The AML landscape continues to evolve as political, regulatory, and technological developments reshape compliance expectations around the world. In this episode, John Byrne and Elliot Berman discuss the potential impact of the U.S. midterm elections on financial crime oversight, including possible congressional scrutiny of artificial intelligence, cryptocurrency, and corruption-related issues.
The conversation explores the OCC's newly released framework for evaluating banks' use of AI, emphasizing the regulator's position that AI should not be treated as a separate risk category while still requiring strong governance and risk management practices. They also examine the reported $6.3 billion Binance hack, the ongoing cybersecurity risks facing digital asset platforms, and the broader implications for crypto regulation and oversight.
Additional topics include key outcomes from the latest FATF plenary, updates to the FATF gray list, new anti-corruption guidance from the United Nations Office on Drugs and Crime, and fresh guidance from the Egmont Group on FIU independence and autonomy. The hosts also review developments in Germany's AML supervision framework, concerns surrounding the State Department's latest Trafficking in Persons Report, AML enforcement actions in New Zealand, and an SEC fraud case involving falsified regulatory filings that raised more than $130 million from retail investors.
Election Fallout, AI Oversight, FATF Updates, and the $6.3 Billion Binance Hack - Transcript
Elliot Berman: Hey, John. How are you today?
John Byrne: I am great, Elliot. We've had in the US electorally, the midterms that concluded last evening. We're recording this on a Wednesday, so some things can still be modified. The biggest shift in the House and Senate since 1974, when I was a freshman at Marquette University. So from our perspective, in our world, what is it gonna mean going forward?
Not completely clear, but definitely there will be a focus on some of the oversight on alleged corruption that we've reported on both in and out of the government. So that'll be interesting to watch. I also think there may be some additional visits to artificial intelligence issues, need for guardrails, what's going on in the crypto industry.
So there's gonna be a lot of things, at least hearings and testimony, that sort of thing. Whether there's legislation or not, we'll wait and see who's in charge. We followed politics pretty closely over the decades. This was a massive outpouring and messaging from the American population, again, that I've not seen in decades
Elliot Berman: Yeah, there are several states who elected members of the Senate that hadn't done it in several or more decades. There was a few states who elected governors who hadn't elected Democrats in a number of years. And even though DE&I is something you're not supposed to say, there was a real diversity in the candidates that were elected across the country.
And I think it'll be very interesting to see. And ideally, in addition to oversight, there will be governance, which we haven't seen as much of the last couple of years.
John Byrne: So as we shift to what's new this week, the first thing I noticed when I opened up my laptop this morning in terms of things that touch our space, was a press release and an announcement from the Office of the Comptroller of the Currency.
And as we know, the Comptroller is Jonathan Gould, who is definitely a strong supporter of the administration. Of course, you all are when you're heads of agencies. But he issued what he's calling a framework for its bank examination workforce on banks' use of super intelligence, SI, rather than AI, number one.
Here's what I thought was fascinating, and I'm reading from the press release. So read the framework because it's gonna be updated going forward according to the OCC. It says, "The framework is intended to provide OCC bank examiners with a supervisory framework to evaluate banks' use of," again, they're calling it SI, and "agentic SI in normal course of business activities and banks' associated risks and controls."
Here's the key from my perspective while OCC bank examiners may also use the framework to identify, again, AI specific considerations, I'm not using their phraseology. The issuance clarifies that examiners should not treat AI as a separate and distinct risk category, and banks should not be required to define a separate AI risk appetite.
I find that interesting on so many levels. They do say in the next sentence though, they intend to update the framework regularly to address evolutions in this and in response to stakeholder feedback. So it is gonna be interesting to see if they weigh in terms of wanting any sort of additional direction in terms of risk categorizations of AI.
Obviously this, was crafted before election results, so it was in the hopper, but I find this very interesting, and we're gonna see how this moves the banking committees and the financial services committees in the House and Senate going forward.
Elliot Berman: Whether there's a requirement for a separate risk category for artificial intelligence or not, I'll be very surprised if most of the industry participants don't have something in their risk assessment. Whether it's a separate category or it's blended in with other things, depending on how you organize your risk assessment, it's clear that IT departments are looking at the risks as well as risk departments. I think while this is, "Hey, we're not requiring stuff," I don't know that it's really gonna change the outcome.
Certainly the big banks have already done it, and the smaller banks as they continue to try to figure out what to do with AI and how to allow it and how not to. I read almost every day about another bank that has announced that it's putting AI in as part of its decisioning process to move consumer loans more quickly through the pipeline to give faster response times and things like that. So everybody's using it.
That's an overstatement. Many organizations are using it, and they have done some kind of risk analysis. And again, whether it's a requirement that you have it separated out or not, okay. But the idea that people are gonna go, "Oh, we don't have to worry about it," nah, they're smarter than that.
John Byrne: Yeah, I think that's right. You also wanted to mention the news about the Binance hack from I think it was last week or the week before.
Elliot Berman: There was the announcement of a $6.3 billion hack on Binance. There have been a number of reports from blockchain intelligence firms that link that activity to North Korea. The interesting thing that I think we all should be aware of is in the US, all Binance customers do business through one of the Binance entities called Binance US.
That entity was not hit by the hack. The main Binance was the target. I've seen reports earlier this week that they have been able to claw back about half of the losses. They also suffered significant withdrawal demand, which isn't shocking.
Essentially what you and I would call a run on the bank. Whether or not those investments will come back in, it's too soon to tell. I think the story here is hacking is a serious problem. And no matter how strong you think your defenses are, and I'm sure Binance thought their defenses were very strong, there are people out there whose day job and overnight job is to try to figure out how to break through them.
John Byrne: Yeah, so more to come on this going forward. And again, these types of issues I think will be something that the next Congress will at least have hearings about, would be my educated guess. We talked last week about how while we were recording, the FATF Plenary for October was getting underway.
And this is under the presidency of Giles Thomson. He's the UK individual from the Treasury there who is the president for two years. And so there's a number of outcomes that they announced. One of the things that we thought, at least I thought, so I misread this. I thought there'd be more information about the mutual evaluation of the US.
What it simply says is on the key outcomes, there were mutual evaluation reports of Mexico and the United States. They were approved under the new round of mutual evaluations. If you go into the more detailed discussion, the FATF says that those reports will be published in December, so that's when we will see that.
Other outcomes from the plenary include a report elevating the fight against fraud or scam compounds, making it a global priority, updates to the list of jurisdictions under increased monitoring, and high-risk jurisdictions subject to a call for action. A proposal to introduce tailored assessments for low-capacity countries, enabling what they're calling a more risk-based prioritization of high-impact reforms.
And to read the full outcomes, go to the FATF website. I don't know if there anything about the FATF Plenary you wanna add to that.
Elliot Berman: They did take four countries off the grey list Monaco, Bulgaria Ivory Coast, and the Democratic Republic of Congo. There's still 17 or 18 countries, I think, on the grey list currently. Almost every plenary somebody's coming off. What it means is that all of the issues that they had, they've made significant progress toward resolving. And it's a recognition of forward progress.
John Byrne: The United Nations Office on Drugs and Crime issued a guide to how to measure corruption. The subtitle of the guide is Transforming National Anti-Corruption Priorities into Evidence-Based Action. According to the brief description, since corruption is complex and often hidden, perceptions alone cannot show how widespread it is, therefore, they need better measurements for a more complete picture, and that's in the guide.
Another thing you should take a look at, it was just published about a week ago, and it includes a statistical framework. And they say that the guide should be read and used together with the framework, not a substitute for it. But it does have ways to look at corruption-related statistics, and it was based on lessons learned from various supporting countries that expressed interest in improving their corruption statistics and improving how they're used for public policy.
Elliot Berman: The Egmont Group, which is the international organization of FIUs, came up with new guidance, which you can find on the Egmont Group website. It provides comprehensive interpretation and implementation guidance for the 18 requirements of FIU operational independence and autonomy as those are defined in Appendix B of the Egmont Group Charter.
It indicates that it's designed for multiple audiences. In addition to FIU practitioners, it's also for national authorities who are looking at updating and revising their FIU legislation, and their governance frameworks, also for peer reviewers where that's in play, and for capacity building providers that are supporting FIU development.
So well worth taking a look. As with FATF, Egmont is another international group that puts out very high-quality materials and very thoughtful with lots of inputs from lots of sources.
John Byrne: Our good friend Kevin Hall, who is an investigative reporter for OCCRP, wrote a piece before the elections relevant to what we said on the front end of this conversation. He said, "As US voters go to the polls," obviously that happened yesterday, "the future of efforts to contain corruption at home and abroad will be at stake." So his title of his piece is Defanging Laws and Bringing Home Billions: How Trump Has Rewritten the Corruption Rulebook at Home and Abroad.
So Kevin goes into detail about the number of things that have happened during this administration since January of 2025. We've talked about some, the removal of inspectors general, the pausing or the elimination of the Corporate Transparency Act to cover domestic entities, the pausing of the Foreign Corrupt Practices Act, which Kevin says it's been watered down. Based on both that pause and how it got restarted.
He does interview a number of experts in the place. One is a scholar at Columbia University School of International Affairs who says, "The overall picture signals about whether the US takes bribery seriously and how that signal changes the risk calculus for companies deciding whether to comply."
And then Kevin also goes into issues abroad in terms of US anti-corruption efforts. Good piece again from our friend Kevin Hall. You can read the entire article on the OCCRP website. It was posted back on October 30th.
Elliot Berman: Earlier this year, you and I talked about the fact that the FCA in the UK is going to become the overall regulator as it relates to financial crime, whether you're in the financial space or the non-financial space. Under a draft law in Germany, BaFin, which is their national regulator for financial, is going to coordinate non-financial AML supervision in a similar manner. So this would be the gatekeepers, attorneys, real estate folks, accountants, all of those who are now under a patchwork of regulatory bodies. If this legislation passes, which it's expected to, will all fold in under a unified regulator.
And this is implementing part of the EU's Sixth Anti-Money Laundering Directive. Something to watch. Again, if you're impacted in any way in Germany, pay particular attention. I think that this is likely to continue to be a trend throughout the EU, but certainly in the larger countries.
John Byrne: In a publication that covers politics, The Hill, there was an opinion piece just posted yesterday. And the writer opines that America's report on human trafficking takes a massive step backward. So the article talks about, and we've mentioned this every year that it's been released, which has been since we've been doing this, which started 2000. But since we've been doing these conversations, we've talked about this, and actually done some webinars where we talk in detail about some of the aspects.
But the Trafficking in Persons Report has been released by the Department of Department of State. Since 2010, the report, diagnosed countries' successes and shortcomings and recommended changes to improve things. According to the author, though, the 2026 report, which was issued a bit ago, takes a massive step backward.
Again, I'm reading from the article. Eliminates all of the recommendations and slashes coverage of government shortcomings in combating human trafficking. That was one of the keys there. That's how we did some training with financial institutions. You looked at some of the recommendations, some of the areas of weaknesses, and that became a, pivotal part of anti-trafficking, and certainly in financial institutions.
The 2026 report cut nearly 40% of the content from the previous year's report. It also says the report does not just evaluate foreign governments' efforts to combat trafficking, it's also evaluates the US government's efforts to do so. This year's US section is roughly one-third the length. It no longer contains recommendations. Last year it contained 14.
The last thing I'll mention, the critical findings of non-governmental organizations and survivors are gone. The Jeffrey Epstein case, which galvanized public opinion on child sex trafficking, is omitted entirely, including the virtual unanimous enactment of the Epstein Files Transparency Act that was passed in November of 2025.
So instead, the first accomplishment in the new report cites the US in combating trafficking, quote, "In strengthened immigration enforcement at the border." The author here says numerous organizations, including his organization, which is called Protect All Children from Trafficking, have underscored how mass deportation efforts have put child trafficking survivors at risk.
In any event, the report is available. You can't download the PDF version yet, but you can read it on the State Department website. Elliot, you flagged this for me yesterday. Anything else that I failed to mention that you want to talk about?
Elliot Berman: The report was about three months late. Normally it comes out in June, and this year it came out in October. And clearly there are a minimum of two things at play here. One is the significant reduction in staff at the Department of State that impacted this report. Many of the people who worked on this report in past years aren't there, and they have not been replaced.
The other thing is there's no question that there's been a significant shift in policy, which we've talked about and has been written about extensively in the popular press, and the political press. And you're seeing it right here in a report that historically was viewed as a guidepost in this area internationally.
I haven't seen anything that says people are ignoring it, but I would guess that without the recommendations, without the deep analysis, this report is much less valuable, both to those of us in the US, but those around the world
John Byrne: So that's it from my end, Elliot.
Elliot Berman: I've got a couple quick ones.
One is that the European Commission's Financial Services Department told a meeting I think it was last week, that it has reassessed the financing threat related to works of art and antiquities that it previously assessed in 2022, and it's now been downgraded to moderate, where in the past it was considered to be high.
Another quick one a bank in New Zealand, Cooperative Bank, was fined $1.25 million for AML breaches. That fine is nearly three times the company's net profit after tax, for the six months ending in March of 2026. So you're talking two quarters of net earnings.
We just had the Bank of America fine, which was much larger, and I didn't go look at their income statement to figure out what it would be. But the fine that Bank of America was assessed would be orders of magnitude larger if it was done at this rate. The bank has agreed and is cooperating, and they're working on cleaning up their act.
And lastly, and this one struck me as really scary, the SEC charged this was la- late last week, charged two foreign-operated Colorado-incorporated entities for orchestrating a fraud scheme that used false SEC filings to boost confidence in their investment program and help them raise more than $130 million from tens of thousands of retail investors. Total fraud. They created false Forms ADV, which is the registration form for investment advisors, and Form D, which is the form you file when you're registering an investment with the SEC.
And they shared these with investors as part of their promotional package. Pretty scary. I was struck by the fact it targeted retail investors. The reminder here is for all of the people listening, when you're thinking about investing, it's really important to do due diligence. Ideally to work with professionals who have the staff behind them to do the investigations, to know that you're investing in something real.
John, I know we have a webinar coming in later this month. Do you wanna talk about that?
John Byrne: So we're putting together a panel to talk about FATF in terms of not just the recent plenary, but what does the process mean from a practical standpoint. We certainly thought there was a chance we would have the US report available. That won't be the case, but we will still talk about what are some of the issues to look for when that report is finalized. And there have been some previously issued reports this year, one from Canada and other countries that we pay attention to all countries, but that are pretty detailed and can give our industry, the AML community, some direction on what it is the evaluators are looking for. We'll both give you a broad overview of the FATF process, but also some very practical recommendations on how to read these reports, but also what it may mean for your institution or your client's institution.
Elliot Berman: And that'll stream on November 19th at 1:00 PM, Eastern Time. There's still time to get a seat by registering at our website. John, I will talk to you next week, and I hope you have a good rest of the week as we watch the final election results roll in from a few states that are still counting votes.
John Byrne: Sounds good. Stay safe.
Elliot Berman: You too. Bye-bye