This week on This Week in AML, John Byrne and Elliot Berman unpack a wide-ranging set of developments affecting compliance, sanctions, financial crime prevention, and regulatory oversight. From geopolitical controversies surrounding Russia sanctions and international enforcement efforts to the OCC's latest report on so-called "de-banking," the discussion examines what these developments mean for financial institutions trying to maintain a risk-based approach in an increasingly politicized environment.
The conversation explores the OCC's recommendations on customer access to banking services, concerns about regulatory whipsawing between administrations, and the potential implications for AML officers, boards, and senior management. John and Elliot also review New York's $33 million enforcement action against SEB, highlighting the continued importance of state-level AML enforcement. Additional topics include FinCEN's alert regarding Iranian abuse of religious charity networks and newly identified suspicious activity tied to student aid fraud.
De-Banking, FinCEN Alerts, and the Growing Role of State Enforcement - Transcript
Elliot Berman: Hi, John. How are you today?
John Byrne: I'm good, Elliot, and pulling for your Milwaukee Brewers now that they're in the World Series, which is very exciting. I think most of America was rooting for them against the Dodgers. So that worked out really well. Excited to see them hopefully get the ring they didn't get in '82.
So that'd be really cool.
Elliot Berman: That would be very cool. They start on Friday. They do have home field advantage, so we'll see. They're up against a good Rays team though. I think it'll be an exciting series. Hopefully even though it's two small market teams, people will tune in just to watch good baseball.
John Byrne: I think it's clear the two best records American and National, so that's the way it should work. A lot of nonsense has happened since our last recording. We're going to jump around a bit, and as always, - urge folks to read the original coverage, and of course, hopefully it's in an accurate publication.
The New York Times was reporting today that Russia has released an American that's been in prison in Russia for four years. He had been captured while in Ukraine. They claim that he was fighting on behalf of Ukraine. That's not clear. But the bottom line is, he was released yesterday.
But the point here is that Steve Witkoff, the special envoy with Kushner, called Putin a humanitarian yesterday. Now let's divorce the fact that they released a prisoner, which we all are in favor of. To call someone who started this war with Ukraine and is responsible for so many deaths a humanitarian just boggles the mind. I don't care what your politics are, factually, that is more than problematic.
Then Trump decided to avoid the sanctions that were created when Lindsey Graham passed away, that the Senate passed overwhelmingly, I forget the number, but it was, like, 90 to eight, sanctions against Russia. So he's circumventing those sanctions. He did that, he announced that close of business Friday, which is always a good time to release information. And also he has asked Putin, because of that release of those sanctions, to provide diesel fuel because the diesel fuel costs are so high around the world.
I'm not an economist. I would urge people to look at the reporting that was done at CNBC over the past couple of days. A colleague of ours, that we've worked with, Dan Tannenbaum, who's with Oliver Wyman spoke at length about how, that change is not going to improve the diesel output, and overcoming the sanctions issues.
Many US banks are not simply going to drop everything and start performing transactional activity with Russia. So long-winded way of saying we've done a few things in the past week that unfortunately supports Russia over Ukraine, and I'm not even mentioning Elon Musk's pausing of Starlink, which affected the ability of the Ukrainians to shoot down drones from Russia, and people died because of that.
According to the reporting with The Wall Street Journal Musk had a conversation with the White House, and then he paused that technology. So all this, Elliot, has been going on in the past week. I didn't think I'd live long enough to see us support Russia over a democracy, but that's where we are.
Elliot Berman: I have one comment about the list of things you mentioned. When people talk about humanitarians, I think of people like Mother Teresa. And I think maybe that's a bar too high, but the distance between Putin and Mother Teresa is a pretty wide gap. Where do you want to go from here?
John Byrne: We didn't have a chance last week, 'cause it happened while we were recording we got w- word that the B of A penalty was announced, so we mentioned that. And you should go on LinkedIn and read what others have said regarding the consent order, what are the takeaways and those sorts of things.
But also, the OCC issued a report that dealt with the concept that they've named debanking. This, issued just by the OCC, as you remember, they were investigating a number of financial institutions, to determine whether or not any of these institutions either didn't onboard or exited relationships not based on anything other than political or religious related reasons, reputational reasons, if you will.
That report was issued after we recorded last week. Couple thoughts I have about this, and you can look online, again, for others that have analyzed the report and their take on it. But let me just say this. This report claims to have looked at a substantial number of entries. The numbers actually don't mean much to me.
I will tell you this: I believe, as others have, this is a purely anecdotal report, number one. There aren't any really hard and fast statistics in the report. I find it curious that the conclusion is that banks have to do a risk-based analysis, which I agree with, and that risk-based doesn't have to do with the type of industry that could be risky to a particular institution.
So that's another part of this. Some of the conclusitory comments in there to me, to be honest, are just plain silly. I think the fact that they did not mention humanitarian groups who clearly have been de-risked in the past, and that's an area we've talked at length about, doesn't even come up in this in this report.
The bottom line is I don't know if you're an AML officer today how you're supposed to handle criticism that you need to bank everybody. I'm paraphrasing, but that's what the report says. You need to bank everybody and you can't make a decision based on the type of institution or size that you are. I think that's problematic.
So it's sort of a whipsaw, right? You're looking right, you're looking left, and it's not clear to me what you should be telling your board, your senior managers. What does this report even mean if they call out banks that didn't bank firearms dealers or private ATM owners or pornographic shops, that sort of thing.
Banks had made those decisions and now this report claims that can't be done going forward. Now, the last thing I'll mention, way back when I was with the American Bankers Association, any time there was legislation that was a requirement that banks provide basic checking accounts at a cheaper price for people that didn't always qualify, the banking industry always said, "Whoa, wait a second, we're not a utility. We don't need to bank everybody as long as we're not discriminating."
Not hearing anything from the banks about this report right now, so that's surprising to me. So I'll get off the soapbox to say I wouldn't look at this report and change my policies and procedures. I would still try to make risk decisions and just be able to document those decisions
Elliot Berman: I have another concern about this. This report was at the level of onboarding a potential customer, and saying, "Yes, we'll provide you services," or asking an existing customer to leave for reasons that the report talks about, ones that many bankers and ideally the industry as a whole would talk about in a different way.
But I wonder if the next step is at the individual service level. So for example there are guidelines and certainly risks related to how concentrated your loan portfolio is in one industry, so that you have a lot of your risk in oil and gas, which is on the list of things that happens to be mentioned in the report, but also in the housing industry.
A large part of the problem for many banks in 2008 and 2009 was that not just their mortgage lending, but their commercial lending was to businesses in that industry. And as the industry began to falter, they had an outsized risk in their loan portfolio. Are we heading in the direction where loan concentration issues are going to become subject to this access concept?
I don't know, and the report does not talk about it. But it feels like not only is this not a particularly sophisticated report, I feel like we're sliding over the precipice of a very slippery slope. And a slippery slope that's all about risk. And whether the risk-based approach will actually be walked back. Because of a perspective about the need to provide services to everyone.
John Byrne: I read a think piece on this, and I'll just quote the last sentence because I think it's relevant to where we go back and forth between administrations. The end, this is a quote, "The end result may be the exact whipsawing from administration to administration that the OCC's report warns about, putting banks in the enviable position of having to navigate seemingly ever sharper swings in policies when the party in power changes." So again, regardless of where you sit, I think that's a fair assessment of what this also means besides the fact that banks do not have to bank everybody.
They are not a public utility, but cannot discriminate. So it'll be interesting to see. Anyway, read the report and read some of the opinions about the report to give you a full scope. Because we have a particular view and that may not be shared by everybody. I do think reading the report and making your own decisions about what you're going to tell your board, what you're gonna tell your senior leaders, becomes pretty important.
So anyway, Elliot, I know there were a couple of other items we want to mention. The New York Department of Financial Services, issued a fine and penalty.
Elliot Berman: Yes it was a compromise, I think, or an agreement rather. $33 million penalty with SEB, it's the New York branch,. This actually goes all the way back to the Panama Papers in 2016, where, in the law firm records that were leaked as part of the Panama Papers leaks, there were transactional records related to SEB and its failure to implement strategies to mitigate heightened money laundering risk associated with high-risk customers.
Again, why do we highlight this? Because as we've talked about, as certain types of enforcement at the federal level may be easing or may be inconsistent, states, and particularly New York, because it has so many foreign branches mostly in New York City that are under its oversight, is continuing to move forward, and I think we'll continue to see these kinds of things going forward.
John Byrne: Our friends at the Organized Crime and Corruption Reporting Project and again, you should subscribe to their weekly if you don't already, issued a report on a new investigation. It's entitled How Deloitte Cyprus Helped Abramovich Firms Rewrite Financial History.
According to the investigation, in 2003, a Cyprus company called Amiscan held almost $700 million in luxury assets, including super yachts, private jets, and French estates. Its ultimate owner, Roman Abramovich. A new transparency law that was introduced in Cyprus that year threatened to make those assets public knowledge, so people working for Abramovich wanted to avoid this.
So the firm's financial statements for 2003 were redrafted, and mansions, aircraft, and super yachts vanished from the balance sheets. Again, this is according to the reporting. To justify the changes, an agreement was drawn up to move the assets to the British Virgin Islands, but leaked emails and agreements show how paperwork was backdated to make it look as though the assets had been transferred years before they really did.
And emails, according to OCCRP, show Deloitte Cyprus was aware of the arrangements and then certified the company's account as, quote, "True and fair." Deloitte responded that they act in compliance with applicable laws. So this is part of an extensive report called Cyprus Confidential, and it's an ongoing global investigation done by reporters with the OCCRP.
So again you can read more about it on their website.
Elliot Berman: A couple things from FinCEN. One is they issued an alert to counter Iranian abuse of religious charity networks. You should take a look at that. They have a few red flags. This is FIN-2026 Alert 008. And as with all the alerts, there's some information about how to code a SAR if you're reporting this kind of activity. That's one thing to be aware of.
The other is they made an announcement that they've identified approximately, I'm reading here from the press release, $270 million in suspicious financial activity potentially linked to fraud against federal student aid programs, and they've referred these findings to federal investigators, who I assume are either at the Department of Education or at the Department of Justice or maybe both.
Not a good thing. Not the first time the federal government over the years has identified potential fraud in student loan programs. This is interesting that it's coming from FinCEN, so that would mean they're looking into suspicious transactions reports that are being filed and coming to some conclusion.
I think generally this is a good thing. Ferreting out fraud is good. I think it would be ideal that the federal government continue, as well as the industry continue, to look for ways to reduce fraud. You should be aware of that they also reference a July 2026 alert that they issued about student aid fraud, but that's more of background.
John Byrne: Transparency International Russia in exile, new research from that group shows that networks linked to Russia use cryptocurrency, offshore entities, and cross-border financial channels to bypass restrictions and protect illicit wealth. What a shock, huh? Closing these loopholes, according to TI, would require stronger international cooperation and enforcement across jurisdictions. So the headline is Crypto Is Just One Channel, subtitle How Russia Laundered Corrupt Wealth Past Sanctions. So, of course, some of the other sanctions were obviously paused by the administration on Friday.
It's gonna be fascinating to continue to watch how this is. But TI, another group that does excellent work and they have a lot of free information and resources if you're not already looking at, you should.
Elliot Berman: The president of FATF, Giles Thomson, gave a speech late last week, I believe it was. And he put out the idea of a two-tiered system for suspicious transaction reports that could more effectively help tackle financial crime. At this point, it's something to watch for. He didn't indicate that a proposal was coming out, and as we've mentioned in the last couple of episodes the October plenary is scheduled for October twenty-nine and thirty, so next week.
And among other things, we think that the US mutual evaluation will at least come before the plenary, probably not the full report, but at least the output. We'll see, but it's an interesting idea. I saw some commentators comment that maybe it needs to be three tier, but the idea is to, try to find ways to really point to activity that we want to interdict, things like that. Because you and I will remember when in the US the number of SARs was in somewhere between five and seven hundred thousand a year, and now we're well into the millions. And yes, there's more activity, but the more you file, the more potential noise there is in the system.
So a multi-tiered system may be a way to calm some of the noise. Interesting that he said it out loud, and we'll see where that goes.
John Byrne: Yeah, I agree. The last thing that I have is the folks at ProPublica, another investigative journalist organization produced a story the other day, "The Secret Terms of Trump's Venezuelan Oil Deal."
And again, just reading from the highlights here, it's free so you can read it online, the oil deal was designed to prevent future US presidents and Venezuelan leaders from changing or dismantling the enterprise, number one, so they called that a corporate firewall. Hidden investors, some of Trump's partners, could remain anonymous, hidden behind a parent company based in Barbados.
It could be many years before the company produces enough oil actually to be statistically significant share for the US. And this again was announced by Trump as the biggest oil deal in world history. But ProPublica now has looked at the 18-page strategic partnership agreement, which was signed by Rubio and Hegseth. The document, again according to ProPublica, reveals carefully constructed terms that favor US interests at every turn and cements the power of a small group of people handpicked by the administration to govern and profit from the deal.
The administrations are taking a 35% stake in Betancourt's firm, which is the North American Blue Energy Partners, by acquiring shares in the Barbados registered parent company. The deal document provides little information about the owners and investors behind the parent company who could receive enormous wealth from the arrangements.
So more in the actual story. You can dive into it, but just another clear example of, if not conflicts, outright corruption that, courts and prosecutors will have to take a look at. But the bottom line is fortunately, we have some investigative journalists that are continuing to do the work that we need to see this information out in the sunshine.
Elliot Berman: John, our October webinar live streamed this week and will be posted to our website next week. Our November webinar, which will be on the 19th and the focus of that is FATF evaluations and their impact. We'll certainly talk about whatever information we have about the US, but the discussion will be a little broader than that.
And John, you've got some great speakers lined up. By the time you hear this, you should be able to sign up for that webinar, and we urge you to do that.
John Byrne: I'm traveling to Milwaukee this week. I could argue to go see World Series games, but no, that's not it. I'm happy be going at the same time, so excited about that. And the Marquette Golden Eagles basketball season is starting, so they're playing on Sunday against Michigan State. It's a preseason game. It doesn't count in the standings. But college basketball is upon us as well, good time for sports.
Your Packers are playing well, the Brewers in the World Series, and basketball's starting. When we need to not think about what's going on in the real world, it's always fun to go and spend some time paying attention to sports.
Elliot Berman: John, you travel safely, and maybe you and I will see each other while you're here. Otherwise, I will talk to you next week.
John Byrne: Take care. Stay safe.
Elliot Berman: You too. Bye-bye.