In this episode of This Week in AML, Elliot Berman and John Byrne break down key developments from the latest FATF plenary—highlighting a growing global emphasis on fraud, stronger public-private collaboration, and updated guidance on payment transparency and targeted sanctions.
They also explore the Wolfsberg Group’s refreshed framework for a truly effective risk-based approach, centered on proportionality, prioritization, and outcomes—not just compliance for compliance’s sake.
Back in the U.S., the conversation turns to the evolving regulatory landscape around stablecoins, including new proposed rules extending KYC and CIP requirements—and concerns about whether they go far enough to address illicit finance risks.
It’s a wide-ranging discussion that reinforces a central theme: effectiveness—not just effort—is becoming the defining standard in AML.
FATF’s Fraud Focus, Stablecoin Scrutiny, and the Push for Real AML Effectiveness - Transcript
Elliot Berman: Hi, John. How are you today?
John Byrne: I'm good, Elliot. And I have to just say for the record, I've not been down by the Reflecting Pool in Washington, DC, so I want to make that clear.
Elliot Berman: Okay. So you are not one of the unnamed defendants.
John Byrne: No. And apparently this morning they put fencing around it so people can't put their hands in the Reflecting Pool. There's that going on besides the memorandum of understanding between the US and Iran, which I'll leave to national security experts to discuss the validity of that. So the war is still going on. I think now it's been since February, and we're gonna mention something later on in the conversation sanctions related item regarding that.
Why don't we start with an organization that continues to thrive and help the AML community writ large, and that's FATF. FATF, as we mentioned, had their plenary last week prior to our recording of our conversation last week, and so the outcomes are available on the FATF website. It was the last plenary of the Mexican presidency of Elisa de Anda Madrazo.
And the plenary, a number of things they announced. I'll mention a few, and then feel free to add whatever I miss or things you wanna mention. They adopted the mutual evaluations for Canada and Turkey, and now they'll be published later in the year. They issued a number of new publications regarding things like the abuse of technical innovation how to step up mitigation measures and what we always agree that's so important, strong coordination with the private sector.
The priorities for the new FATF president this is from the United Kingdom. Those priorities were also approved. They had been previously discussed but were approved by the plenary. For the record, the incoming president, Giles Thomson, and he will be president from July 1st till June 30th of 2028.
And his high level priorities at this point, and they could be added to, but it's combating fraud, strengthening the implementation of the risk-based approach, and risk-based supervision, and enhancing information sharing, public-private partnerships. And I should just say, in addition to the fraud issue they made sure that includes money laundering or terrorist financing risks from what they're calling scam compounds.
Those were some of the items. The plenary also selected Mr. Vivek Aggarwal hopefully I pronounced that correctly, from India. He will be the next FATF vice president and obviously more to come on these issues. But a whole host of things done in the plenary and as with many plenaries, they preview some additional publications that'll come on during the remaining parts of the year. Was there something from the plenary that you want to highlight?
Elliot Berman: They did announce a public consultation about related to Recommendation 16, which is strengthening payment transparency. And there's proposed guidance that will help countries and financial institutions strengthen payment transparency to combat money laundering, terrorist financing and predicate crimes, in particular fraud. You can't have a conversation in our space these days without including the challenge of the fraud problem.
That's worth people taking a look at. Again, they will go through the public consultation process, and then either in October or next February, they'll bring the proposed changes to the plenary.
They also did some things around Recommendation 6, which touches on the challenge of dealing with terrorist financing, but also making sure that humanitarian groups don't get inappropriately caught up in the restrictions. So I'll toss it back to you to talk about Rec 6.
John Byrne: Yeah, the specifics there that they've updated the standards and Recommendation 6 requires, as you mentioned implementation of targeted financial sanctions. But to make sure that they comply with several United Nations Security Council resolutions the numbers are in the descri- the description.
And as you just said countries that are complying with that have to comply with the humanitarian exemption that's contained in several of those resolutions. Now, the outgoing president Madrazo, that we just mentioned, she is quoted as saying the following: "As the Security Council has underscored, these measures are not intended to impede the timely delivery of humanitarian assistance or the provision of basic human needs.
Our frameworks must ensure that both objectives can be upheld in a balanced and effective manner, and I urge all countries to take note of the important revisions that FATF has made to align with the UN framework." So again, that was certainly a key theme of of President Madrazo throughout her two-year FATF presidency about financial inclusion, financial access.
So I think that's important. I think we should also note, although it wasn't discussed at this plenary, that Recommendation 8, dealing specifically with terrorist financing, is also a space in which our colleagues in the humanitarian world have asked for clarity so that the same things occur. That, again, we're going after sanctioned countries, sanctioned individuals, but we're also with terrorist financing, understanding the unintended impacts against humanitarian organizations. Something that FATF had not previously spent a lot of time on until the past couple of years.
Elliot Berman: I think that a good place to go from here is to the Wolfsberg Group. They published updated guidance on the risk-based approach. Something that we talk about all the time, is very actively being discussed in many of the new proposals here in the US. You and I have been talking about risk-based approach for 15 years anyway. But I think that the Wolfsberg guidance is interesting. You wanna talk about that?
John Byrne: Yes. And they are active on LinkedIn, so you can access the guidance through there or on the Wolfsberg website. They make it clear that this is an update to their previously issued guidance on the risk-based approach.
It's built around three core principles. Which they call proportionality, prioritization, and effectiveness. And one of the things they say that I think is interesting, and you hear from our banking colleagues many times the quote is, "A focus on everything is a focus on nothing." Unquote. They make it clear in the guidance, the importance of a series of things for effectiveness, complying with AML laws, establishing a reasonable and risk-based set of controls to mitigate the risk of an FI, being used to facilitate illicit activity, and providing highly useful information to relevant government agencies in defined priority areas.
They also go in great detail in, as you craft these risk-based approach who the customer is what are steps to look at the type, the industry and business type, the corporate or customer structure, what's the legal entities, all these things are relevant, and then looking at what the customer does. So once you've identified the risk possibilities of the customer, what are they doing? What's their transactional behavior? What's insight into the customer activity? So the document is I think it's seven or eight pages, but like everything else with Wolfsberg, very specific, offers a lot of direct advice.
Now, remember, these are 12 of the major international financial institutions, but I do believe what they recommend is relevant to financial institutions of all sizes. So I think things like working with the public sector, importance of collaboration, as I mentioned already, the various risk assessments that get crafted. So it's a good solid document, one that you should plug into your training. They actually talk about training as well, by the way, and culture, which I think is really important. But again, the conclusion is three components, proportionality, prioritization, and effectiveness, and again, available on the Wolfsberg website.
I thought their their summary
Elliot Berman: of effectiveness was really interesting. And effectiveness is something that is also on everybody's mind these days. It plays into resource availability. It plays into avoiding the historical check the box approach. But their summary under effectiveness is an FI should focus on effective outcomes as aligned to the Group's work on demonstrating effectiveness, facilitating a more responsive, forward-looking, and dynamic approach to risk management rather than applying a one-size-fits-all rules-based only approach.
And again, there's nothing startling in there, but I think as people try to sit down and say how do I craft something that's effective? It's nice to have something like that sort of to look at periodically and use as at least something against which to compare what you're doing.
John Byrne: All right, moving back to the US, as we mentioned, with the memorandum of understanding with Iran some activities have already begun. The Office of Foreign Assets Control has been active. There's a general license pursuant to that MOU that according to some analysts, clears the sale of Iranian oil and products during the sixty-day negotiation period. So that's what's happening right now. It also authorizes all other services associated with insurance and logistics that sort of thing. And so the question comes up as to what's the impact? And some of the questions raised, again, by analysts that I've seen on LinkedIn and other places, they are unclear about this sixty-day period.
Does freeing banks to pay Iran in dollars mean only for oil sold during that period? Can you settle previous sales? Does authorizing dollar-denominated funds mean U-turns are okay? This one analyst said there will likely be an FAQ at some point to provide clarification, but again, this things like the war do impact our community because it touches on sanctions and various agreements. I, I don't know if you want to mention anything else regarding that, Elliot.
Elliot Berman: The only thing I would add is this is a license being issued by OFAC related to US sanctions. So the EU and UK sanctions remain in place until such time, if they choose to do it, they would issue their equivalent of a general license. But again, this is tied directly to the interim peace agreement as it's described in the license document. And I don't know that there's really any likelihood that those European-based sanctions are going to be put into abeyance.
John Byrne: That's a - great point. FinCEN did a couple things with, jointly with the other banking agencies. On the GENIUS Act, there's two proposed rules. Do you want to talk about those a bit? I would just say one deals with CIP, and the other one's more of the program rule, but what are some of the things that jumped out at you? There's co- there are comment periods for both, so open period of time for anyone that's involved in this space to, to provide comments.
Elliot Berman: As you mentioned, there are two proposals. These proposals relate to stablecoin issuers under the GENIUS Act. One of them, as you mentioned, is a KYC requirement. So this would extend the KYC requirements that apply to US financial institutions to stablecoin issuers.
And the other one is about CIP. It would extend the CIP program requirement to stablecoin issuers. I think the challenge, and I saw some quotes from Federal Reserve Governor Michael Barr about this, that he's concerned that proposed rules do not address the risk of illicit funds being laundered through stablecoins.
And that is something that you and I have talked about a little bit. We've certainly heard from stablecoin experts and other crypto experts about the risks of that. And I thought it was interesting that Governor Barr talked about the fact that the GENIUS Act regulatory framework does not do enough so far, to address the risks of illicit finance conducted through secondary market transactions in payment stablecoins.
So we'll see. As you mentioned, there are comment periods, so it'll be interesting to see what the comments are. And I would guess that Governor Barr's comments will prompt comments in this illicit finance space. But it's fine to do these things but I think coming back to Wolfsberg, it has to be effective. And one of the effective things should be to keep illicit finance or make it very hard for illicit finance to use stablecoin for payment.
John Byrne: It's gonna bear watching, folks. All of this is gonna bear watching. I think that's pretty clear. Couple of reports in trade papers, but also in regular media, I know you identified. it was about the CFPB issue that we highlighted last week or two weeks ago.
Elliot Berman: Yes. A reminder that the person who is the head of the Office of Management and Budget, Russell Vought, is also the head of the CFPB at the moment. There's been a bunch of litigation. I'm not gonna go into all of it. But one of the things is some Senate Democrats have pressed Vought a variety of deletions from the CFPB website. Senator Warren being one of them. A quote from her was, "Your decision deprives Americans of key resources and is yet another giveaway to companies intent on scamming the public of their hard-earned dollars."
What has been removed are guidance documents and information about scams and things like that. And several senators have issued a letter to the CFPB asking for an explanation. It wouldn't surprise me if this becomes a litigation issue. It appears that if you look at the statute that created the CFPB back in 2009, part of its purpose is to protect consumers, and these documents and guidance pieces and things like that were for that purpose. And there's no replacement for them.
It seems as though the CFPB without these documents, and other things too, would be failing in its legislative mandate. The other big piece of litigation in that space is there's an effort to reduce the CFPB staff by 50%. There have been several court decisions in the last week or two putting that on hold. And more decisions to come. That battle continues to rage.
And then the other thing you pointed out was that a judge made a decision related to some Justice Department subpoenas to Minnesota officials more in the immigration space, but I think the ruling is likely has broader implications.
John Byrne: I think that's right. And just remember for the record Russell Vought was one of the authors of Project 2025. People shouldn't forget that. Referencing a story in the Washington Post, as you say, a federal judge has rejected subpoenas issued to Minnesota and Minneapolis legislators, including the, including Governor Walz Mayor Frey the Attorney General Keith Ellison and many others.
According to the the coverage of the ruling, they rejected the Justice Department's subpoenas. The chief judge said that the subpoenas were designed to coerce officials in the state to take specific actions around immigration enforcement. So I do think you're right that this could be broader.
According to the judge, the department has struggled, this is a quote, "without success to identify a single plausible investigatory justification for the subpoenas." So I think that's extremely important.
I also want to reference, since we're covering media stories, The New York Times did a cover article in their June 21st edition going back and after an investigation that federal prosecutors late last year and early this year, had been examining the circumstances behind the commutation of a private equity executive David Gentile.
He was convicted of a $1.6 billion fraud scheme and was released days later, after going to prison to serve a seven-year sentence, after being granted clemency by Trump. The article goes into great detail about how this occurred. This fraud defrauded thousands of mostly mom-and-pop investors. Doesn't also doesn't have to the possibility of forfeiting more than $15.5 million to the government.
There's sort of a side story here that he had a colleague, a retired Catholic priest from Queens who was friends with Trump, that worked hard to get Gentile released. But this is interesting on a number of levels. One, again, a commutation of a fraudster, but secondly, prosecutors were looking at how did this happen and were told to back off basically from the investigation. So I don't know if you have anything else, Elliot, on that.
Elliot Berman: No, but I'd like to go back to Minnesota. I think in addition to the fact that, it may touch on other immigration-related things, these were grand jury subpoenas, and the judge was very critical of the use of the grand jury for political purposes, in the judge's opinion.
There'll no doubt be an appeal to the appeals court and all of those other things. But I think that both of us as lawyers, I never practice any criminal law, but I certainly feel like the grand jury system at the federal level is an important tool, but it's one that has to be used carefully because of the breadth of power.
And to see a judge identifying it being misused, is very troublesome. It'll be interesting if there is an appeal and the appeal upholds the trial judge, how that'll influence judges in other districts.
John Byrne: I would just add, as I've told many, I'm an adjunct professor at George Mason. I'm teaching a class this summer on money laundering, terrorism, and corruption. So let's just say we have a lot of grist for the mill to talk about.
Elliot Berman: I'm sure you do. For those of you who are listening to this our June webinar will have already streamed. The end of next week you can look to our website and the recording should be available for you to listen to. Very interesting conversation about fintechs and regulation. I commend it.
And our July webinar, Wednesday the 22nd of July, is on artificial intelligence. Our colleague, Joe McNamara, will be moderating that one. You should register for that, and you can do that at our website at amlawrightsource.com. John, anything else you wanna talk about?
John Byrne: Later this week I'm gonna sit down talking about corruption and having a conversation with Jonathan Rush. Jonathan was at the Treasury Department. He also was at the Justice Department and is a professor that teaches an anti-corruption class at I believe several law schools.
But the bottom line is he's produced a lot of really good content in this space, so I thought it'd be a good opportunity to sit down with him based on both the fact that he's been doing this, but also being a DOJ lawyer. And what he thinks about where things are today. So we're gonna have that conversation on Friday, and obviously the we'll post that in a week or two after that. So looking forward to that, and always interested in others that either have ideas for topics for us to talk about and/or people that they'd like to see us interview.
Elliot Berman: John you have a good rest of the week, and I will talk to you next week.
John Byrne: Great. Stay safe.
Elliot Berman: You too. Bye-bye.