This week on This Week in AML, Elliot Berman and John Byrne unpack major developments shaping the financial crime landscape. They discuss FinCEN’s guidance expanding Section 314(b) information-sharing to include fraud and what it means for financial institutions. The conversation also covers new CFPB guidance on lending and immigration-related risks, increased IRS scrutiny of nonprofits, and enforcement actions from the UK and New Zealand.
Plus, they explore growing concerns about the future of U.S. anti-financial crime leadership, the challenges of beneficial ownership transparency, and ongoing investigations tied to high-profile cases.
FinCEN Expands 314(b), Global AML Crackdowns, and Rising Regulatory Tensions - Transcript
Elliot Berman: Hey, John, how are you today?
John Byrne: I'm good, Elliot, especially since after 53 years my, I'll say my New York Knicks have won the NBA championship . With a team effort that was truly a team effort, so it was fun basketball for those of us that pay attention. And very similar to those early Knick teams that had stars, but shared the ball, all played hard, and that's what I really liked about this.
So it was a fun playoff. So yeah it's great. They're having the parade in New York on Thursday, and they're predicting four million people, which is crazy.
Elliot Berman: Yeah, I think parking will be at a premium.
John Byrne: Yeah. I think we'll just watch it on television.
Elliot Berman: Yeah I assume you were not flying up for it.
John Byrne: No. Let's start off with something positive in the challenging era that we live in, and that is FinCEN issued some guidance this week, long overdue, on ensuring that 314(b) of the Patriot Act, something that I was able to work on way back when, is clearly now going to allow the sharing of information between institutions that covers fraud.
It was always a debatable point. When it was crafted, it mentioned money laundering and terrorist financing specifically. We all believed at the time that fraud was a subset of the money laundering statutes. Obviously, lawyers within the government and within the private sector, within a lot of banks disagreed. So for the longest time the 314(b) process did not allow the sharing of fraud-related information.
So the fact that this came out, regardless of why, and we can speculate as to why they actually did this. But the fact is that there is massive fraud that continues to go on here in the US and globally, and the ability of institutions to share under 314(b) will be an essential now new tool for institutions in the private sector to provide that information to our partners in the public sector.
So there's an FAQ that goes with it, a fact sheet. Take a look at that, but obviously this demands some training with our FI partners.
Elliot Berman: I was on a call yesterday with someone who's at a large fintech and that person referenced the new guidance on 314(b) as a great tool for helping design processes to stem the ever-growing challenges of fraud. So I think it's gonna be well received in the in the community.
I know you and I, before we started recording, talked a little bit about the fact that if you just go back and read the plain language of the statute, it's hard to get there. But as you point out, it was the intent of the drafters, and I'm not sure there's anybody really to complain.
John Byrne: Yeah, I would just add that I haven't gone back and looked at the legislative history, but my educated guess is there's some broader references to that than perhaps in the statute. But bottom line is it took them 25 years, and probably for all the wrong reasons they're doing this, but it's a positive outcome, so we should support that.
Elliot Berman: Agreed. As long as we're in the US and we're talking about regulations. CFPB which grew out of the financial crisis as a regulator that had a very different mission. That mission was to first look after the well-being of financial customers, rather than look strictly at the safety of the financial systems, is what the bank regulators are designed for.
They came out with some guidance about Regulation Z, which we don't usually talk about. But this has to do with clarifying a responsibility in Reg B. This section in Reg B was put in as a result of the financial crisis in 2008 and 2009. And it was about lenders having the responsibility to assess whether their borrowers had the ability to repay.
This specifically says that lenders should consider whether or not a borrower's ability to repay is tied to their immigration status and whether or not they will still be here to repay. I'm paraphrasing, that's not the words, but that certainly is what's going on. I think this is worth a look, even if you're in our space, because all these things seem to keep banging into each other, so I would take a look.
The interesting part in the guidance, CFPB says the situations, in terms of how to analyze this, it's so complicated that we can't actually give you guidance on how to analyze it, which left me with, "So why did you do this?" But I think it's worth a look.
I know, John, you saw something interesting from the Protect Democracy group about non-profit organizations and the IRS. You wanna talk about that?
John Byrne: Yeah, so we reported on what's going on with the Southern Poverty Law Center, the targeting of that organization by the Justice Department using the IRS investigative powers there. Protect Democracy has put out a primer for non-profits on what to do if your organization is concerned about an IRS investigation. And actually, an interesting walkthrough so you can understand how the IRS is set up, what type of investigative tools do they have. When there is an investigation into tax-exempt organization, whether it's civil or criminal, how does that work?
How to better understand the audit process. It's a very interesting coverage very interesting educational tool for those, 'cause clearly that's what's happening. Just this week we saw that the Department of Justice, again, through IRS, is looking at a not-for-profit organization run by Gavin Newsom's wife.
So that's that's an ongoing issue. Having as much information at your fingertips if you are being targeted or if you're just in a normal investigation, understanding your rights and the policies makes a lot of sense. So that's available on the protectdemocracy.org website if that's an organization that you are a part of.
Elliot Berman: Let's go global for a moment. The UK's FCA, their primary regulator has shut down an organization called Euro Exchange Securities. They're an electronic money and payments firm. They offer money transfers, payment cards, deposits, foreign currency exchange, and financial services with an electronic money account.
It's been around since 2007. They had a totally inadequate financial crime program. And so the FCA went to the courts and actually got an order putting it into liquidation and shutting it down. In the US we know that the Bank Secrecy Act has a death penalty, if you will, to take away a bank charter. It's only been used once that I'm aware of.
This is interesting. Again a non-traditional financial services company with an inadequate program not the first time we've talked about that, but it's interesting. Regulators continue to take this stuff seriously.
John Byrne: You also had identified a presentation that from the outside looked at the US anti-financial crime infrastructure. What was that all about?
Elliot Berman: Late last week AMLA in the EU, had a conference, it was billed as AMLA Day.
And a senior fellow at Bruegel and the Peterson Institute, which are two leading economic think tanks. This fellow, his name is Nicholas Veron, and he's a senior fellow at both of them. He made a presentation that talked about the US is fast dismantling its fincrime capacity, and he makes a couple of points.
One, that for almost four decades going back to criminals like Meyer Lansky who, if you're as old as John and I, you'll remember who that is were escaping local controls by hiding their money in foreign banks. So the importance of being a leader and getting the global community to get involved. So the US has really been the lead for a long time. Now the US is falling behind. It's an opportunity, this expert says, for AMLA under the new law and the new structure to potentially take a lead.
But he also ties some of the changes in the US to the the president's personal business things prior to being president. Where a number of his business entities had money laundering challenges and that has shaped in some ways, this speaker indicated may be shaping the friendlier US policy and the reduction in regulation.
So an interesting read, and I think an interesting issue as the US will have to see how in the future, 'cause there's always cycles in these things, in the future where the US ends up standing. And you and I have talked many times, in October we'll get to see the mutual evaluation results of at FATF.
John Byrne: Yeah. And as we mentioned, the plenary is going on this week, so we'll talk about the outcomes next week.
Elliot Berman: The June plenary.
John Byrne: The Wall Street Journal is reporting that New Mexico investigators have sent letters to JPMorgan Chase, Google, and more than two dozen companies, ordering them to lock down their records tied to Jeffrey Epstein and some of his associates, and that according to the Journal story is a sign of the widening criminal probe into his former Zorro Ranch.
And so Wall Street Journal actually obtained these letters through a public records request. They seek data belonging not just to Epstein, but to his longtime assistant, Leslie Groff, and Ghislaine Maxwell, who is currently serving a federal sentence for sex trafficking along with other correspondents. So these investigations are continuing. This is investigations at the state level. I think that's relevant given there's lack of investigations that we're aware of at the federal level.
Elliot Berman: And the letters went broadly, not just financial services companies, but travel companies cellphone providers, payment platforms. So they're definitely taking a wide look in terms of their data gathering to see how they can connect dots, if they can. So interesting, more to come on that.
John Byrne: Also, a media report based on a letter sent by Jamie Raskin, the ranking minority member of the House Judiciary Committee, to Kash Patel, the director of the FBI. Raskin believes that there were documents that will show that Patel has made $8,000 payments to agents who carried out his specific, again quoting from the letter, "unlawful, partisan, and personal orders," unquote. So that letter has gone to Patel. I don't think Raskin or anybody else thinks that they will get a response, but this gives you a possible look into what could happen under a different Congress in the next year.
FBI agents do get bonuses like other government agencies, but the dollar amounts and the specific creation of an advisory group by Patel has led Raskin and others to think that this is more politically targeted than it is a normal awarding for good work to various FBI staff.
I will say, some are agents and some are former agents that are getting these cash bonuses. So it's gonna be interesting to see how this plays out.
Elliot Berman: The Reserve Bank of New Zealand, which is their central bank and also a regulator has ordered ASB Bank to pay a 6.1 million New Zealand dollars, that's about $3.9 million, Penalty after admitting seven breaches of New Zealand's money laundering laws.
That's the largest penalty New Zealand's High Court has ever imposed for AML failures. And the Reserve Bank filed civil proceedings against the bank last December, noting that ASB, this is a quote, "Did not develop, implement, or maintain an AML CFT program that complied with the legislation."
It also said they carried out inadequate customer due diligence. The bank's chief executive acknowledged the failure and said that they were fully cooperating. But, even in places like New Zealand, there are problems.
John Byrne: Sticking to that part of the world AUSTRAC has posted an update to their 2024 money laundering national risk assessment, so this is the '26 update. It's available on their website. And among other things, they outline continuing channels and threats since the last risk assessment, and then they say it reflects changes in the broader criminal, economic, and regulatory landscape.
So some of the enduring threats continue to be illicit drugs, government-funded program fraud, illicit tobacco. The various channels besides cash-intensive businesses, luxury goods and bullion, professional facilitators, which is interesting because as of July 1st, as we've reported in the past, there will be newly regulated entities, which will include real estate professionals and lawyers, and accountants.
They also have a section in the update that talks about AI. They say that advances in AI will broaden the risk rather than act as a discrete channel for money laundering going forward. They say that those emerging technologies are being utilized for identity fabrication, fake documents, laundering scam proceeds.
Again a detailed update from AUSTRAC, available on their website to update their 2024 national risk assessment.
Elliot Berman: The last thing I have is that a report was issued by a group called the Task Force on Interoperable Beneficial Ownership Data, which was convened by three groups, Open Ownership, the Global Coalition to Fight Financial Crime, and LSEG Risk Intelligence. They issued a report that said that financial crime is inherently cross-border, but the data used to detect it remains fragmented, and that the lack of compatibility between beneficial ownership registers is hampering efforts to fight cross-border financial crime.
So they talk about the importance of sharing. They come up with some suggestions about some kind of a global search platform or other things. You and I have talked about beneficial ownership information for a long time. We know that around the world, some of the registries are accessible by citizens or journalists, some are only accessible by law enforcement, some are accessible by financial institutions or financial service providers, some are not.
In the US, of course, we have the odd experience that after finally creating a registry one in the US has to register. So we've got a gigantic hole in our registry in addition to these access issues. Ideally, groups like this can help move the national conversation into some kind of international discussion. FATF obviously has talked about beneficial ownership information for a long time. Possibly as a standard-setting organization, they will push for interoperability or something like that. But thought it was interesting, particularly because of the conversations we have to have in the US.
John Byrne: All right, that's it on my end. What do you got coming up?
Elliot Berman: Next week is our June webinar. It's on how regulation is strengthening fintechs, and we have a great panel. I just had a chat with them yesterday. So you can still sign up. It will stream at 1:00 PM Eastern Time on Thursday, the 25th. And then in July, we're gonna do a really interesting webinar on AI. You'll be able to register for that one the end of next week. So still seats available. Please join us for that. John, anything in your pipeline?
John Byrne: No not really. We'll be watching to see what the outcomes of the plenary, so we'll have a lot to talk about next week. If there's anything that jumps out, we could certainly do an interview with somebody about that. As always, if you have topics or people you'd like us to interview, send a note to Elliot or myself.
Elliot Berman: Okay, John. You have a great rest of the week, and I will talk to you next week.
John Byrne: All right. Stay safe.
Elliot Berman: You too. Bye-bye.