Crypto Compliance, Corruption Cases, and Controversial Sanctions

In this episode, John Byrne returns from the Missouri Bankers AML Conference to join Elliot Berman for a wide-ranging discussion on the latest developments in financial crime compliance. Topics include FinCEN’s proposed delay of investment advisor AML rules, the GENIUS Act’s digital asset regulation, and the Bank of Canada’s call for stablecoin oversight. The hosts also explore OFAC’s controversial sanctions decisions, the EU’s 19th sanctions package against Russia, DFS guidance on blockchain analytics, and FATF’s mutual evaluation training. Plus, a look at corruption investigations and Antifa’s domestic terrorism designation.

Crypto Compliance, Corruption Cases, and Controversial Sanctions - Transcript

John Byrne: Elliot, thanks, uh, for Joe McNamara sitting in for me last week. So appreciate you guys uh, continuing our, our weekly review of chaos and challenges. So, good conference in Missouri. It's the last one that I'm, gonna oversee. The Missouri bankers do this AML conference, um, every September. And mainly it's small community banks that participate.

So it was interesting to hear some of the things that concern them or don't concern them, and just one quick little highlight. I did ask whether they cared about increasing the threshold for CTRs from 10,000 to 30 or more, and they said yes. I was sort of surprised. That most of the hands went up, that they felt that would alleviate some of their reporting burden.

We thought that way, you know, a couple decades ago, thought more recently that perhaps since everything is, is so, electronic and technology advanced, that that wouldn't be as much of an issue and you still have to figure out potential structuring. But no, they all felt it would be valuable. So that I had other takeaways, but that was one that I thought was interesting that I had not anticipated.

Elliot Berman: It is interesting 'cause we do think of that as essentially a fully automated process. It certainly is in even medium sized banks, but it's interesting that small community banks still view that as a, uh, a resource drain that they would like relieved. We'll see. The bigger advocates for keeping it at 10,000 is law enforcement.

John Byrne: That's right.

Elliot Berman: It's not clear whether their voice, uh, will actually, uh, carry the day in this, uh, simplification review process that is going on. And that wasn't even something we were gonna talk about. So, what else would you like to talk?

John Byrne: Well, FinCEN has done a number of things in the past week. They have put out for comment. I think as we have alluded to a advanced notice of proposed rulemaking for the GENIUS Act, which is uh, the digital assets bill that, uh, passed fairly quickly. I did tell you right before we began to record that it's a 30 day comment period.

Again, this is an advance notice but several bank associations are both concerned about if no changes are made, that they may lose some deposits, uh, that would generally go to traditional banks. But initially they want an extended comment period to at least 90 days. So that letter went in, I believe today.

The other thing is of interest. I have looked and everybody should go to regulations.gov to look at comment letters, uh, that are posted to this and other things that we care about. 80% in my humble estimation, 80% of the filings thus far, about 120 plus comments were from anonymous people. I just leave that out there. I thought that was interesting. And then you mentioned to me on the before we started recording, FinCEN has, uh, done something regarding the investment advisors as well, right?

Elliot Berman: Yeah. So before we go to that, two things. One, you're correct, it's October 20th, is the current deadline for comments and because it's gonna tie to something we're gonna talk about in a little bit, one of the, issues that, uh, they're seeking comment on is about the interoperability between whatever the final regulations would be. and those of other countries, and we're gonna talk about Canada in that regard in a minute.

FinCEN also put out what is a proposed rule to amend the existing rule, uh, related to investment advisors. You'll recall from our conversations that it is currently scheduled to go into effect on January 1st of 26. And the new proposed rule would postpone the effective date until January 1st, 2028. Everybody can read it for themselves. In, in my opinion, my reading, there's a lot of, uh back and forth in text of the proposed rule and the explanation about, uh, whether or not the cost to the industry in the current rule without changes counterbalances the risk that the delay causes.

You and I have talked about this for a long time. Investment advisors oversee a huge body of, uh, value from a wide variety of players and it seems without more requirements that we are leaving a gigantic potential hole in our anti-money laundering compliance regime. But at the moment this proposal is out there. It's hard for me to envision any comment that will cause FinCEN to not issue the rule in essentially its proposed form as a final rule.

John Byrne: Yeah, agree with that. And I think not to be facetious, it's an understatement about the gaps in AML oversight by not having this, uh, rule something that I preached over 24, 25 years ago.

Elliot Berman: Absolutely.

John Byrne: Anyway couple of other things I thought makes sense to mention. Corruption is still a crime and corruption is still a priority, at least on paper in the US. I wanted to call out, uh, the fact, uh, this has been reported in the media and the trade press that the, um. I don't know exactly what his role is, uh, the White House Border Czar, a gentleman by the name of Tom Homan. They have Homan on video and audio from 2024, accepting $50,000 in cash from an undercover FBI agent with the conversation about if you become a member of the Trump administration that some contracts will be approved. So that was a, obviously a sting operation.

Now, corruption is harder to prove now, since the, uh, McDonall case from a couple of years ago. He was governor of Virginia and let people look that up. He was able to have his conviction for bribery overturned. However, again, this is at least from the reports, a little more clear cut given the fact that it was on video, audio and $50,000 in cash.

But at least at this point, the, Justice Department and the FBI have said that the probe, uh, into Homan has found no credible evidence of any criminal wrongdoing, and they denied that Homan accepted the pavements. Although Holman has not denied that in several public interviews.

And right now, uh, what's happening is some of the Democrats on the Senate and House have sent letters to DOJ and FBI, uh, questioning the decision and asking for an open investigation. So something to clearly take a look at going forward. Again, this is the Border Czar Tom Homan.

Elliot Berman: Another interesting side bar in these articles is the fact that these types of cases have been handled since the Watergate era by a group in the Justice Department called the Public Integrity Section. And as part of the relaxation of our corruption regime and the reduction in the size of various agencies, that section has been reduced in size from about 30 prosecutors at the end of the previous administration to fewer than five today.

It's always been my experience, both in government and in companies that things that are truly a priority get resources. And when you see resources being reduced this precipitously it, it indicates that corruption is, is not as big an issue currently at DOJ.

Just to tie up the bundle on, uh, stablecoins, uh, the Bank of Canada has, uh, issued a statement to the Canadian government, uh, Bank of Canada's, uh, their central bank, indicating that the government should consider creating a set of stablecoin regulations pointing out that, it would be important for them to keep pace with, the rest of the world.

And again, there's that interoperability, question in the, uh, advanced notice of proposed rulemaking on the GENIUS Act. The other thing to remember is that in June, FATF published an update to its guidance on virtual assets, uh, which included stablecoins. And so the update noted that the global nature of transactions and the need for action by all nations.

So Canada's a pretty big player. It's got a pretty good size economy, and so presumably the, uh, Canadian government will step up and start doing it. We know the UK and EU both have in process new virtual asset regimes. So, uh, the big economies are working on it. We'll see how it all plays out over the next number of years.

John Byrne: Sticking with digital assets. A settlement agreement was reached with OFAC and a company called ShapeShift AG. It's a digital asset exchange to incorporate in Switzerland. It operates in Denver. They agreed to pay a $750,000 fine to settle potential civil liability for what they're calling apparent violations of multiple sanctions programs. According to the announcement, ShapeShift engaged in digital asset transactions on an exchange platform with users located in Cuba, Iran, Sudan, and Syria on over 17,000 occasions. And, uh, again, this, um, they also mentioned that their conduct was non egregious and not voluntarily self-disclose. So that's with ShapeShift.

And as we're, um, talking about OFAC, we've talked a long time for the past number of years about the value of sanctions as a national security tool, as something that can change government practices if done the right way. Have to say tremendously disappointed in something that OFAC has, uh, recently done in terms of sanctions that was pushed by secretary Rubio among others. This was a sanction uh, they're calling it in support of a network of the Brazilian Supreme Court Justice. Now, before we jumped on today, uh, past couple of days, I was bemoaning the fact that regular media had not reported this story at all, but the Washington Post did post a piece today.

So it is in, Wednesday's, um, Washington Post under the headline, US impose his sanctions on the wife of the judge who led the Bolsonaro prosecution. I think as we know Bolsonaro lost his election, attempted a coup, uh. Others were going to commit assassinations in his name. This, again, former President Jair Bolsonaro.

He spent some time in the US, I think it was in Florida, from what I remember from media stories. And this administration from day one has said that this was an oppressive campaign against Bolsonaro of censorship, arbitrary detention, and politicized prosecution. Folks, he tried a coup. We're using OFAC sanctions against his wife and a company that he's involved in.

Again, this is a Supreme Court justice who, with other members of the Supreme Court convicted Bolsonaro. He now faces 27 years in prison. Read about all this when you have your chance, but I've never seen in all the years we've been following OFAC sanctions used in this particular scenario and using the Global Magnitsky Human Rights Accountability Act as the premise for using this, which as we know, targets perpetrators of serious human rights abuse around the world.

Elliot Berman: Yeah. The other thing our government has done and did before the trial. While the prosecution process was unfolding is, uh, has levied 50% tariffs on most Brazilian goods.

John Byrne: And we have a surplus with Brazil, so, leave it for others. But yeah, this is more than a bad precedent. And again, corruption is a concept we still teach at least as of today in law schools and graduate schools and other places. This is a different type of example.

Elliot Berman: Agreed. The EU uh, late last week announced its 19th package of sanctions against Russia. It is targeting a number of things, but particularly it's focusing on energy, banks, crypto and battlefield tech. Um. The effort is to, uh, continue to reduce Russia's ability to wage war and by reducing its cash flow from energy sales sanctioning, uh, additional vessels in the shadow fleet, which I'm sure everyone has read about.

Reaching out to, uh, sanction foreign banks connected to Russian alternative payment service systems, which are efforts to avoid the sanctions. For the first time adding measures that will impact crypto platforms and prohibit cryptocurrency transactions.

And then also dealing adding new export restrictions for items and technologies used on the battlefield. Focusing very much on companies involved in producing parts for Russian military drones.

John Byrne: Did you, since we're sticking to the topic, do you wanna mention what the DFS has done in New York?

Elliot Berman: Yes. You and I have talked a number of times about the fact that as we're seeing a retrenching at the bank regulators at the federal level, that some states are stepping forward. And New York DFS is, I think, is fair to say, is the biggest and most sophisticated of the state level bank regulators, in part because there are many foreign branches and other foreign operators that locate in New York and get their license to operate in the US in New York.

And, uh, last week DFS issued guidance on the use of blockchain analytics by traditional financial institutions that are looking to expand their footprint in virtual asset activities. If you are one of those, or you're thinking about being one of those, it's worth it to take a look at the guidance. It's very I think it's pretty common sense, but it is a reminder that you really have to shift the lens through which you assess risk when you move into a new product set. And this is a product set that it wasn't that long ago that everybody you and I would talk to would go, so how does that blockchain thing work?

And now everybody wants to hang a big sign out front saying, come on down, we're doing virtual currency. But I think the guidance is very interesting, but more importantly for me to see the state stepping up.

John Byrne: FATF is working on, uh, training regarding mutual evaluations. That's a constant ongoing thing, and they posted some, uh, descriptions of the training on LinkedIn. So, take a look at that when you get a chance. The last thing I wanted to mention very quickly is, the Trump administration has signed yet another executive order, this one labeling Antifa as a domestic terrorist organization.

The designation does have real world implications. I will simply say this, that when we've heard from law enforcement individuals they always distinguish certain domestic terrorist organizations from others in that Antifa is sort of dispersed. It's not a governance structure. So whether it's an organization or not, we leave to the experts. But labeling this, uh, will have a potential impact on adjacencies. It's definitely important that we stay engaged against domestic terrorist organizations of all kinds. But there is, words and, uh, legalities do have meaning. So we'll, we're gonna have to see how this plays out.

Elliot Berman: For those of you who are listening our September webinar, will have, uh, already occurred. So watch for the recording of that at the end of next week. And our October webinar, which is on AML best practices, will be the 23rd of October 1:00 PM Eastern Time. And John, I know you've got a couple things, uh, in the pipeline. Do you just wanna talk about those real quick?

John Byrne: Sure. Did an interview this is the fourth one I've done with Tom Vartanian bank lawyer and prolific author on a whole series of interesting, uh, issues. And also this week I'm interviewing a couple of, uh, experts on physical security, workplace violence, protecting buildings, an area we don't focus that much on, but I thought it'd be important to get, uh, some take there and then we're still efforting others as we go forward.

Elliot Berman: Alright, John. Well you have a great week and I'll talk to you next week.

John Byrne: Take care.

Elliot Berman: You too. Bye-bye.