This week, John and Elliot discuss remarks for the former head of CISA and an open letter from JP Morgan Chase’s CISO about cybersecurity, allegations from the European Public Prosecutor’s Office about corruption in the European Court of Auditors, a GAO report about the need of Inspectors General for beneficial information to detect fraud in federal programs, reports of law enforcement opposition to the rollback of the CTA, and other items impacting the financial crime prevention community.
Cybersecurity, GAO Report, European Court of Auditors, and Law Enforcement Reaction to CTA Rollback - Transcript
Elliot Berman: Hi John. How are you today?
John Byrne: Hey, Elliot. Good, thanks.
Elliot Berman: We've got a lot going on this week and you and I were talking a little basketball before we started, since Marquette's done. We were talking a little NBA, but rather than bore people with that, we probably should jump right in. Where would you like to start?
John Byrne: In the United States they are acknowledging the hundredth day of the current administration. And from our perspective, I just wanted to highlight that the Treasury Department issued a press release. It's actually pretty lengthy. It's a 14 page release on their website about Treasury Department related achievements, for lack of a better term.
And there's a whole section in there on sanctions. For our community that obviously cares about that they're under the category of making America safe again. It has a list of sanctions on Iran. Chinese based hackers that were involved the compromise of sensitive US victim networks that's in there. Pressure on cartels. So bottom line is there is a number of bullet points on activities during this administration.
I would just highlight one very quickly, that's not a sanctions related one. They restate that on March 11th, FinCEN, as we talked about, issued a GTO, a geographic targeting order, along the southwest border of the United States, at least part of the southwest border. And I know that since that has occurred, and we reported on this, there have been some legal challenges and I just saw something and I don't have it up in front of me, I just saw something that said in Texas, a judge has put a hold on the GTOs based on the cases brought by a number of money service businesses.
So definitely there's been some pushback on the GTO, which again is mentioned in the Treasury Department's announcement yesterday of some of the activities in the a hundred days of this administration.
Elliot Berman: Staying in the US the GAO, the US Government Accountability Office issued a report one of many that they do and many that you and I have talked about. This one is focused on fraud in federal programs, and the headline is FinCEN should take steps to improve the ability of inspectors general to determine beneficial ownership of companies. And it goes through a little bit of the history of the CTA and the reporting of beneficial ownership.
They did research and interviewed a number of folks from the office of the inspectors general across a number of federal agencies about whether their efforts to detect fraud against federal programs would be enhanced by having access to beneficial ownership type information. There was certainly an indication that by a majority, that it would either aid the efforts greatly or somewhat so clearly a positive.
Why did they do the study? They did the study because fraud against federal programs is a significant and persistent problem. You and I have talked a lot about the expanding spectrum of fraud against the federal government. And their recommendation is that FinCEN should communicate with the offices of the inspectors general for the purpose of giving them access to the registry. And they note in their recommendation that FinCEN, had no comment on the recommendation.
John Byrne: Yeah, so a couple things. One is this administration has fired a number of IGs, so that should be noted. And secondly, this report we have on pretty good authority was done, or at least close to completion prior to the announcement by the Treasury earlier this year that they were no longer going to enforce the CTA against domestic entities. So I think that's also relevant here because the scope of the GAO report while valuable did not include that.
And then a secondary issue. The FACT Coalition on their LinkedIn page, and I would encourage folks to follow the FACT Coalition, they provide some a written a blog post entitled Law Enforcement Opposes Rollback of the Beneficial Ownership Reporting.
So the piece talks about what I just referenced, the recent exemption of most companies from the CTA and that local and federal investigators are very concerned. They see anonymity in business ownership, basically as a shield for bad actors. And so there's a lot of concern about that. In part because the hope was, and obviously GAO references this, that they meaning law enforcement and others that, care about dealing with beneficial ownership issues. They want a robust national database. 'cause that could be according to the post here, from their conversation with a number of law enforcement indispensable in tracking shell companies that are used for money laundering, fraud schemes, and financing of organized crime.
Again, this is in reference to the announcement by FinCEN earlier this year. And obviously related to at least the impact of the GAO report.
Elliot Berman: Yes. It's interesting that we haven't seen anybody in Congress raise their hand to point out that the non-enforcement announcement is misaligned with the language of the CTA at the statutory level. No one in the majority seems to be upset about the fact that laws that were passed and CTA was reasonably bipartisan, that an agency, Treasury, has just decided we're not gonna enforce. It's an interesting approach. Where do you wanna go from here, John? .
John Byrne: Internationally there's a story that they're calling the European Union Financial watchdog is accused of blocking a criminal probe. This is a story reported earlier this week. Basically a French newspaper has reported that the body that audits how the EU spends its money is being sued by criminal prosecutors who are investigating its former president over fraud claims.
So the office is the European Public Prosecutor's Office or EPPO, which had opened an investigation in 2022 accusing what they call the Court of Auditors of blocking its effort to investigate allegations of the president of that time, Klaus Heiner Lehne, that had picked up over 300,000 euros in what they're claiming perks by claiming to reside in Luxembourg, where the body's based without really living there. And of course he's denied the accusation. So an interesting case or certainly an interesting storyline about what's going on with the European Union.
Elliot Berman: And, corruption as we've been talking about a lot in, these last few months.
John Byrne: It's sticking with corruption, but jumping back to the states, the Palm Beach Post is reporting that Trump is pardoning the Palm Beach Garden individual who had just two weeks ago been sentenced to prison for, tax evasion. Paul Walczak a Palm Beach Garden's Healthcare executive was convicted of tax evasion for siphoning more than $10.9 million in payroll taxes from the paychecks of doctors and nurses.
Prosecutor said he used the money to finance $2 million yacht and other luxury items. The US district judge in April or early April 11th, said that letting this gentleman walk free, quote reinforces the perception of the rich, get away with it and the poor go to prison.
He was sentenced to 18 months in prison and was given 90 days to turn himself in. 12 days later, Trump signed a private Pardon. Just leave that out there.
Elliot Berman: Yeah, it's a little odd, but maybe not.
John Byrne: We we're gonna be posting the webinar that we did last week on cybersecurity, so I thought maybe I'd also mention very briefly a cyber related story. Christopher Krebs, a former government cybersecurity leader from DHS who Trump is targeted for investigation. Spoke for the first time publicly about the the gutting of cyber personnel. So at a conference in San Francisco RSA conference, he criticized the administration for its cuts to cybersecurity employees which we've reported on and we certainly have seen.
He said that, that CISA, where he was, he ran, has strayed from its core mission of defending cybersecurity threats and protecting critical infrastructure. So interesting storyline. He also a added that given a series of recent major hacking campaigns that they've traced to China, Salt Typhoon, Volt Typhoon, Flax Typhoon. The US should be investing more heavily in cybersecurity staffers. So I thought that was interesting. And as I mentioned, our interview with two experts last week for our webinar is now live and posted. So we'd urge folks to take time to view that.
Elliot Berman: On the same topic the Chief Information Security Officer at JP Morgan Chase issued an open letter about the importance of the software industry focusing its priority on secure development practices rather than speed to market. Warning that increased supply chain disruptions are weakening the global economic system.
He also talks about some of the hacks that you just referred to and, a number of other things in that same space. But he wrote the letter and released it on the eve of the RSA conference that you just mentioned. This is not just sour grapes by the former head of CISA but this is, I think a clear message from top experts in the field that cybersecurity is really critical and needs to be supported both at the federal level, but also at the organizational level.
John Byrne: Yeah, and to your point, this is a publicly posted open letter. So this is something that JP Morgan wanted to get out both to the industry and the community. So that's fairly unusual I think. I'm not in the cyberspace, but I think that's interesting that the the head of security for JP would do that. But as you say, right before the conference to the right audience, but also that it was public.
Shifting a little bit to the crypto space. Another group that we follow constantly, the organized crime and corruption reporting project, they posted about a new investigation that they have just announced that reveals how the men behind what's called the Lithuanian Crypto Coin Bankera used a bank in a Pacific tax haven to underwrite personal spending, including villas and high-end properties.
They had promised to use a hundred million euros raised from the sale of the crypto coin to create, quote, a bank for the blockchain era unquote. But in reality, millions of those euros were used to back loans for a real estate portfolio for the co-founders. So interesting storyline or report investigation by the OCCRP, which I would urge folks to take a look at. Also, another group you should be following, not just on LinkedIn, but through their website.
Elliot Berman: Agreed. As we talk about the reorganization of the federal law enforcement infrastructure to focus almost exclusively, or certainly primarily on immigration issues. There was a report in the Washington Post about the fact that the US Postal Inspection Service, which is another police and investigative force broadly within the federal government recently joined a Department of Homeland Security Task Force geared toward finding, retaining and deporting undocumented immigrants.
Generally the Inspection Service is focused on dealing with threats and attacks on postal workers and, mail facilities, keeping illegal items like narcotics and child pornography and things like that out of the mail system. So this is something of a significant change in direction for its resources. And since there are only so many resources every one of these federal law enforcement resources that gets focused on this one problem means that we're not looking at a lot of other problems.
John Byrne: Yes absolutely. Couple things going on legislatively. In in the US. There was a a memorandum report posted by the Permanent Subcommittee on Investigations on the Senate side. This is from the minority staff. The title of it is Estimating the Legal Liability Elon Musk May Avoid Through His Government Takeover, a 44 page report. There's a through line here with the issue of corruption and ethics, and those sorts of things.
Part of the report says as of January of this year, Musk and his companies are subject to at least 65 actual or potential actions by 11 different federal agencies and many other agencies have regulatory responsibilities related to Musk's company, but have no publicly known active matters in January. The subcommittee staff was able to estimate potential financial liabilities for 40 of the 65 actions.
And so I urge folks to take a look at this, as we talk about, and we have talked about for years, with this weekly conversation about the issue of corruption and other related topics. This is a well crafted deep dive into what's going on with Musk and DOGE and particularly the companies that he's part of. So I urge folks to take a look at that. It is on the Permanent Investigation Subcommittee, Minority Staff's website.
Elliot Berman: Over the last number of months, we've talked about a number of things globally in the gambling and gaming space. The Nevada Gaming Control Board reached an agreement with MGM Resorts for MGM to pay an $8.5 million penalty to settle allegations that it failed to prevent illegal bookmakers from using its casinos to launder money.
As we've talked about the various places in the financial system writ large where it's important to be paying attention, gaming we've seen things now in Las Vegas, Australia, we've seen them in England. We're certainly seeing that it's critical for all of these financial services providers in whatever form they are, that have an AML program and suspicious reporting obligation to really be up to snuff and doing the work well.
John Byrne: The only other thing I'd mention is we record this Wednesday of this week. Yesterday House Financial Services held a hearing on what is characterized as regulatory overreach. 15 pieces of legislation are being considered. The testimony of the witnesses is very interesting. Coming from both bank trade groups as well as former Treasury officials.
So I just urge folks to take a look at the testimony when they have time 'cause they do go through both in the analysis of the legislation, but the potential impacts, obviously based on the witness's view of the particular piece of legislation. But at least 15 bills at last count, maybe even more of that, covering everything from digital assets to de-risking, which is the word I will continue to use. And other issues that are relevant to the AML/CFT sanctions and financial services community.
Elliot Berman: John, our next webinar is on sanctions and it will be live streamed on May 22nd at 1:00 PM Eastern Time. And you can register for that at the amlrightsource.com website. And John, I know you've got a couple of different things you're working on if you wanna mention any of those.
John Byrne: So this week we'll be sitting down with representatives of the organization known as the Jewelers Vigilance Committee. It's a group that deals with advocacy and compliance related issues for the jewelers writ large, both in the states and internationally.
So we wanna talk to them about how they handle AML/CFT, sanctions issues. So that'll be Interesting I think to our clients that are tra traditional banks or fintechs, if they have clients in that space, to know what sort of due diligence is done by that community.
And then I'm efforting a conversation probably now won't happen until June, to update all of us on what's happening in the world of art and antiquities as it applies to corruption and oligarchs and financial crime.
Elliot Berman: Well, John you have a great weekend and I will talk to you next week.
John Byrne: Great. Stay safe.
Elliot Berman: You too. Bye-bye.