This Week in AML

FATF, AI, and More

It has been a busy week. FATF released the outcomes from its October Plenary, the Biden Administration issued an Executive Order on Artificial Intelligence, and the US Supreme Court heard arguments about asset forfeiture. John and Elliot discuss the possible impact of these actions and what you should watch for going forward.



Elliot Berman: Hi, John. How are you today?

John Byrne: Good, Elliot. Nice to see you and Karen last week in Milwaukee. So we appreciate the opportunity to chat a bit in person. So we're back and a lot has been going on. There's just almost way too much to even cover. So obviously we're just going to hit the highlights.

I just want to say up front I've mentioned at the last conversation what it was going to look like in terms of a Speaker of the House. All I'm going to say is this, the first thing out of the box is an attempt to link needed funding to help Israel, which I certainly support, with a severe reduction in IRS funding, basically to assist tax cheats. There's no other way to describe it. And it's really unfortunate.

By the time this gets posted Friday, we'll see if there's any adjustment or change, but clearly what gets forgotten here, and I just did an interview with Don Fort internally for our staff to talk about the value proposition of BSA data and asked him up front about this.

And he says, what people fail to understand. is that, yes, enforcement will be improved, but technology, which is so necessary to process returns and to respond to the public, that's also key here. And so this notion that that the IRS is, simply an agency that Goes after victims is not only not true, it's but so unfair.

And I've, we worked with the IRS for 30 plus years, as I know you have. It's just so unfortunate. But I just wanted to jump off with that point and we'll continue to watch this of course. But the key here is tax evasion is a real thing, and it's something that the financial sector has been paying attention to, and I would argue will probably have more obligations going forward.

Elliot Berman: So far I would say that the performance of the House, even with a Speaker, hasn't improved much.

John Byrne: Let's start off with a lot happened with FATF last week. FATF had their October plenary a number of outcomes. Go to the website for the detail there, but obviously they talked about the situation in the Middle East.

They also released a couple of reports, and a couple of reports are pending for November release. I'll just mention one that we all should be looking at, and that's a report on crowdfunding for terrorist financing. So that one was released right after the plenary, earlier this week, and they give you a series of how those platforms get created, how for the most part, they're legitimate, but in the cases where they're not, they give you some ideas on risk indicators, so something that we all should be paying attention to, and at some point, I'm sure we'll do a webinar just on all the FATF issues in 2024, but this is why it's a valuable organization, because they produce really decent advisories and alerts and reports.

Elliot Berman: Yes, they also do a great job of trying to drive a consistent approach to anti-money laundering and anti-terrorist financing programs globally. And while there's been increasing cooperation in certain parts of the the world with the EU and the UK, Canada, the United States, and others as well, FATF really does bring it all together in terms of setting the standard.

And as we've discussed in the past at times, a standard that the U. S. regime doesn't quite reach. I think FATF is something that is really worth paying a lot of attention to.

John Byrne: And then just real quick we talked offline about how all this stuff is interconnected, everything we're talking about, but also what FATF does two additional things that they worked on.

One is a report that's due out actually, both are due out shortly. One is combating the abuse of NPOs with terrorist financing, and because that's an issue and the adjacent issue is best practices on combatting the abuse of NPOs in general to deal with de-risking. So both of those reports will be ready in November, and we'll certainly highlight those.

Elliot Berman: Another thing in this busy week is that President Biden issued Executive Order 14110. It's about managing risks in artificial. It's a wide ranging executive order, but it does focus a lot on AI safety and security, protecting privacy while still promoting innovation and competition.

I've been reading what a lot of experts in the field have said. And they've given this executive order credit for being a great start, but more is needed.

Artificial intelligence regulation is the subject of various discussions in the Senate and the House. Because of the focus on trying to remember what their job is, Congress has not necessarily moved as quickly on this as they need to. But hopefully if they decide that doing the nation's business is really their business they'll get back to this.

But I think it's worth people taking a look at. The Executive Order itself, not surprisingly, is long and complicated. The White House also issued a fact sheet, which is a little less dense, and we'll link to that on our website. I urge people to take a look at it. A lot of things going on in there, but clearly an effort to strike a difficult balance in a complicated space.

John Byrne: Connected to that, from a technology standpoint, the FBI posted an alert to beware of scams on peer to peer payment apps. It's on their website, and they give you a series of things to protect you against scammers.

Bottom line is, some of the protections they talk about is only use P2P apps to send money to friends, family, or people you know. Don't fall for any forced urgency. Only call your bank using the number on the back of your card. Don't use the numbers in these scams. Set up alerts to notify you of transactions on your account.

And also, this is an age old thing, be cautious of using bank or P2P apps on public Wi Fi or mobile hotspots. If you are a victim of the payment scam, they remind you that the FBI has their Internet Crime Complaint Center, so you can go there and report that. Wanted to mention that. Just posted earlier this week.

Elliot Berman: In our webinar in September on fraud, there was a discussion about how the prompt action that the FBI has been able to take in many cases when they're aware of fraud. Using that website is more than just reporting.

John Byrne: The other thing is, we've interviewed Stef Cassella, who is, as I've said many times, the expert on asset forfeiture, and we're definitely going to try to get him back again. But he highlighted for many of us that the Supreme Court earlier this week, heard oral argument in the case of Culley vs. Marshall. And the case deals with the due process rights to what they're calling an immediate probable cause hearing when property is seized for civil forfeiture.

Now, it may sound from that description of course, there should be an immediate hearing. But there are side effects to law enforcement's ability to use asset forfeiture. From the stories in the media after the oral argument, it seems that there was, what I would call bipartisan concern, both from what you would consider to be the the liberal wing and the conservative wing of the Supreme Court asking questions regarding the use of that. So something to look for Stef firmly believes it will have a negative impact on the ability of law enforcement to seize assets. So we'll see what happens, but we'll follow that case and obviously let you know how it turns out.

And more importantly, what it may mean for the use of asset forfeiture by our law enforcement partners.

Elliot Berman: Asset forfeiture is, obviously one deterrent. Asset recovery, and I realize they're not the same thing, but was also something that came up during the FATF plenary. So the whole question of, how all of these various things work in terms of deterrence and mitigation are certainly being looked at again, in a connected way globally.

John Byrne: The FDIC last week issued a series of consent orders, and several of them were against small institutions. But what jumped out at me at least in one, in our our ability to navigate what, whether these things apply to different size institutions is certainly up to you to figure that out. But bottom line is in this one particular case, it was a Louisiana bank, I think it was a $248 million asset size bank. And in terms of what they had to improve upon it was mentioned specifically with SARs that there needed to be SARs filed timely, which is obvious, but also that the narratives had to be clear and readable, so obviously there were some issues there, and that there had to be active documentation of decisions not to file SARs.

That last one, which is again, not a rule, but certainly tells you that examiners continue to push on institutions. Not suggesting at all that the institution didn't deserve the consent order. But the bottom line is the focus on the SAR infrastructure is particularly interesting. So I just wanted to highlight that again, just came out late last week.

I think it, these were September consent orders, but the FDIC publishes them all in bulk at the end of each month.

Elliot Berman: It's interesting that issue about being able to, clearly document no file decisions. That is not a new issue. I can recall working with a client back when I was in private practice who was revamping their AML regime and making their SAR process more sophisticated. And we spent a significant amount of time working out what the no SAR decision path would look like and how it would be documented and at the First examination after the new regime was put in it was an area of focus by the regulators.

And that's 15 years ago. So right, it's not this is not new. It's not going away. Maybe someday though there'll actually be a regulation that defines it as opposed to just each regulatory examination team having their own spin on it. But that's more hope than expectation.

John Byrne: So real quick, sorry, it's Citizens Bank and Trust Company of Vivian, Louisiana, is the case, is the consent order.

Elliot Berman: John, I know you wanted to talk about Undersecretary of the Treasury Nelson's comments about humanitarian groups and de-risking.

John Byrne: Undersecretary Nelson put, they put his general comments on a roundtable they had with various humanitarian groups earlier this week, because with the crisis going on in the Middle East there is all sorts of concerns regarding legitimate humanitarian assistance to the people of Gaza.

And Treasury met with a number of groups and re-established the Treasury's de-risking strategy, but also said that in addition to condemning the heinous attacks by Hamas, but he talked about how they raised funds through charities, but in reality, they're fronts for fundraising. So he said we have to identify and designate these sham charities. So sitting down with humanitarian groups and said, we got to figure this out, and we got to make sure that sanctions don't stand in the way of legitimate helpful activities in Gaza to work proactively with the private sector. I think it's important that this was even a readout. That this was something that the Treasury published. Because I would argue that they probably wouldn't have done this in previous administrations, but I think they understand the clear negative impact of when you decide to just put all charities in the same bucket and make them all high risk, all problematic.

And then here's a situation where there's things you have to figure out here. And so the Undersecretary has been pretty open about this, and I think both by talking about charities being problematic, but also talking about the importance of working proactively with the private sector, the NGOs and NPOs in our country and internationally are working really hard to try to figure this out.

Elliot Berman: As we wind up here what do you have in the pipeline?

John Byrne: A couple of interviews that I've scheduled for next week which will touch on some of the terrorist financing issues in the Middle East from a cyber security standpoint, but also dealing with sanctions. We're going to be talking to Dan Tennenbaum from Oliver Wyman.

And Dan is clearly one of the also international. experts on sanctions. I want to get Dan's take, not just on what's happening there, but his view whether he believes that sanctions work and when they don't work, why, when they do work, why? So we want to talk to him about that. November 16th, we'll be doing a webinar, AML Voices on exam related issues.

So it'll be on exam management, exam strategies. Working with the business lines that prepare for exams and what are some of the key issues and topics and themes that regulators are looking for. So really looking forward to that. You're going to get a perspective from large institutions, mid-size, and a FinTech.

So I think you're going to find that extremely valuable.

Elliot Berman: And, you can register for that at our website amlrightsource. com.

John Byrne: All right, Elliot, stay safe. Enjoy the rest of your week and we'll catch up again next week.

Elliot Berman: You too, John. Bye bye.