In this episode, John Byrne and Elliot Berman unpack a series of significant developments in banking, compliance, and enforcement.
They begin with the White House’s new executive order on “Guaranteeing Fair Banking for All Americans,” which aims to prevent what some call “debanking.” While positioned as a fairness measure, John and Elliot warn that it could weaken banks’ ability to make independent, risk-based decisions, potentially increasing white-collar crime exposure. They note concerns over the subjective nature of risk scoring and parallels to the 2008–2010 financial crisis.
Next, they spotlight the IRS-CI “CI-FIRST” program, a collaborative effort between financial institutions and the IRS’s Criminal Investigation division to improve information sharing and streamline financial record requests. The recent CI-FIRST Executive Forum in Washington is seen as a model for effective public-private partnerships in combating financial crime.
The discussion then turns to enforcement actions:
They also cover a Senate minority report critical of the administration’s approach to Russian sanctions, arguing it undermines Ukraine’s leverage and lacks consistent enforcement. The FACT Coalition emphasizes the need for tools like the Corporate Transparency Act to bolster sanctions’ effectiveness.
On the policy front, they discuss delays and staffing cuts affecting the State Department’s annual human rights report and the pending trafficking in persons report—both key references for global human rights and anti-trafficking efforts.
Executive Order on Banking Access, Paxos Settlement, and Russian Sanctions Gaps - Transcript
John Byrne: Elliot, I hope you and Karen had a great time in Europe.
Elliot Berman: We did have a great time. We went to Denmark, Sweden and Norway for about 16 days. It's a beautiful part of the world with wonderful people. We went with some friends and joined a 24-person tour—really a great group. We're already looking forward to doing something similar next year now that we've tested it and decided we really like this format.
John Byrne: Well, now that you're back, I would reference a song from 60 years ago titled "Eve of Destruction" that had a funny line: "You may leave here for four days in space, but when you return, it's the same old place." So now that you're back, more chaos ensues. There's been more activity in our space and many others, so we'll do our best to identify some of those developments. For the rest of you, you can Google "Eve of Destruction," written by P.F. Sloan back in 1965.
John Byrne: First, I want to start with the executive order released on August 7th from the White House titled "Guaranteeing Fair Banking for All Americans." This is an attempt to address what some call "de-banking"—I still call it "de-risking" because banks are making risk-based decisions on accounts.
This executive order is consistent with complaints we've heard from several entities that believe they were being unfairly targeted in terms of getting financial access or losing account relationships. I think it's much more complicated than that.
Let me read from the underlying purpose: "Some financial institutions participated in government-directed surveillance programs targeting persons participating in activities and causes commonly associated with conservatism and the political right following the events that occurred at or near the US Capitol on January 6th, 2021."
Just to level-set on that: a number of our clients and other institutions were able to identify criminals from January 6th and looked at financial footprints to report suspicious activity so that law enforcement could be prepared for any follow-up activities during the inauguration. That's hardly government-directed surveillance.
The order includes various definitions and repeats the notion of removing reputation risk from federal banking agency exam oversight, which has been done earlier. There are requirements that must occur within roughly 100 to 120 days of this order.
Here's my concern: the notion that institutions are going to be challenged for the risk-based decisions they make—we may not see the ramifications right away, but I'll bet the farm that we will see them fairly soon. Banking agencies want financial institutions to make risk decisions based on the type of account, activity, and transactional footprint. This executive order is going to impact all of us in terms of an explosion of white-collar crime.
Elliot Berman: One interesting phrase that appears in the purpose statement is the idea that decisions in the past have been made on factors "other than individualized objective risk-based standards." That phrase caught my eye because risk-based standards are rarely truly objective—they always have a subjective component.
Even if organizations use risk scoring models, they're never going to be totally objective because the factors are too complicated. What might be risky behavior by one group of clients may not be risky behavior by others based on the client's expertise in the area and different factors.
I think the goal of using those words as the North Star is flawed. I agree with you 100%—we're going to see banks urged to step away from making truly active risk decisions, and that could set us up for something similar in economic impact to 2008-2010.
John Byrne: To close this out, there's a good piece on LinkedIn by Jason Makula, who puts together the Fintech Business Weekly. He discusses this "debanking" issue and notes that what has happened was an exaggeration of Operation Choke Point. He reminds us that Operation Choke Point was real, but it was hardly the shadowy, coordinated conspiracy many on the right or deep in crypto seem to believe it was. In fact, the relatively small-scale initiative focused on combating merchants' use of financial institutions and third-party payment processors to defraud customers.
John Byrne: Let's switch to something more positive. Our friend Lauren Core with IRS-CI posted a piece on LinkedIn this week about something she's been intimately involved in—she's always been a strong proponent of private-public partnership. This is called "CI First."
This program is between IRS-CI and financial institutions. The piece she posted provides feedback in response to strategic threats. She lists a number of benefits, including enhancing information sharing and optimizing financial record requests—something she talked about extensively when she was in the private sector, including issues like rolling subpoena productions.
There are metrics based on the statistics that IRS-CI puts out annually on BSA data usage. Guy Ficco is still IRS-CI chief and helps spearhead this program, which is an excellent example of private-public partnership.
Elliot Berman: Her posting was prompted in part by IRS-CI hosting its first CI First Executive Forum in Washington, where they had executives from the private sector join with executives from the service to discuss how CI First can enhance the public-private partnership process.
John Byrne: Elliot, you raised an issue about a settlement in New York that you wanted to discuss.
Elliot Berman: The Paxos Trust Company agreed to pay a $26.5 million penalty to the State of New York for failure to conduct sufficient due diligence of its former partner Binance and systemic failures in its anti-money laundering program. Paxos also agreed to invest an additional $22 million to improve its compliance program and remediate deficiencies pursuant to a plan approved by DFS.
Paxos is a limited purpose trust company chartered in New York and authorized to engage in virtual currency business since 2015. Both DFS, some other states, and the Office of the Comptroller of the Currency have these limited purpose trust charters. Paxos is actually in the process of applying for a federal limited purpose trust charter, as are a number of other virtual currency market participants.
We'll see where this leads. Ending up with this kind of settlement with an existing regulator could impact their current application. It's just an indication that when you're in this space, there's still an expectation by regulators that you're going to do what you're responsible for doing in terms of compliance.
John Byrne: You also wanted to mention, since we talked extensively this year about the pausing of FCPA, the declination from the Department of Justice on a case involving Liberty Mutual.
Elliot Berman: Liberty Mutual is going to pay $4.7 million to avoid criminal bribery charges involving an Indian subsidiary. This is the first corporate action since the Justice Department unfroze enforcement of the Foreign Corrupt Practices Act. You'll recall they initially said they weren't going to enforce it, then took a step back and said they would enforce it to a limited extent.
This is an indication that white-collar prosecutors still have some leeway to pursue matters at US-headquartered multinationals, since this was activity in India. This was self-disclosed by Liberty Mutual and verified by prosecutors. The bribe size was about $1.5 million through intermediaries to six state-owned banks in India.
I think it's a good sign that the bribery spigot isn't wide open. I'm disappointed to see that a US-based company is still engaging in this activity, regardless of whether the FCPA is being heavily enforced. I didn't see anything in the reports indicating whether the initiation of the activity was a corporate decision or someone local who decided this was how to get work done.
John Byrne: Since Trump is supposed to meet with Putin in Alaska on Friday when this posts, there's a minority staff report on the Senate side about Russian sanctions regarding Ukraine. This was just released by senators from different committees, including Senator Warren and Senator Shaheen. The title is "Dropping the Baton: How America is Failing to Use Russian Sanctions and Export Controls to Help Achieve a Just Peace in Ukraine."
The executive summary touches on several findings. According to the authors, the administration has undermined Ukraine's leverage by repeatedly signaling a lack of commitment to maintaining effective sanctions. The Trump administration has failed to capitalize on an opening to drive down Russian oil revenue. Across agencies, the administration's decisions have caused concerning strain in staffing to support Russian sanctions and export controls.
Sanctions are an important aspect of the AML/CFT field and as a national security tool. There's always been debate about the efficacy of sanctions, but I think it's important to read everything out there, regardless of who's producing the document.
Elliot Berman: As I read the report, it reminded me that the current administration has been inconsistent in terms of where it stands regarding the Russian-Ukrainian situation, and that's a lot of what's called out in the findings.
John Byrne: The report was posted on LinkedIn by the FACT Coalition, and their initial thought was: "We can't leverage sanctions without the ability to enforce them effectively. We need AML tools like the Corporate Transparency Act to follow the money and protect U.S. national security"—another issue we've certainly talked about in our conversations and webinars.
Elliot Berman: Earlier we spoke about Paxos Trust Company in the virtual asset space. We also saw this week that Do Kwon, co-founder of Terraform Labs, who was indicted in 2023 on nine charges related to the ecosystem collapse resulting in an estimated $40 billion in losses, was in federal court this week.
He changed his plea from not guilty to guilty on two counts: wire fraud and conspiracy to commit fraud. The plea agreement contemplates a $19 million financial penalty and a potential prosecutor recommendation of no more than 12 years incarceration.
Terraform Labs was known for developing the Terra blockchain and its associated cryptocurrencies, Terra USD and Luna. The indictment was filed two years ago, but it's finally coming to fruition.
John Byrne: I want to mention that you highlighted that the State Department issued its 2024 country reports on human rights practices—six months late. There was also a piece in the Washington Post analyzing this report in the August 12th edition with the headline: "Rubio recasts long-held beliefs with cuts to US human rights reports."
According to the author, the State Department's assessment covering 198 countries and territories, besides arriving half a year late, had significant cuts under Secretary of State Rubio. I urge people to read both the report itself—it's always valuable to get these reports with their statistics—and what analysts have suggested about the lack of detail that might have been useful.
We're still waiting for the trafficking in persons report. As I mentioned earlier this week, the fact that they cut that staff from over 20 people to four is going to impact the crafting of that report, which is essential to being proactive in the anti-trafficking space.
Elliot Berman: That report normally has been published by the State Department in June in recent years. We're now in mid-August and haven't seen that report. Staffing is probably an issue in getting that report out, but it's another very valuable report with a global view that many people rely on as a state of what's happening in a key area. We'll see when that comes out and will certainly discuss it.
Elliot Berman: John, what else do you have going on?
John Byrne: Next week we'll post an interview I did with Bob Simpson, who's a mortgage fraud expert. I've also scheduled an interview with a former high-level banking official covering her career and thoughts on issues throughout the past couple of decades regarding AML—what she thinks about issues like the executive order, changes in the Corporate Transparency Act, and other things. That interview will take place on Monday and we'll post it in a week or two.
I'm still trying to connect with a few others. We have our August 28th webinar on "The Growing Fraud Threat." I'm really excited about our two panelists. We're going to cover as much of the waterfront as we can in an hour. Obviously fraud is exploding and will continue to explode even more based on everything we've talked about. We'll give you both practical insight and recommendations on how to improve your systems and policies regarding fraud prevention.
Elliot Berman: Well John, it's good to be back. I appreciate you and Joe doing a great job while I was gone. I'll talk to you next week.
John Byrne: Stay safe. Thanks.
Elliot Berman: You too. Bye bye.