This Week in AML

DOJ on Human Trafficking, The Egmont Group, FinCEN’s 2023 Year in Review, an RFI on AI, and More

This week, the US Department of Justice issued a fact sheet on its Initiative to Combat Transnational Human Smuggling and Trafficking Networks. The Egmont Group published the outcomes from its recent plenary. The FinCEN held an outreach session on implementing the beneficial ownership information reporting requirements in Phoenix. The US Treasury published a request for information on the Uses, Opportunities, and Risks of Artificial Intelligence in the Financial Services Sector, and FinCEN issued its Year in Review from 2023. John and Elliot discuss these items and others and their meaning for the financial crime compliance community.


DOJ on Human Trafficking, The Egmont Group, FinCEN’s 2023 Year in Review, an RFI on AI, and More - TRANSCRIPT

Elliot Berman: Hi, John. How are you this morning?

John Byrne: Good morning, Elliot. I'm fine. I'd be remiss because I know throughout the past couple of years, I do make a lot of reference to my alma mater and yours, Marquette University. If I didn't mention the sad news that the president of Marquette, Dr. Mike Lovell, passed away on Sunday from cancer, only 57 years old.

He'd been the president for 10 years and done a tremendous amount of work, not just for the university, but to connect with the city of Milwaukee in general. So it's a massive loss to the community. Again, somebody who did so many positive things for the school. So just wanted to briefly mention that because, all the times that I talk about basketball and other things, so I just wanted to start off on that note we'll just, just the notion that you can work closely with communities is just so important.

It's important in our community. And obviously, Dr. Lovell did that in the broader sense in the city of Milwaukee, which I know, very well.

Elliot Berman: Yes, he was an important force, not only at Marquette, but also across the community, building bridges and finding ways to bring people together.

There was a long article in this morning's Milwaukee Journal Sentinel edition that talked about his relationship with Dr. Mark Monet, who's the chancellor at University of Wisconsin, Milwaukee, where Dr. Lovell was immediately before becoming the president at Marquette. And it was all about the two of them, both their own relationship with each other, but how each of them knowing that you have to build partnerships and relationships and how they were working together in some cases and obviously individually and others. So a big loss of course, for his family, for the university and for our community.

John Byrne: Just in terms of activity this week, we know coming up is the FATF plenary toward the end of the month, so we'll obviously be tracking that, and we'll talk about that when that's completed but I also just briefly wanted to mention the Egmont Group, I think everybody in the AML community is well aware that the Egmont Group is the international organization of FIUs, and they just completed their 30th plenary, which the FATF president attended.

Go on the Egmont Group website they will give you updates on some of the things they covered. Just quickly some of the topics that were addressed during the plenary based on their press release is how will the future FIU use technology? So obviously everybody's talking about that. They also rely heavily on technology.

And then the various emerging crime types. And that's things that we're aware of, but things that the FIUs are going to be doing some data analysis on, and that's the proceeds of environmental and tax crimes which we see is happening throughout the globe, and we've covered that issue from time to time.

So those were some of the issues that they talked about. Other highlights that they did more on information exchanges they selected the new EG chair from the Polish FIU and some other items as well. Typically the Egmont Group, they do publish guidance and information, but it's, not in the pejorative sense it's a closed group because it's the FIUs of all the jurisdictions. So whenever they issue some public statement, it gives you some insight into what they're reviewing and looking at. So I would just say take a look at the information on their website and some of the guidance they have publicly released.

And this is the Egmont Group and they can be found on egmontgroup.org.

Elliot Berman: And AMLA , the new EU level, FIU has published the job opening for the head of that so for those of our listeners who are living in EU countries, if you're interested in a fascinating and gigantic job, the job posting is open.

John Byrne: There you go. You had mentioned you had seen prepared remarks from Andrea Gacki, the FinCEN director. I think it was in Phoenix, if I'm not mistaken.

Elliot Berman: Yes as we mentioned I think last week, she's been on something of a roadshow with a number of these outreach events related to the registry and the importance of it and she was in Phoenix and they released prepared remarks and you can all go to the FinCEN website and find them, but I wanted to point out that she makes I think what is a really important point that sometimes we all kind of miss. And that is that the reason for the registry and the Corporate Transparency Act is that corporate anonymity gives criminals a head start over law enforcement.

And that's the why. And there has been a huge amount of press coverage, conversation, dialogue, discourse, about the what and the how of the registry. But I think sometimes we forget about the why. And yes, if you're a small business, you got to spend some time. You got to go fill out the the information that goes into the registry.

But it's important to keep it in context with the why. The goal is to stop the bad guys. They use shell companies and other forms of anonymity to do terrible things that affect all of us, including small businesses. And we should always keep that in mind and keep it in balance. With the discomfort or other hassles that we feel about having to fill out a form online.

John Byrne: Yeah, I think that makes sense. Also, the big news item from FinCEN besides the roadshows that they are engaged in, and a lot of it too has to do with dealing with the fentanyl crisis and working with state and local law enforcement officials, is the 2023 Year in Review.

And they issued basically a working series of charts some data analytics in the charts. And there's a lot here. I'll just throw out a couple points here and obviously throw it to you for others that you want to mention. They do, as they've done in the past, talk about the various SAR activities in terms of the volume of reports under those categories.

And not really surprising, but structuring used to be number one. It's still very high, 1.3 million filings on structuring. But the the highest amount, according to FinCEN, is fraud. So broad category of fraud, 1.7 million, and money laundering, 1.6. It's useful to understand that. And then remember under AMLA from a couple of years ago, one of the things that is being discussed, and there's been no movement really yet, is to create potentially a shorter SAR form so that structuring could be filed rather quickly and efficiently. And there would be no need to fill out the narrative in the long form, that sort of thing. So there still is a lot of structuring SARs in the system.

The other thing, that I would mention, mortgage fraud, 36,000 filings, again, only in 2023. And terrorist financing, 1,500. Not a surprise because terrorist financing, obviously a lot harder to both detect and I think it's hard even in the narratives explain that you think that it's terrorist financing, but I thought that was important.

And then as we talked offline, there's a section in here on 314(a) and 314(b), there's a lot of debate going on with that. I might've shared before in one of our conversations that I'm involved with a group that's researching and coming up with a report on how to improve specifically 314(a), but there may be a reference to 314(b), but the information sharing, they list the number of requests under 314(b). 7,790 institutions are registered and then that breaks down into almost 4,500 are banks or credit unions, 1,700 are securities or futures entities, and there's a few others. What struck me is 397 casinos and card clubs are registered under 314(b). And that's a positive. That shows you that that the casino industry is paying attention there. What other things in the review struck you?

Elliot Berman: As we also talked offline, there were still almost 21 million CTRs filed, which is interesting. 4.6 million SARs. So just think about the volume of data that's flowing into the system. I don't expect that we're going to see changes in the requirements, but it'll be interesting to see how both institutions continue to refine their methodology for determining what to file.

And how FinCEN continues to improve its tools on what to do with the data. There's an interesting, I won't read any of it, but there's an interesting section at the beginning that talks about how the other parts of federal law enforcement are using SAR data in their investigations. A lot of information about what IRS:CI has done and HSI, and the FBI as well. And while FinCEN is the gatekeeper, and does things on their own. Remember, everybody knows this, but both federal and other law enforcement agencies have access to this data.

So again, a good infographic interesting stuff. The other one I wanted to point out is the last section before they get to some definitions and stuff is FY23 Regulatory Actions and Other Public Guidance. And they have a number of things. One final rule, remember this is in 2023, two notices of proposed rulemaking, two requests for information, and then they go on with some other things.

But it just struck me that for all the activity that is going on the modest pace of final rules. And we've talked about this repeatedly. But it is just interesting to see a graphic and they started with that.

John Byrne: Give them more resources, more money and more people that might change, right?

Elliot Berman: I absolutely agree.

John Byrne: The other thing I want to mention is on the Department of Justice this week issued a fact sheet. And this is the third anniversary of their initiative, the Joint Task Force Alpha JTFA which is in partnership with Homeland Security to deal with human smuggling and trafficking.

So it's the third year of that. And so the fact sheet talks about since its creation in 2021, there have been 300 plus domestic and international arrests, 240 convictions, multiple indictments, and precedent setting extraditions of foreign leadership targets. So that's part of it all as well, and there's a number of key cases that they highlight in the fact sheet, including the US and Guatemalan law enforcement coordination resulted in the arrest of 19 members of a human smuggling network. And there's a separate case, the first ever extradition from Honduras of prolific human smugglers, and a whole series of other cases in there that talk about the updates. At least 20 separate cases. The announcement on the website does give you a links to those cases.

And as I mentioned, some of the items that they talked about. And there's also been a number of substantial seizures and forfeiture of assets, which is a key component of this. As a quick aside in my graduate class that I teach, I had Steph Casella, who's been part of our conversations, I think I've interviewed him four times, and he talked a lot about the value proposition of asset forfeiture. It's partly to help victims, but it's important aspect of sending a message and punishing.

And so I think the fact that the Justice Department talks about the substantial seizures, cash, real property, vehicles, the firearms and all that sort of thing is just another indication of how law enforcement utilizes asset forfeiture in this space, as well as many other criminal activities.

Elliot Berman: Yes. The other thing that I wanted to mention is Treasury is publishing in the Federal Register this week, a request for information on uses, opportunities and risks of artificial intelligence and the financial services sector. So they're interested in gaining insights into the uses of AI by FIs. And what they're looking for is a number of different areas.

Provision of services, how are institutions looking either now or in the near future at using AI to assist in decisions. So whether that's account opening or issuing credit or insurance or things like that. Risk management, managing all different kinds of risks. And they list you know, a long list of those. In the capital markets, assisting in capital markets activity, including identifying investment opportunities and allocating capital.

Internal operations, in the payroll area, HR, training, et cetera. Customer service, complaint handling, which is always a focus of regulators. Website management, investor relations. Regulatory compliance. So managing regulatory requirements, and marketing. And they go on into quite a bit of depth. It's a 60 day response time from the data publication in the Federal Register.

As we often do with proposals, I urge people to take a look at this, and if you're actively looking at using artificial intelligence tools in these various areas to consider sending in a response. The responses that are received will be publicly available, so all of us can go out and see what everybody's doing.

And I think it's another new set of tools. We've been through new sets of tools many times in our careers, and this is an opportunity to think about how to use them effectively and appropriately.

John Byrne: I agree with that. So what's coming up in terms of webinars? And also, I would highlight one thing very quickly. We posted this week an interview that I did with Aub Chapman from Australia. He talks about the Australian AG's proposed second stage consultation to reform the AML regime in Australia. So if you get a chance the comment period is still open and take a listen to my conversation with Aub if that's an area of the world that you're involved in.

Elliot Berman: And if you're in the UK and the EU, our webinar this month on June 27th is about the AML compliance processes in those regions as well as a little bit of a look to how they differ from the US, but the main focus is what, what happens in the UK and the EU. And then John, I know we're working on another really interesting Webinar for July.

John Byrne: We're going to give folks insight into romance fraud, romance scams. Both from a reporting situation and from a victim's perspective. So we'll give you both practical and operational advice on how to detect, report, and hopefully prevent that crime, which continues to accelerate.

Elliot Berman: John you have a great rest of the week, and I will talk to you next week.

John Byrne: Sounds good, Elliot. Stay safe. Take care.

Elliot Berman: You too. Bye bye.