In this week's episode, Elliot Berman and John Byrne examine several significant developments shaping the anti-money laundering and financial crime landscape. They discuss the anticipated publication of the U.S. FATF mutual evaluation report and FinCEN's action against crypto exchange MEXC Global for allegedly facilitating billions in illicit transactions.
The conversation also explores troubling AML compliance findings among UK accounting firms, Canada's decision to shift AML oversight responsibilities from FINTRAC to the banking regulator, OSFI, and growing international coordination among regulators, including New York's Department of Financial Services and the EU's AML Authority.
Additional topics include the continued global debate over beneficial ownership transparency, FinCEN's efforts to combat industrialized scam centers through information sharing, Block's proposed $964 million AML settlement with the U.S. Department of Justice, a major tax fraud indictment involving $177 million in fraudulent refund claims, and new EU efforts to strengthen sanctions coordination across member states.
FATF Expectations, MEXC Sanctions, Canada's AML Oversight Shift, and Block's $964 Million Settlement - Transcript
Elliot Berman: Hi, John. How are you today?
John Byrne: Good, Elliot. It's been roughly a week since the US elections, and news is being made every day. I just saw that the White House sent a letter to congressional Democrats and said, "If you investigate us, we will investigate you." Clearly we're not moving to a, sadly, a more bipartisan Congress.
Hopefully we will, but those kinds of messages don't seem to reflect that, so we will see. Clearly there's going to be a lot of investigations. There's gonna be corruption investigations. We've talked about the crypto industry. It's gonna be fascinating. It's gonna be a shift, and we'll have a lot to talk about in 2027.
Elliot Berman: Yes, we will have a lot to talk about in 2027. Where would you like to start today in 2026?
John Byrne: We are doing a webinar next week that will touch on the FATF evaluation process. What it means from a practical standpoint for banks. And we expected at the October plenary that the FATF mutual evaluation of the US would be published, and it's not been published. They did get it approved by the plenary along with a review of Mexico. That report is due now in December. Interestingly, the Treasury Department posted a press release, and I'll just read the headline. "FATF recognizes effectiveness of the US AML CFT system and advances key illicit finance initiatives."
Now remember, there's no final report that anybody has seen. If you read this press release, there is nothing in the press release that says that they were congratulated on their effectiveness. In fact, the only reference to the US and Mexico was the following: "FATF adopted the mutual evaluation reports of the US and Mexico, reiterated the call to impose counter-terrorism on Iran, agreed to publish a new report on scam centers, and agreed to accelerate global implementation of digital asset-related standards."
So not quite clear why this was posted other than normally after every plenary, the US will publish the key takeaways. But the headline does belie what's in the plenary outputs so far. Again, we will know this in a couple of weeks, and as I said, we'll be doing a webinar that will touch on what all of this could mean.
I'll stick with the Treasury on another announcement. FinCEN issued an order, again, reading from the press release, effectively cutting off MEXC, M-E-X-C, Global access to the US financial system. That's a global convertible virtual currency exchange that, according to this, has facilitated at least $16 billion in illicit transactions connected to Iran, North Korea, and Russian sanctions evasion, as well as cybercrime.
One of the subtitles of the rest of the release talks about MEXC Global as a hub for sanctioned actors. Anyway, when you get a chance, read through it. Obviously an important order and finding by FinCEN.
Elliot Berman: Going overseas, we saw something interesting. There was a report from the Institute of Chartered Accountants of Scotland (ICAS) related to the AML controls in place at chartered accountancies in the UK. As we talked about several weeks ago, FCA in the UK is going to take over the oversight of many of these non-financial institution players who have an AML compliance regulation.
So right now it's ICAS, but it's gonna move. The report was pretty dismal. And there's lots of numbers, not surprising, it's about accountants. Sixty-one percent of the firms assessed during the 2025-2026 period had inadequate risk assessment records, up from 34% percent the year before.
A series of statistics like that show that the numbers of failures are increasing. They did note that the main factor associated observed non-compliance was firm size. So not surprisingly, smaller firms struggle with creating a meaningful compliance program and carrying it out.
But it'll be interesting to see how FCA handles this industry going forward when it takes over responsibility in 2028 when the transfer for these guys will go into effect.
John Byrne: Our board member and former OSFI official Nick Burbridge pointed out something late last week related to, we think it was related, it certainly is adjacent to the Canadian Mutual Evaluation by FATF. Reading from Nick's post here, after more than 10 years of lobbying about what he calls the dysfunctional way that Canada's major financial institutions supervise compliance with AML, I am absolutely delighted that finally Finance Canada decided to place OSFI firmly in charge of this function.
The decision, again, this is Nick, may have been triggered by Canada's recent mu- FATF mutual evaluation. In that report, supervision was the only immediate outcome that Canada was downgraded on from the superior rating it achieved in 2016. He goes on to say "The error has now been fixed.
I fully support this long overdue change and feel vindicated about the efforts I made over the years to make prudential supervision of AML compliance." Nick posted that, and then we saw a related posting on LinkedIn. And this one, it's interesting.
A FINTRAC official during testimony tells the committee he was testifying in front of, that he disagrees with the audit finding that the agency had failed mandates. Reading from a publication called The Hub, it says, "The interim head of FINTRAC told the Commons Public Accounts Committee he personally disagrees with the Auditor General's conclusion that the agency failed its two core mandates.
He pointed instead to evaluation by FATF. He answered that FinTRAC has confirmed every fact in the audit and that the FATF report contains the same criticisms." He opened up by saying that the audit found that FINTRAC has not effectively carried out either of its main responsibilities.
In any event, both interesting that FINTRAC is being criticized, they are responding to that criticism. And then the note from Nick, there will be a change in oversight in Canada. Nick is on vacation in in New Zealand. When he comes back, he's agreed to sit down for a conversation about this, which we will do on AML Conversations.
Anyway, long-winded way of saying a lot of stuff in Canada that is relevant to our industry, and we'll follow up on that.
Elliot Berman: And for those of you not familiar with the current organizational process in Canada, OSFI is the banking regulator, and FINTRAC is the FIU, but they have had the direct oversight responsibility for anti-money laundering programs.
With the change that Nick pointed out, FINTRAC will continue to have the intelligence component as its primary responsibility, but the oversight will move to the banking regulator.
John Byrne: Jumping over to New York, the Department of Financial Services met with AMLA, which is, as we know, the EU AML authority. And they did a exchange on regulatory framework, supervisory priorities, data-driven practices, and a number of other items. We've always talked highly about the New York State Department of Financial Services how detailed they are in the work that they do. This is just another example, I think, of their ability to be noticed not just in the US but globally.
Elliot Berman: And it makes a lot of sense because many of the foreign financial services companies have New York representative offices or other offices in New York, and for many of them, nowhere else in the US. Under US law, those organizations are mostly regulated by the Federal Reserve and the State of New York. So they have built a robust infrastructure for this kind of oversight. Something else interesting out of New York, Governor Hochul indicated that New York is going to take the lead in AI science and safety. It's launching a new research institute. The institute will be called New York Center for AI Responsibility and Research.
It'll be based at the State University of New York Binghamton. In the press release, they said, "While the federal government fails to act, New York is leading the way on AI safety and holding Big Tech accountable."
The interesting thing is this is part of a larger initiative called Empire AI. It's a half a billion dollar public-private initiative to drive AI research for public good. It's the center's founding mission is to advance the science of AI and use AI to accelerate discoveries across scientific fields.
So interesting that a state's gonna do this. I think there's only a handful of states who can really lead something like this. It'll be interesting to see if they expand it to include other states going forward. Certainly, other universities I'm sure will be drawn in as part of the public-private partnership.
John Byrne: As we mentioned, the beneficial ownership issue is front and center in all these evaluations. There was a posting from a nonprofit organization earlier this week, and a really good chart. The beneficial ownership data is closing, not opening. And here's some of the statistics that were posted. The the poster is Sergey Manuyko and I apologize if I mispronounced that.
But he's posted that of 209 jurisdictions, only 16 publish beneficial ownership openly and for free. The trend since 2022, the EU Court of Justice ruled that public beneficial ownership access invalid. The registers moved to quote, legitimate interest, unquote. In 2025, Chesnia closed its beneficial ownership registry to the public.
In August of this year, US companies exempted from reporting, as we know. October, Switzerland central BO register will not be public. And in July of 2027, the EU AML regulations will then apply. And he closes by saying, "Still open are the UK, Estonia, Latvia, Iceland, Poland, Slovakia, Ukraine, Armenia, and a few others."
Elliot Berman: We'll see whether there are changes going forward. From my seat, the ideal endpoint would be a global registry fed by all these national registries or local registries, and it would be accessible. But we're a long way from there from a political perspective.
John, we saw that FinCEN pulled together financial institutions, digital asset businesses, and law enforcement for a meeting earlier this week focused on sharing intelligence about criminal operations. And that's a good thing. You and I have talked about information sharing, intelligence sharing for a long time.
And this was focused on transnational scam centers because of the significant threat they pose to the US financial system and consumers. There's a lot of focus on the scam centers. And since now it's become industrialized, it is gonna take a big shared effort to combat it.
John Byrne: Yes.
Elliot Berman: And you pointed out, and I know you wanna talk about the fact that Block has reached an agreement with the Department of Justice.
John Byrne: Late last week, Block agreed in principle to a $964 million AML settlement with the Department of Justice. The agreement includes a three-year deferred prosecution deal over alleged failures. So far what we know, and this is an analysis of the order, expected net payment was $764 million. Block has already reserved $526 million by June. The agreement still requires court approval, and according to the regulatory filing, the DOJ would defer for the three years. More to come on that.
I don't think since we saw this, the court approved it, but again it is something that Block announced that they agreed in to the settlement.
Elliot Berman: They included this in their quarterly SEC filing, so it would have been something that would have been due at the SEC right at the beginning of November.
John Byrne: Right.
Elliot Berman: For the third quarter. As you mentioned, they've already reserved on their balance sheet a big chunk of it, over $500 million. It's interesting they did not view this as rising to the level of an event that required a 10-K, which would be a special notification outside the regular quarterly cycle.
There has been discussion at the SEC about companies only reporting twice a year, going from quarterly to semiannual. Which when anything like this happens, I always go maybe that's not a great idea." But we'll see.
The last thing that I have, John, is something that I think I pointed out to you. I saw that IRS-CI's office in Alabama working with the US Attorney's Office for the Southern District of Alabama, announced an indictment charging six defendants in connection with an alleged tax fraud scheme that sought more than a $177 million in fraudulent tax refunds.
The investigation was part of an ongoing enforcement effort led by the DOJ's National Fraud Enforcement Division and IRSCI. And there was also collaboration with other investigative agencies, including FBI. According to the indictment an individual owned and operated an accounting tax service which did tax preparation for businesses and individuals. The indictment alleges that the defendants participated in a scheme to prepare and submit false and fraudulent federal tax returns to the IRS. The allegation included getting COVID-19 credits, fuel tax credits, all different kinds of things, and then receiving refunds to which they were not entitled.
There's a lot of different kinds of fraud out there. We tend to focus on the ones that directly injure individuals. But something like this injures all of us. This has an adverse impact, takes money out of the governmental treasury that is supposed to go for good governmental activity
John Byrne: That's true. Can't add any more to that. Oh, one other thing I had on my end, which is more of a policy announcement. The EU sanctions envoy, David O'Sullivan, at a conference in Europe, confirmed that a new EU sanctions office with the European Commission will try to bring together disparate parts of the various agencies to help create what they call a one-stop shop for licenses and other announcements instead of the 27 member states doing their own thing.
That same day, the European Court of Auditors reported that Russia sanctions are applied unevenly across the member states, opening the door to forum shopping. So that's not a surprise to us, but it looks like the EU is trying to address that.
Elliot Berman: You already mentioned that we're doing our November webinar on FATF evaluations and their impact, and that will stream on Thursday, November 19th. There is still time to go to our website and register for a seat. And I think that's going to be an interesting conversation . And John I think that's what we have this week.
John Byrne: Also next week, I'm going to have a sit-down conversation with our good friend Steve Gurdak, who is stepping down at the end of the year from his career-long work with the Northern Virginia SAR review team.
We're excited to talk to Steve about his impressions about how things transpired, what's been a success, what are still some challenges. So we'll do the interview next week and obviously post it at some point after that. So we have that on the schedule as well.
Elliot Berman: Yes, and I think for those in our audience who aren't aware of how the SAR review teams work it'll be really good. Steve's been a great builder of partnerships. And the SAR review teams really are a great example of partnerships in a way that make a lot of what the industry does more effective. So John, you have a good week, and I will s- talk to you next week.
John Byrne: Stay safe. Talk soon.
Elliot Berman: You too. Bye-bye.