This week, John and Elliot discuss the updated Enforcement Guide from the Financial Conduct Authority, the changes to the EU money laundering blacklist, the latest on the trafficking of Syrian antiquities, FinCEN’s Advisory on Iranian illicit oil smuggling, and other issues affecting the financial crime prevention community.
FCA Guidelines, EU Blacklist, Syrian Antiquities, and a FinCEN Advisory - Transcript
Elliot Berman: Hi, John. How are you today?
John Byrne: I'm good. Elliot. A lot going on. As we record this FATF is starting their plenary, so we'll have a lot to talk about next week with the outcomes from the June plenary. So looking forward to seeing that. Why don't we start with some additional international related topics.
The EU Commission and you highlighted this is set to remove a number of countries from its high risk money laundering blacklist. So that's the announcement. And as I, we talked offline, it's gonna have to be approved. But from your perspective, what are some of the highlights? I'll just mention two that I saw. They took off the UAE. And they added Monaco and there's obviously a number of others that they've taken off and added. But what else jumped out at you?
Elliot Berman: First by taking the UAE off it authorizes EU based companies to do business with the UAE. So that's an economic impact. They've got quite a list of additional countries that they're adding. Algeria, Angola, ivory Coast, Kenya, Laos, Lebanon, Namibia, Nepal, and Venezuela. And the ones they're taking off are Barbados. Gibraltar, Jamaica, Panama, the Philippines, Senegal, and Uganda.
One of the things in the report, and again this is a press report, not an official release, that part of the reasoning behind these upgrades, first they haven't changed their list since 2022. And secondly they're looking to continue to be aligned with FATF. Also the European Council was a founding member of FATF. While there's occasional rumblings about whether the US will continue to be fully supportive of FATF, it's clear that other parts of the world view it as a valuable enterprise at a global level and want to continue to be actively involved and aligned.
John Byrne: In the reporting from Politico it also said that lawmakers also pressured EU executive on this one to include Russia on the list. But that has not happened. And also as we know, FATF has suspended Russia. But it's not technically on the blacklist according to this political story due to opposition from what they call the BRICS Alliance which numbers Russia among its members. So I thought that was interesting as well. But yeah so keep your eye on that. And obviously the FATF plenary, there'll be some updates to various lists as well.
And then in terms of other things internationally I'll turn this to you, but this came from the Global Initiative to End Wildlife Trafficking. And this is an update on the UN what did we see there?
Elliot Berman: During this week was UN World Environment Day and a number of different things were happening. One is the UN was holding its third Ocean Conference this week in Nice France and the Global Initiative to End Wildlife Crime, as you mentioned and the International Council of Environmental Law, had an online side event related to that.
And the theme of the UN conferences accelerating action and mobilizing all actors to conserve and sustainably use the ocean. And trafficking in marine, wildlife falls as a major part of that. There was noted at the side event that marine species, including fish, should not be disaggregated, was the phrase they used from other wildlife. A wild fish swimming the ocean is as much a part of its ecosystem as a tree growing in the forest or an elephant migrating across the savanna, they're all wildlife.
I think that's an important thing to remember, 70% of the earth is covered with water, and most of that's ocean and there's a lot of life in those oceans. I also wanted to mention that there's a concept of IUU illegal, unreported, unregulated fishing, and if you go onto the AML Rightsource website, a few years ago, one of the students in your graduate class at George Mason wrote a very interesting paper that we published about that concept.
So for those of you who might be involved with organizations that are involved with fishing and things like that, or feel like you may be spotting illegal fishing proceeds flowing through your institution. That article would be a good place to go to.
John Byrne: We also have covered in terms of unique spaces in the AML environment, and that's antiquities. The Antiquities C oalition has posted both a blog post and a report on how antiquities trafficking has spiked in Syria following the collapse of the Assad regime based on the research by the group called the Antiquities Trafficking and Heritage Anthropology Research Project, or ATHAR. They investigate black markets online among other things.
And according to them, they're tracking dozens of antiquity trading groups on Facebook that have more than a hundred thousand members. Largest, which has 900,000 members. And they say online sales platforms have given looters unprecedented access to global markets. But the report does talk about the staggering increases in the scale and speed of cultural racketeering in Syria.
And as I've mentioned past couple of weeks, I am efforting to do a follow up podcast with the folks from the Antiquities Coalition. So this will be one of the items that we certainly discuss.
Elliot Berman: Related to that, the International Council of Museums has published a red list of Syrian cultural objects at risk to try to identify to the museums what appears to be flowing into the marketplace illegally so that they do not become buyers.
The Guardian reported on this as well and noted that a lot of the sales activity is now happening on Facebook and Facebook in 2020 banned the sale of historical antiquities on its platform and said it would remove any related content. But there does not appear to be a lot of proactive activity by Facebook to actually remove references to or other activity related to antiquities trafficking.
John Byrne: You had also mentioned that the FCA has issued a new policy statement on enforcement and it's entitled their Enforcement Guide and Greater Transparency of Enforcement Investigations. What are some of the things from that jumped out at you?
Elliot Berman: The first thing to recall is that we talked about this in March when they announced that they were closing the consultation period which in the US we'd call that the comment period. And they were then going to look at the comments and figure out what they were gonna do. The goal here is to update the document. And so now the new document is in place and the new guidelines are effective.
One of the big things they did is they looked at the I exceptional circumstances test. I. Which they apply to investigations and in those cases they will announce that investigations are ongoing even though they haven't been concluded. So some clarity there. They'll confirm that they're investigating in certain circumstances and they'll share anonymized information. This is I'd say evolutionary, there's nothing strikingly new. On the other hand, the theme of the changes is more transparency, where it's appropriate, but also continuing to look at investigations as just that investigations and it's not any kind of an indictment until a decision is made.
John Byrne: Staying with transparency and back in the US, we've talked a lot about the Treasury Department announcing earlier this year that they were not going to enforce the Corporate Transparency Act as it applies to domestic entities. Well, a number of House members and Senate folks introduced joint legislation. Now this is only from the minority side but we thought it was worth mentioning because on the House side it's ranking member of Financial Services, Maxine Waters, also Nydia Velazquez, who's a ranking member of House Small Business, the Senate side, Elizabeth Warren and Ed Markey, and Senator Sheldon Whitehouse.
The bill is the FinCEN SBA Coordination on Beneficial Ownership Registration Act, and it would require FinCEN and the SBA to coordinate directly on outreach and education to help small business owners understand and meet their reporting requirements. As Congresswoman Velasquez said the CTA is still the law and the Trump administration is wrong to stop enforcing it. And she adds. Turning a blind eye to anonymous shell companies leaves us vulnerable to fraud, corruption, and abuse. So this was introduced last week. Obviously given the state of Congress and the lack of true bipartisan activity the chances of this getting any sort of play are probably remote.
But I think it's important to recognize that. And of course, there always could be some Republicans that decide to agree with this because in, in part law enforcement has said for many years that they need this corporate transparency in order to have a effective prosecutions and investigations. So we'll see where that leads us.
Elliot Berman: If my memory is correct, a number of law enforcement organizations reacted negatively to the announcement by DOJ that they were not going to enforce the domestic component because of their desire to be able to see who really owns what. The other thing that was interesting is a piece of this is outreach. And you and I spoke about how FinCEN did a lot of outreach to small businesses. They had a small business guide. They were holding sessions around the country to help people understand how to file into the registry so that you were compliant.
And it's interesting that part of the mandate of this bill, if it would ever become law, is more of that in coordination with the small business administration. So we'll see.
John Byrne: A couple other things. The DOJ has announced that the founder of a crypto payment company has been charged with evading sanctions and export controls, as well as violating the BSA. Allegedly laundered more than $500 million through the US financial system, including facilitating transactions with sanctioned Russian bank. So a 22 count indictment charging, I believe it's Iurii Gugnin a resident of New York and citizen of Russia with those offenses. So more information on, on that press release, but wanted to make sure we mentioned that.
Elliot Berman: One of the interesting points in the indictment was that he set up the company for the purpose of money laundering. It wasn't, he set up a company to do what the company was supposed to do, and along the way thought, oh wait, another business line, I can do money laundering. He set it up , to be a money laundering company.
John Byrne: So staying with the Justice Department, we mentioned several times the pausing of FCPA enforcement. Interestingly the Deputy Attorney General put out FCPA guidelines earlier this week. It's a four page document, urge folks to take a look at that. It does continue enforcement, but it's somewhat narrow and leave that to other experts to take a look at that. As expected. It does include issues related to transnational crime and cartels.
But it does add what some experts have said is a novel consideration for prosecutors to quote whether the alleged misconduct deprived, specific, and identifiable US entities of fair access to compete and or resulted in economic injury to specific and identifiable American companies or individuals quotes.
So again, four page document on how this is going to occur going forward. Again reading from the document, the focus will be on alleged misconduct that bears strong indicia of corrupt intent tied to particular individuals such as substantial bribe payments, proven and sophisticated efforts to conceal these bribe payments and fraudulent conduct and furtherance of the bribery scheme and efforts to obstruct justice, close quotes. We'll leave this to the corruption experts out there to tell us what this does and changes or modifies. So more to come on this, but just released earlier this week.
Elliot Berman: Yeah. The proof will be what happens on the ground. Will we actually see FCPA investigations in any volume similar to before the rollback and who or what will be the targets and what will be the fact patterns. But we'll see.
John Byrne: There's a couple of Treasury things. You have a FinCEN update as well.
Elliot Berman: FinCEN issued an advisory, about Iranian illicit oil trading. There have been a slew of sanctions over the last number of years and that have not abated. This is an update to an earlier advisory issued in 2018. As with the FinCEN advisories, generally it walks through the scope of the problem. It gives a good in-depth explanation of the smuggling activities. Talks about Iran's shadow fleet. The shadow banking networks that are used to launder the money.
It has case studies. For a number of things to assist people in understanding what's going on. There's one related to the shadow banking. There's another one related to weapons procurement because a lot of the revenue that comes from the oil smuggling is allocated in Iran to its military for weapons or weapons parts acquisition. And then it provides red flags related to the illicit oil smuggling in sales to the shadow banking networks and to the weapons procurement networks.
In depth, lots of information. Again, the 2018 advisory has now been superseded by this one. And definitely something everyone should read and be familiar with so that they can be sure that their current processes are designed to detect, what is being sanctioned in this area.
John Byrne: And then you can read these when you get a chance. The Treasury issued a couple of other press releases, one on the disruption of sham overseas charity networks that are funding Hamas. And also they sanctioned El Chapo's children and Los Chapitos a fentanyl trafficking faction of the Sinaloa cartel. So a lot there. I think in general, subscribing to the Treasury newsletters make a lot of sense, especially with all that OFAC has been doing. Thought we would just quickly highlight that. You can take a look at that at your leisure.
Elliot Berman: John I'll just mention that we're doing this month's webinar on June 26th on effective risk assessments. People can still come to our website and sign up and get the link to join that. And I know you did an interview that we're gonna post next week, if you wanna talk about that one.
John Byrne: Sure. Adam Hersch, who's the senior economist at the Economic Policy Institute. We'll talk about trade and tariff fraud and I think you'll find that enlightening and interesting.
I do wanna mention one other thing very quickly. And this is not a headline from The Onion, I'll say that in advance. Here's the headline. The intern in charge meet the 22-year-old Trump's team pick to lead terrorism prevention. So this particular individual will now be at the Department of Homeland Security.
And he is a 22-year-old Thomas Fugate. Campaign worker with absolutely no experience in this space. And this area focuses on an $18 million grant program intended to help communities combat violent extremism. I will say simply this. I spoke to a retired law enforcement official who was very high up in one of our major agencies. Asked him for his comments about this, and reading from my notes, disgraceful, this is another reputational risk that the US faces internationally.
And just another example of many of the problems happening in law enforcement. And as an aside, he expressed some concern that going forward in some of these law enforcement agencies, the SES system will be compromised and there'll be individuals placed in positions that will have no managerial experience.
So I just leave that there. But yes, we have a 22-year-old running an $18 million grant program at the Department of Homeland Security.
Elliot Berman: I don't know how to top that.
John Byrne: I don't think you can.
Elliot Berman: Alright, John, you have a good rest of the week and I will talk to you next week.
John Byrne: Stay safe. See ya.
Elliot Berman: You too Byebye.