service. And it's interesting, it follows the format of all of the notices that you and I have talked about in the past.

It sets out how are these schemes happening? It provides red flags. And in this case, the interesting part is it has, in addition to the behavioral red flags and the financial transaction red flags, it has technical red flags, so it's a great piece for folks to educate themselves and their frontline staff, because these frauds are happening at branches.

People are coming in with these fraudulent cards, using them as a form of identification, either to open accounts or to access accounts of existing account holders. But it gives you the technical ways to evaluate whether you're seeing a counterfeit card or not. And in the same way that many branches educate there are frontline staffs about how to look at a driver's license or other identity documents these identity documents are not as well known and therefore this is an opportunity to train on them.

There's instructions about how to highlight in a SAR that it is a passport card related SAR to help FinCEN zero in. I'd recommend that people pull it down. It was dated the 15th and for those of you who like to track it this way, it's FIN 2024 NTC1.

But really good for training. Interesting that it's an at the counter scheme. We've seen so many of these various schemes and scams, where the bad folks are trying to get away from having to talk to anybody and here the scheme only works if you're actually at a branch. I would recommend everybody take a look at that.

John Byrne: Two, two quick things on cyber I just wanted to highlight very quickly. One is the FBI has just posted their 2023 internet crime reports and get that on the FBI's website. This particular report describes the Internet Crime Complaint Center, how that's utilized, what are their core functions, but more importantly, their statistics of complaints and losses over the course of the last five years. The various crimes that they reference, tech support, extortion, Thank you, Young. Non payment, non delivery personal data breach and phishing. So take a look at that. That was just posted by the by the FBI this week.

And then another report or index that I had not seen before. The name of the publication is called PLOS capitals, all capitals, 1, and this is a study jointly done by a professor from the University of Oxford and one from the University of South Wales, Canberra, Australia, and it is, according to the description, the world's first cybercrime index that ranks countries by cybercrime threat levels. A very interesting report just released. The rankings, I'll just give you the top 10 as it were. Again, these are those that are cyber threats to those jurisdictions, Russia, Ukraine, China, the US, Nigeria, Romania, North Korea, UK, Brazil, and India.

The authors talk about the five major categories of cybercrime that are assessed are technical products and services like malware coding, botnet access, that sort of thing, attacks and extortion, ransomware, denial of service attacks, data and identity theft, hacking, phishing, account compromises, scams like advanced fee fraud, business email compromise, and then cashing out or money laundering so credit card fraud, money mules, illicit virtual currency platforms.

So this can be found on their website and put in the University of Oxford. It's on their website just released this week.

Elliot Berman: And that is interesting. We'll we'll see if they do an annual. There are several other indices that you and I follow and talk about that are done by organizations in the financial crime prevention space that are annual. We'll be, it'd be curious to see if these. folks have the funding and the staffing to do this on a regular basis.

John Byrne: Now you saw something going to the sports world money laundering through FanDuel. What's that all about?

Elliot Berman: Yeah, so it's pretty convoluted, but the FBI along with the other elements of DOJ have identified and made an arrest in connection with a fellow and actually a group running a money laundering scheme using casinos, sportsbooks, and in particular, FanDuel accounts. Where they would take ill gotten gains drop them into either casinos or into FanDuel accounts or other sportsbooks. And then the betting results were clean and take those out and give them back to their clients who was asking to have the money laundered after taking their fee, of course.

I think the lesson here is given the rapid expansion of legal betting in the United States beyond just casinos in a handful of states as it was for many years, and the fact that online betting has really exploded. Money launderers are following the place where there's rapid rapid money flows and transfers, large transaction amounts, and looking for ways to use those regular transaction processes to their benefit and to society's detriment.

This was reported on a website called Court Watch, and I would recommend people look it up. I'm not going into the they did this and then they did that, but the point is something to pay attention to, particularly if you're providing services to an online betting platform or to casinos, or you have clients where you're seeing a lot of inflows and outflows that don't make any sense. Not saying it's money laundering, because it most of the time isn't, but be aware people are trying to figure out how to use this platform for bad purposes.

John Byrne: Sounds good. Lastly, very quickly, we've talked about this organization before. The International Consortium of Investigative Journalists, they've come out with a new investigative series on what they're calling the Swazi Secrets investigation.

I would just urge you to go to their website and look at it. Swazi Secrets is Cross border investigation. This is based on leaked files from the Eswatini Financial Intelligence Unit. That country was previously known as Swaziland. And so the investigation, according to the authors reveals what they're calling the unexplored role of Eswatini's as a possible conduit in Southern Africa's gold smuggling economy.

And it does talk about their weak AML controls. So that is something that ICIJ has just announced and it's on their website.

Elliot Berman: And I have one more cause this is the bang your hand against your forehead kind of report. It was reported by the Financial Times that Lloyd's Banking Group, and I'm quoting from the story, the online story here, plans to cut jobs in risk management after an internal review found that the function was a, quote, blocker to our strategic transformation, close quote.

This is one of those it might work in the short term, but it just strikes me that down the road, we're going to see some article about Lloyd's having insufficient risk management controls and therefore is under regulatory scrutiny. But they did it with a press release, which I'm very impressed with.

John Byrne: So Elliot, what's happening? I know you're running a webinar coming up next week. You want to talk a bit about that?

Elliot Berman: Yes. Our colleague Chuck Taylor is going to moderate a great panel and they're going to be talking about how to use enforcement actions to understand what's going on, in the compliance and regulatory space, how to use them for training and how to use them to check and improve your compliance program.

That webinar is Thursday, April 25th. It starts at 1 pm ET, the live stream, and you can register at our website amlrightsource.com. And John, anything in the pipeline?

John Byrne: We're efforting a couple of things we're hoping to get some government folks on a program in May. I don't want to announce it until we're sure.

And then we are efforting a couple of other potential podcast interviews coming up. And I would just use this as an opportunity to ask folks, not only subscribe and rate us on the various platforms, but send us your comments and your thoughts about topics, speakers, and themes you'd like to see us cover in our either monthly webinars or in our podcast series.

Elliot Berman: We've gotten some great ideas and suggestions from folks over time, so we always look forward to that. John, you have a great rest of the week, and I will talk to you next week.

John Byrne: Take care, Elliot. Stay safe.

Elliot Berman: You too. Bye bye.