Crypto ATMs, a Senator Convicted, AUSTRAC Report, Timeshare Fraud, New Red Flags, and More

John and Elliot discuss several developments impacting the financial crime community this week. These include an OCCRP article on crypto ATMs, FinCEN’s Alert on red flags related to the financing of Israeli extremist settler violence against Palestinians in the West Bank and a joint notice on timeshare fraud, Senator Robert Menendez's corruption conviction, an AUSTRAC report on the current state of money laundering enforcement in Australia, and other items.

Crypto ATMs, a Senator Convicted, AUSTRAC Report, Timeshare Fraud, New Red Flags, and More - TRANSCRIPT

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

John Byrne: Good morning, Elliot. Doing fine. We're here in Northern Virginia. We've been over 100 degrees past couple days, but it could be worse. We could be in Nevada or Palm Springs, just stay indoors and stay cool.

Elliot Berman: You mean the places where the sidewalks are melting?

John Byrne: Yeah, exactly. That's exactly right.

Quite a bit going on. So to make a quick snapshot of some things. First is Senator Menendez was convicted on all counts in his corruption trial. And this is the second time in six years that he's faced bribery charges. The first time it was a hung jury as I recall.

Sixteen charges against him. This was announced this week. Bribery with officials and also with businessmen in Egypt and Qatar. A whole host of things. I think money laundering was also one of the charges. This case happened pretty quickly. We've seen some other court cases on the criminal side that have been delayed, and delayed.

But this one, the indictment was released last September, and he was convicted this week. Various senators, including the Senate Majority Leader Schumer, has called for him to immediately resign. We'll see how that happens. He technically doesn't have to resign, although the Senate can make that happen. But it just happened this week, so we'll see what else, but again complete conviction on everything and again, the Southern District of New York does, as they continue to do good work, but I think this is an important point to make in terms of bribery and corruption.

Elliot Berman: Yes, agreed. The expectation is that our public officials will be doing the right thing for their constituents if they're elected or if they're in appointed positions, they'll be doing what's right for everybody. And clearly the evidence convinced the jury that was not what was happening in Senator Menendez's case.

John Byrne: And sticking with corruption related cases. The Justice Department announced this week that a former banker who is a dual citizen of the US and Ghana was extradited from the United Kingdom for bribing Ghanaian officials. This individual between December 2014 and March 2017, he was a director in a US global investment banking firm, allegedly conspired with a multi year bribery and money laundering scheme. One of the things spelled out is that he is charged with offering and paying more than $70,000 in bribes to government officials in Ghana, in exchange for them helping ensure that a Turkish energy company would win a bid and operate a power plant.

Besides money laundering, also federal bribery charges and a violation of the Foreign Corrupt Practices Act. And the FBI's Internal Corruption Unit is investigating the case. And DOJ's worked with the Marshal Service, Interpol, and of course the government of the UK. Again, an indictment So obviously it's not a conviction, but extradited to stand trial in the US.

Elliot Berman: Again we're seeing, unfortunately bankers who are not necessarily on the best behavior as well. There's a theme here. I'd like to try to figure out what's causing it, but I don't think I'm smart enough to do that.

John Byrne: And so what are some of the things you're seeing?

Elliot Berman: So FinCEN published a supplemental alert related to red flags regarding financing of Israeli extremist settler violence against Palestinians in the West Bank. As our listeners will recall, they issued an alert originally in February of this year on this topic. Since that original one was published, they have sanctioned a number of individuals related to their acts against Palestinians, in particular against humanitarian convoys and things like that. This alert FIN-2024-Alert 002 lists some red flags to use to identify transactions related to these folks.

And again, as with many of these alerts, we recommend that everybody take a look at them, they're great training tools. We talk a lot about the need for information sharing from government. This is one of the processes that FinCEN uses. And I'd commend it to everybody. There is already a recommended key term to use in SAR field 2, and that's reiterated in this alert. Another thing to check just from your operational processes perspective.

John Byrne: There's a separate notice, FinCEN, OFAC, and the FBI joint notice on timeshare fraud that's connected with Mexican based transnational criminal organizations. That also gives you some direction on how to file SARs in this case, and some of the indicators to look for, the methodologies. A couple would be, after establishing the trust and credibility with timeshare owners, scammers will claim to represent ready buyers, renters, investors and some of the things they have, there are timeshare exit scams that scammers offer to purchase timeshares at or above market rates at behalf of what they call ready buyers.

Timeshare re-rent scams. Offer to re-rent or to rent out victims' timeshares to ready members and investment scams. And that's clearly what it sounds like. The victims are entitled to suppose shares of stock associated with their times share. This joint notice includes how to file sars and what they tell you is the term FIN 2024 NTC 2 should be in the SAR field 2. So that information is also available, was just issued on July 16th.

Elliot Berman: So FinCEN has been busy. And I think it's interesting, as you and I have talked about a lot recently, fraud, is really racing ahead to be the number one financial crime that people are focusing on. We find ourselves talking about it a lot more than we probably did a year ago.

John Byrne: That's right. Good friend of ours someone who's participated in webinars and given us some really good information, Kevin Hall. Kevin, as I think many know, is part of the Organized Crime and Corruption Reporting Project. And he, with several co-authors, have a piece out on their website, How Crypto ATMs in the US became a Favorite Tool for Scammers.

Kevin and his co-authors walk through a series of things that they found regarding the use of crypto ATMs, which also includes a very useful series of charts on how this works. These crypto ATMs, according to the FBI, in 2023 scams carried out via crypto ATMs went over $120 million.

And as the story goes on, those numbers don't capture the national security and money laundering risks that are associated with hard to track transactions. Secret Service has said that transnational criminal networks. that aim to exploit the US financial system, operate out of countries that lack legal agreements with the US. And there's also, in the same story, a United Nations report from 2023 that paints even a broader picture of how these online scams work, from illegal gambling to crypto fraud. And of course, something I know we've mentioned before in the FinCEN trend analysis from back in February, that they had received more than 2,300 reports referencing cryptocurrency in connection with human trafficking and child sexual exploitation.

But a very interesting piece and Kevin Hall and his colleagues have on the OCCRP website. So we urge everybody to take a look at that.

Elliot Berman: It is a very interesting piece. It's Kevin, several of his colleagues from OCCRP, and a reporter from the Miami Herald. A great learning piece. Your comment about the charts that show how all this stuff works really takes something that has a little bit of mystery to it and demystifies it very well.

John Byrne: There's over 30,000 Bitcoin ATMs in the US and that's up from less than 10,000 five years ago. Very interesting piece, and great work as always.

Elliot Berman: Last week we mentioned that in the banking as a service space, there was a lot of confusion since the bankruptcy of a company called Synapse, which was providing services to the fintechs who were using banks to hold deposits, and that out of $300 million in deposits, some $95 million was hard to trace back to individual customers. CNBC this week is reporting that there has been a breakthrough. Evolve Bank and Trust, which was one of the key banks that was holding deposits, and another one, Lineage Bank hired a former Synapse engineer last month to unlock the data that was left behind at Synapse.

And they now believe that they're on track to be able to connect all of the money to all of the depositors so that frozen deposits will be released and everybody will be made whole. So that was a good news component to this story.

And then last week we talked a little bit about the FATF report on gatekeepers with the US, Australia, and China being in the zero category. AUSTRAC, which is Australia's FIU, issued a report that was in the works before the FATF report came out, it had an analysis of challenges in the Australian anti money laundering regime, problems and areas that have to be updated, and gatekeepers were a component of that. Particularly real estate and some other things. If you are doing business in Australia, if you have branches in Australia or you have customers in Australia and you're subject to any of the Australian rules, I recommend that you take a look at that report. You can find the report on the AUSTRAC website and you can find reports about it in the financial press.

John Byrne: All right, so Elliot, coming up next week on the 25th, we have our Relationship Scam, Romance Scam, Fraud webinar. We will have several panelists, including a victim and who's now an active victim's advocate to talk about her take on how to avoid getting caught in this, what she recommends banks can do, what questions frontline staff can ask, plus our good friend and advisory board member, Rick Small, a Truist who has done a lot of this related work, working with customers and training staff.

And so we're going to give you extensive practical advice about a crime that continues to grow. And that'll be next week, one o'clock Eastern time, and you can sign up for it on our website.

Elliot Berman: And just a look into the future in August we're working on a webinar on best practices in identifying and managing high risk customers.

That's a perennial challenge for organizations that are managing customer bases. And we will be having a great panel of experts and really talking about very practical things that folks are finding are effective. And so you'll be able to register for that beginning on the 25th of this month. That one will be on August 22nd, again, at the 1 PM Eastern time slot.

John Byrne: All right. Sounds good. Stay cool, everybody. And Elliot, we will catch up and talk again next week.

Elliot Berman: Stay safe.