This Week in AML
The Eurasia Group, a consultancy focusing on political risk, has published its Top Risks - 2023. John and Elliot look at the purpose of the report and how it can be helpful to the financial crime compliance community in assessing and managing risk. They also discuss some of the specific risks called out in the report.
Eurasia Group’s Top Risks for 2023 TRANSCRIPT
Elliot Berman: Hi John, how are you this week?
John Byrne: Hi, Elliot. Doing fine. Our Marquette Golden Eagles are in the top 25 this week, so that's always nice for the other two people that listen to this, that care about that or the broader group that cares about college basketballs. That's pretty exciting. You were traveling in the past week.
Elliot Berman: Yeah, so I was in Denver for a New Year's Eve wedding and then went on to Los Angeles, got back end of last week. And while, interestingly, while we were in Los Angeles, we had kind of gloomy and a little bit of rainy weather, none of the torrential rains they're having now. And we actually spent a day up in Santa Barbara and it was beautiful, low sixties, sunny for part of the day.
But now some of the streets we walked are, you know, flooded and certainly up in the hills as you go inland a little bit, some real problems. So, a lot of concern. There's a lot of people in the state of California who are being impacted; they've needed rain, but you don't need it, you know, by the train load.
John Byrne: Right. Yeah. It's been, it's been a scary time. And then speaking of events that have impacts, as we're recording this, the FAA has just announced in the past hour or so that planes are back up in the air. But for a couple of hours, airports have been shut down due to technological issues. It's not clear, they've said thus far they didn't, they do not suspect a cyber-attack, but it just definitely shows what happens you know, in terms of air traffic, when there's issues with, computers and, and all the, things that you need to make the, make the air safe, you know.
Elliot Berman: Yeah, a couple weeks ago, it was weather, right? That had a huge impact on US air travel, but now it's technology. So, this week, the Eurasia Group published their top 10 risks for 2023. Did you see that report?
John Byrne: I did. And as we've talked about for quite a while in terms of understanding risk, whether it's AML risk or some other type of risk, in our sector or other sectors. There are a number of organizations, I'm sure, hundreds, that do reports, comprehensive reports on various risks, and this is one. Obviously, there's Brookings, Heritage, Atlantic Council, and others, and it's always important just to get a different perspective and down a particular lane given what the studies, what the report said. But it's important to get a sense of what experts think. And this is just another example. So, we thought we'd spent a couple minutes talking about this particular report,
Elliot Berman: Right, so Eurasia Group, for those who aren't familiar with it, is 25 years old. And their perspective, their unique perspective is what they call politics first. So, they really look, use a politics lens to view the world and to think about risk and provide other services to clients. And, while you might at first blush say, well, politics, is that really, you know, a financial services risk? But I think it already exists because when we talk about high-risk customers, of course one of the three dimensions of that risk is, high-risk geographies and high-risk geographies you know, grow out of political risk. Not all of the risks that they cite in the report need to show up as considerations in every financial services company's risk assessment. But there are some in here that are pretty close to home and reading a report like this broadens the conversation even if the risks themselves don't, you know, end up being enumerated in your risk assessment.
John Byrne: Right. There's, in this report, there are 10; 10 risks, 10 categories. They start with what they call rogue Russia. And the authors believe that humiliated Russia will turn from a global player, which they have been, to the world's most dangerous rogue state. That poses threats to us, but also of course, to Europe. And they, they do mention in description in the report issues like, oligarchs and sanctions, but they believe the response from a united world has been such that Russia has little leverage left over the US or Europe.
And, while it will cut off most remaining gas flows to Europe, and that would increase public support in Europe potentially for negotiations, it won't roll back sanctions and hopefully won't also undermine military support for Ukraine; despite the fact that we cannot sugarcoat that there are members of our own government that are talking about reducing focus on Ukraine and I don't think they're in the majority, so we'll see what happens there.
But so rogue Russia’s impact on us is already being felt, obviously they support terrorism, as we mentioned, the oligarchs, the movement of illicit funds. And so, when they become more and more desperate, the risks increase.
Elliot Berman: Right. Another one of the risks they talk about is weapons of mass disruption. In the preamble to that section, they talk about the fact that starting in 1989 with the falling of the Berlin Wall, that the United States was the worlds, as they say, principal exporter of democracy. They acknowledge it wasn't consistent and not always with positive results, but certainly consistent in the sense of an ongoing effort, and certainly doing it more than any other country.
They point out now that we've become the principal exporter of tools, and I'm quoting here, “that undermine democracy, not intentionally, but nonetheless is a direct consequence of the business models driving growth.” And here they're talking about technology advances. artificial intelligence, and coupling those with, or building them into, social media and how those are eroding trust in social institutions and making it easier for repressive regimes to control their own populations and to issue false messages externally.
John Byrne: Yeah. And they talk about the energy crunch, inflation, of course; there's a category of Iran in a corner, which of course they are. And Iran's always been more than a thorn in the side of many of us. They talk about TikTok. I'm not on TikTok, know what it is, as, how impactful that has been. And I know there's going to be some hearings and things. The stress on water.
There's also a section in here, now we haven't spent a ton of time on this because I imagine there are some that don’t necessarily agree, although I think my humble opinion it's pretty hard. And that's the growing divisions in the US politically, you know, I think because, and they call it divided states of America. You know, let's face it, we’ve got red states and blue states who we got different focuses in terms of legislation. Not all of it impacts the AML community directly, but domestic terrorism sure does. And I think it's going to be interesting.
We've already seen, calls to not defund, but severely reduce the funding for IRS. False narrative that IRS is trying to hire 87,000 agents, which is not true at all. It still is getting said at the top levels of certain political parties; our good friends and colleagues, partners in law enforcement, in IRS simply want to do the right thing and go after tax cheats and others. So, that's one area where it does impact us because if IRS CI doesn't have the support it's supposed to from a resource standpoint, are they going to be looking at the SARs? Are they going to be looking at the information that we provide to them as AML professionals? Just one example, but again, this and all the other issues we mentioned are all risks that we're going to have to navigate through probably not just in 2023, but beyond.
Elliot Berman: Yes. So again we will link to the report when we post this on the website. And as we've said in the past, if you have topics, you'd like to hear us talk about feel free to reach out to John or to me and we'll be happy to consider it. We try to find, you know, a fresh topic every week. Most weeks successful. John, what else do we have in the pipeline?
John Byrne: So, a number of folks that have reached out to us to. Interviews. I'm hoping very shortly to interview a retired OCC enforcement lawyer who's now joined the private sector. He has done a lot of the big enforcement cases and while he can't talk in detail, just getting his sense of what he sees in terms of the landscape going forward. Our partners, going again back to IRS, have reached out to us, they want to do some additional conversations about things they're working on.
I know you've been working closely with Homeland Security. We're going to be doing a three-part series with our partners there. And so, a lot going on with the public sector and there are some authors that have done books with disparate topics such as cyber and antiquities that we are hoping to interview in the next couple of months as well.
Elliot Berman: And our upcoming webinar?
John Byrne: Webinar will be on January 25th. An update on human trafficking issues. It is human trafficking awareness month; I think as everybody's aware. Hopefully. We've done previous programming on this, but we're going to have a couple of experts from Polaris. I know Elliot, you're going to be spearheading that and it's always useful to find out what these organizations are seeing so that we can factor them into typologies and potential case studies.
Elliot Berman: Yes. A very important effort within the compliance community as well as our partners in law enforcement and it is a global issue. So across all parts of the globe. So, John you have a good week, and I will talk with you next week.
John Byrne: Alright, Elliot, stay safe. Take care.
Elliot Berman: You too. Bye bye.