FATF, Sanctions, Crypto, and Collaboration

In this episode of This Week in AML, Elliot Berman and John Byrne dive into the latest global developments in anti-money laundering and financial crime compliance. They unpack the EU’s 19th sanctions package against Russia, discuss the GAO’s critique of U.S. sanctions effectiveness, and explore FATF’s October plenary outcomes—including new guidance on asset recovery and AI-related risks. The conversation also covers AMLA’s growing role in EU-wide crypto oversight, the regulation of law firms, elder financial exploitation initiatives from the OCC, and the impact of government shutdowns on FinCEN operations.

FATF, Sanctions, Crypto, and Collaboration - Transcript

Elliot Berman: Hi John. How are you today?

John Byrne: I'm good Elliot. A number of things going on both globally and domestically. I thought we just dive right into it. We talk a lot about sanctions and in fact, in a couple weeks I'll be interviewing a sanctions expert, so more to come on that going forward. But the European Commission has just issued what they're identifying as their 19th package of sanctions against Russia.

And again, according to the EU these packages substantially increases the pressure on the Russian war economy. Total ban on Russian liquified natural gas, and a further clamp down on what they call the shadow fleet. The strongest sanctions yet on Russia's. Crucial energy sector. I'm sure you saw that.

Elliot Berman: I did. When the war started Western Europe was a large consumer of Russian energy resources, including liquified national gas, and there was a lot of concern about winters without fuel and things like that, all of which Western Europe has figured out how to work around.

And this LNG component is the next big step to really, uh, Western Europe being independent of Russian energy resources. So it's got a long-term economic impact as well as, uh, impacting Russia's economy.

John Byrne: Also, in terms of the financial sector, five new banks in Russia were added to a transaction ban, and the EU is imposing full fledged sanctions on the developer of a widely used, ruble backed stable coin.

So there's things there on cryptocurrencies and new bans on Russia's, uh, payment card and fast payment systems. So, uh, again, for more information, you should go directly to the, uh, the EU website. Uh, this was announced, uh, late last week.

Elliot Berman: And staying with sanctions. John, I know you pointed out to me a GAO report about the effectiveness of US Russian sanctions. You wanna talk about that?

John Byrne: Yeah. We always talk about are sanctions impactful and, seeing what experts say about that. This particular report, again, it's the government accountability office. The title, you always know what GAO is looking at based on the title, uh, the title's, Russia Sanctions and Export Controls. The subtitle, which is always the key, US agencies should establish targets to better assess effectiveness.

So the report, basically calls out the State Department and the Treasury for failing to declare, clear objectives for the sanctions and lacking the ability to assess progress. So they found that Russia's economic growth was about six percentage points lower in 2022 than what might have happened absent the events in 22, including the evasion of Ukraine. However, their analysis did not find that economic growth was statistically different than expected in 2023 and 2024.

And so that being the case, the question is about effectiveness. So, obviously the conclusion is, is there needs to be better metrics among other things.

Elliot Berman: The report did identify three main purposes for our US sanctions against Russia. One is, uh, impacting Russia's economy. The second is inhibiting its ability to make war on Ukraine. And the third is holding accountable those who support Russia's war or abuse of human rights.

As you mentioned while the GAO sees progress, they really think that targets for progress should be established by the various US agencies so we can really measure change. And that's probably a good thing just generally.

John Byrne: Yeah, I agree. Uh, we said last week that the FATF October plenary was, uh, ending after our recording. If you go to the FATF website, they will direct you to the outcomes of the plenary.

Just a couple things I think worth mentioning. Two FATF assessments under the new round of mutual evaluations, which, as the US is being evaluated right now. Belgium and Malaysia were the first FATF members to be assessed on what FATF calls their new, more time bound and risk-based assessments, which placed greater emphasis on the country's results in tackling money laundering, terrorist financing and proliferation financing. So that that's important and that's gonna give you a possible view into what it could look like when they finished the review of the United States.

They also approved comprehensive new guidance on asset recovery. And they also approved a new, what they call Horizon scan, to notify public and private sectors around the world about current and potential future illicit finance risks presented by AI and deep fakes. So obviously paying a lot of attention to the new technologies that we're all grappling with. Did you notice anything else from the plenary that you wanna mention?

Elliot Berman: Yeah. They removed Burkina Faso, Mozambique, Nigeria, and South Africa from the list of jurisdictions under increased monitoring after completing their action plans. Known euphemistically as the gray list. There were no significant changes, uh, to the blacklist or to Russia's current status with FATF. And as a little bit of a peak ahead, you and I are gonna do a, a more comprehensive review of, uh, FATF's entire activity this year and that episode will air in late November. So, uh, we're gonna do something a little different around the holidays.

John Byrne: You had some other things, uh, under the big umbrella AMLA that you wanted to talk about.

Elliot Berman: So, as AMLA continues to ramp up, this is the the EU wide FIU, there's been a lot of, uh, conversations by members of its executive board about what its focuses will be. Recently one of the members of that board talked about the focus on crypto as it continues to scale up. They've identified crypto as being a potential risk factor in financial crime, which is not any surprise. They would say that they didn't identify it themselves, but there's a lot of different sources doing that.

They're also concerned about the significant increase in the adoption of the use of crypto and other technological innovations and that these heightened money laundering risk. They also said that and this is one of the purposes of AMLA is, uh, the increased collaboration across the different EU regulators will be, uh, of crucial importance.

John Byrne: And I've seen the focus on law firms is gonna be interesting because we don't have that at all in the US. Do you want to talk a little bit about that? Expand on that a little bit?

Elliot Berman: I think we talked last week about, and this is not EU, this is the UK, but both the EU and the UK do have parts of their, uh, regulations impacting gatekeepers. Right? And we've been pretty light on gatekeepers here in the US. Law firms in particular.

As we mentioned last week, the FCA will become the regulator of law firm's responsibilities under the existing rules that apply to them. Uh, unifying the regulatory scheme there, I think will be helpful. AMLA will also be doing in a slightly different way, but across all the member states will be doing the same thing.

So I, I, again, gatekeepers, collaboration, those are all things that we are behind on. We were playing catch up on, uh, transparency, but now we've decided that that's not a game we wanna play currently. So, uh, we'll see. Um, and as you mentioned, FATF is here in town. So it be interesting to see how, how the, uh, how that all comes together for the US.

John Byrne: I want you to mention what the OCC is doing on elder abuse. But before I do, just a quick note the Financial Times. This sort of relevant to fraud and, and not just elder abuse, but uh, fraud in general. The financial times of reporting that HSBC will set aside $1.1 billion for a lawsuit brought by investors who lost money to Madoff in the multi-billion dollar Ponzi scheme.

This is, comes after a Luxembourg Court denied the bank's appeal. So that's in reported in earlier this week in Financial Times.

Elliot Berman: Yeah, just a little more history there. So, the HSBC, arm in Luxembourg had provided administrative services to a number of funds that had assets invested with Madoff Securities. A group of investors had sued the bank over its involvement in an effort to recover their losses. The Luxembourg Court of Appeals finally decided on an appeal, which said that the bank, uh, has to, um, deal with the charges. And so they took a $1.1 billion charge against earnings for the third quarter.

They also indicated it will take a long, this is a big complex case and it'll take a long time to settle. So, we'll see. Uh, and just as a reminder for those who have forgotten. The Madoff scheme was identified in 2009.

John Byrne: Yeah. Crazy. Crazy.

Elliot Berman: Yeah. Uh, you mentioned elder, uh, financial exploitation, the OCC, along with other federal regulators and state regulators around the us have all been active in alerting organizations and individuals about the risks of elder financial exploitation. The OCC has, among other things, something, it calls it Safe Money program. It issued a fact sheet, uh, under that program about elder financial exploitation. It's a two pager. I think it's really good, brings things together in an effective way.

So fact sheet with red flags talks about the fraud methods, talks about how to report, um, how to keep yourself safe so it's not just targeted FIs, definitely targeted at individuals. I thought it was well written. It might be something for some of our listeners to take a look at if they want to have something for their branch staff to be able to talk with folks about or use in their own training. Uh, I would, uh, do that. And I know you pointed out something from House Financial Services related to the shutdown.

Did you wanna touch on that?

John Byrne: Yeah, this comes from, uh, the minority, the Democratic side, uh, under, uh, Maxine Waters, who's the, uh, ranking minority member of House Financial Services. And it's talking about with the lack of government personnel in roles for the past month. There's a number of areas where financial fraud is gonna be, um, we're gonna be less able to target and deal with that.

You can find the, the press statement on their website. But just a couple things, they remind us about FinCEN's role in all this. Which all of us are familiar with. But specifically they say by not having FinCEN staff, some of the things that they have been able to do, uh, aren't happening.

And they mentioned clawing back $82.6 million for victims of cyber enabled financial fraud last year. Facilitating the freezing of over $125 million in cyber enabled fraud proceeds. And then issuing the financial trend analysis for FIs and law enforcement.

It's actually an interesting description of what FinCEN does for those that are not as familiar. Obviously when people are not at their jobs, there's gonna be less opportunity to deal with this. So that's just sort of a byproduct of what happens when the government is shut down the way it's been shut down.

So I thought that that was interesting just to reference that.

Elliot Berman: Yes. We talked before we started recording about the fact that representative Mike Flood, who's a Republican from Nebraska was at a large, uh, conference in the US and gave a speech. And he said community banks have no choice but to be in the stablecoin business. And that bank FinTech partnerships are essential to enabling community banks to serve stablecoin interest, meaning interest by their customers.

I think it's fine to say that. But we've certainly seen over the last five to 10 years an uptick in bank FinTech partnerships. The whole concept of banking as a service. And while it can be done very well and in a effective way to manage risk not every bank has the resources to do that in terms of expertise. And so, I think it's something that banks have to consider, but the idea that no choice, um, I don't know that that's really true. And I don't know that every customer population is as excited or interested in shifting their assets into stable coins as maybe, uh, Representative Flood believe s.

John Byrne: So the, uh, November webinar is on global compliance trends and financial crime compliance. Uh, so want to have people, uh, put that on their calendars. And I just wanted to mention, I got two podcasts that I've scheduled in the next couple of weeks. One is with the Human Security Collective. They're gonna talk about the concerns they have with FATF's Recommendation 8, some of the, uh, unintended impacts against NPOs and other related topics.

And then, uh, Dan Tannenbaum, a sanctions expert, global sanctions expert. He said Oliver Wyman, former OFAC staffer, and he's done a bunch of other things as well. Has agreed for a sit down coming up, uh, in the next, uh, week and a half. So I'm really. Pleased that, uh, Dan's gonna spend some time with us. You know, he's somebody who can both tell us the impact of sanctions, but also what are the challenges from a practical and operational standpoint. So, looking forward to that.

Elliot Berman: Coming back to the webinar, that is gonna be, um, uh, the 20th of November. So you can register at our website and it will, uh, stream at 1:00 PM Eastern Time. And those, as I think our audience knows, run for 60 minutes. So John, you have a great rest of the week, and I will talk to you next week.

John Byrne: All right. Take care. Stay safe.

Elliot Berman: You too. Bye-bye.