This Week in AML

FinCEN, FATF, the British Museum, Export Controls, and More

This week, the US Department of Commerce issued a report about investigations of export control and antiboycott violations. FATF published information about countries’ progress in complying with its Recommendation 15 about VASPs. FinCEN requested information on a possible change to the CIP rule. John and Elliot discuss these items and others and their meaning for the financial crime compliance community.


FinCEN, FATF, the British Museum, Export Controls, and More - TRANSCRIPT

Elliot Berman: Hi, John. How are you today?

John Byrne: Hey, Elliot. Doing well. As people have followed us throughout the college basketball season, we have to sadly say the Marquette Golden Eagles season is over. They did get to the Sweet 16, but didn't get beyond that. We move on to the baseball season for you sports fanatics.

So we thought, since I mentioned it every time during the season, I figured we'd mentioned that we are moving on.

Elliot Berman: And you moved on by going to the Nationals home opener, right?

John Byrne: I did. Those of us that follow teams that are rebuilding, yeah, you just go to enjoy hanging out with your seatmates.

Maybe you see some young guys coming up that look really good, but it's going to be a long season, but yeah, it's still baseball and it's still fun to do.

Elliot Berman: Yeah. I follow the Brewers. It's not clear whether they're in a rebuilding. They've got a lot of young guys on the roster but they've started out 4 and 0. They started out in New York against the Mets and took three and came home and had their home opener yesterday.

Fortunately, there's a roof over American Family Field because we were having sideways rain here yesterday. And they beat the Twins. We'll see. I like baseball. I like the fact that they've made the game shorter, but it's the perfect thing to have on TV or on the radio while you're doing something else.

John Byrne: And everybody that, for the past two minutes, is trying to scramble past, when are they going to talk about AML, for God's sake?

Elliot Berman: Alright, we'll talk about AML. What do you want to talk about?

John Byrne: Alright a few things. One that you identified that something we've talked about before, and that's the Department of Commerce and their role, in sanctions enforcement.

They just issued a report. It actually has a funky title to it. It's called, Don't Let This Happen to You, and it's actual investigations of export control and anti boycott violations from the Bureau of Industry and Security Export Enforcement. Interesting report. Report is roughly 80 pages or so.

They go through, reminding people what that office does, talks about criminal civil penalties, a whole host of things and various chapters are dedicated to some of the major issues that they're dealing with. So China, Russia, of course, Iran, and the various issues where if you're not careful you can get caught up in.

So just referencing the introduction this is dedicated to the exporting community. They mentioned that export enforcement is been pretty active in 2023. They talk about establishment in February of 2023, of the Disruptive Technology Strike Force with the of DOJ, that has also the FBI, HSI, and Defense Criminal Investigative Services. And that's dealing with trying to protect advanced technologies AI, quantum computing, that sort of thing. Also internationally, they're doing a lot of work. They work with Japan, Republic of Korea, and similar to what the IRS has done, they call it the Export Enforcement 5 E5, and that's Australia, Canada, New Zealand, United Kingdom and the US working together to deal with various enforcement mechanisms.

But the key theme is reaching out to the private sector. And that's what the report goes into detail about. How the Export Administration has a voluntary self disclosure program but they also walk into what are red flags, what are best practices, how you can sign up for alerts with interagency and international partners.

Interesting report. Maybe at some point we can do an interview with somebody from that agency. I'll try to effort that, I think that would be interesting. But again, a roughly 80 page report on the enforcement of U. S. export controls just released late last week.

Elliot Berman: And as you and I have talked in the past export controls and sanctions in many ways work hand in hand, and it's important for all of us in the community to not forget about export controls. The other piece that I picked up from the report is one of our favorite themes, and that is the agency's recognition of the critical nature of public private partnerships. So I think the detail in this report and the comprehensive nature of it is really to share key information so that partnership can flourish.

John Byrne: That's right. And then you identified something that I've been working on and you obviously have an interest in as well. And that's dealing with the abuse of art and antiquities. There's more to come in that space. I think I mentioned in one of our previous conversations that hopefully at some point in April, I'll be doing a podcast with the head of the Antiquities Coalition on some issues she's raised regarding sanctions, but there was a piece that was in The Guardian the other day, and that's the British Museum has been investigated over Ethiopian artifacts that were hidden from view for 150 years.

So it's a watchdog group, I think called Heritage, a non-for-profit group that collects information on the cultural restitution. They have reported investigating this museum over claims that it's been overly secretive about some of the most sensitive items in its collection. And that includes a group of what they call sacred Ethiopian altar tablets.

So this is a pretty major story. There's a British Museum Act of 1963 that bars the disposal of objects except in very limited circumstances. So according to the story, it means that the status of the other disputed artifacts is ambiguous. But these tablets could be returned immediately.

Again, interesting piece. The Act is very explicit according to one of the Heritage folks that the Museum can't return objects. But there are legal exemptions within the Act, and one of those allowed trustees to return certain items that they consider them unfit to be retained. So a little in the weeds here, but again, I think it's important to note that there's certainly been a call from folks like the Antiquities Coalition in general that museums and auction houses and other places need to be more diligent regarding the artifacts that they hold, sell, and move.

Elliot Berman: Right, and we've talked about that over a longer period. About a year ago, ICIJ came out with a comprehensive review that caused the Metropolitan Museum of Art in New York to create a unit to investigate the provenance of a large number of items in their collection. That is an ongoing challenge that we all have to think about.

Another thing that we saw this week is we FATF published an interesting, table related to the status of implementation of Recommendation 15. And Recommendation 15 relates to requirements on virtual assets and VASPs, virtual asset service providers to prevent their misuse for illicit finance.

And back in I think it was 2021 REC 15 was updated and it essentially requires VASPs to be regulated for anti money laundering and CFT purposes and either to be licensed or registered and subject to effective systems for monitoring or supervision. The data was collected over the last 12 months. And a number of industry organizations with expertise in this space assisted in the creation of the table. It lists all the countries both the FATF member countries and the countries that are not members, but are participating in the mutual evaluation process. And across eight elements, it takes a look at what each of these countries is doing, where they are in their implementation of an effective process related to VASPs. It's interesting. I think the reason people should be interested and aware of this is if you're doing a risk assessment as part of your financial crime prevention program, this is another source to look and see, okay, I'm thinking about the risk of virtual assets as one of the many risks I'm testing, and I'm also thinking about geographic risk.

And this is a place that kind of brings them together. So it's a useful data source. It's also a reminder to these countries that, they need to continue on the path to full compliance in this space.

And then our friends at FinCEN put out a request for Information. And that is related to the CIP rule. The Customer Information Program rule has been in effect for quite some time, and one of its various requirements, as everybody listening to us knows is that certain identifying information be gathered including either a tax identification number for an entity or a social security number, this is in the US, for for an individual.

FinCEN is asking folks to comment on what their thoughts are and if the rule were changed to allow banks and others governed by the rule to capture a partial Social Security number and use a reliable third party to provide the full TIN or SSN.

John Byrne: Alright, so those comments are out there. The related to corporate transparency, we reported on an Alabama court case on the constitutionality of the CTA. We've just learned in Crane's Detroit Business Review the Small Business Association of Michigan has also filed a lawsuit that challenges the constitutionality of that law.

Obviously, these are all connected and these small business associations work with one another. I would imagine we will see more challenges going forward, but that was just reported late last week.

Elliot Berman: Yeah. And the the reason for that suit is that the interpretation has generally agreed from the Alabama suit to only apply to members of the retail association that filed the suit to not be a more general. The risk of course, is that the district court in Michigan reaches a different conclusion about constitutionality.

John Byrne: Yeah. And you had one more item from IRS that you had identified something that they published just a couple of days ago.

Elliot Berman: Actually two. the first one is they have a newsletter that comes out regularly called IRS Newswire, and one thing that came out was a quick report about the fraud statistics coming on the fourth anniversary of the CARES Act, which was the the umbrella act to get money to businesses during the pandemic.

And IRS reports that they have investigated nearly $9 billion of potential fraud. Almost 800 people have been indicted. 373 have already been sentenced and their conviction rate is running at more than 98%. So unfortunately, the good acts of Congress and the rest of the government certainly brought the fraud fraudsters out of the woodwork.

The other thing is, if you sign up for IRS Newswire, you get a lot of information. And at this time of the year, the IRS always does what they call their dirty dozen. They they identify 12 fraud scams that people really should be paying attention to. And so they're publishing those right now.

If you go to the IRS website and search for Dirty Dozen, you'll be able to see the list. A good source of information. As we've talked about a lot, the governmental agencies like Department of Commerce, IRS, others, put out a lot of valuable information that we can all use for training, for staying current, for testing our programs. And some of these, particularly for thinking about how to help customers some of these scams would be the kinds of things that if you run a program where you're alerting your customers to potential frauds this would be an a good source to be aware of. What about our next webinar?

John Byrne: The next webinar is on the use of enforcement rulings to improve both your training and your internal policies and procedures. So it's going to be an interesting conversation with practitioners, we have Jim Vivenzio, former OCC enforcement lawyer, who's done a ton of enforcement cases and now works with clients to help them navigate that.

So we know that's going to be a valuable, practical program and it's on April 25th at 1 o'clock Eastern.

Elliot Berman: That's right. And you can register at our website, amlrightsource. com. John, I know you recorded an interview with two of the authors of the FATF and OECD report, and that's going to post to our website next Monday.

John Byrne: So it's an interesting report. It's on something I was not that familiar with. And that's citizenship and residency by investments. So our country and many others allow you to bypass various immigration requirements, not completely, but in terms of the bureaucratic parts, if you will, by investment.

And these OECD and FATF did a very fascinating report on how that can be problematic for fraud, for money laundering, for other issues. And we have two individuals who are going to talk about that, and that'll get posted, as Elliot just said, on the 8th.

Elliot Berman: Alright, John. I know you're getting rain, we're getting a dusting of snow. Winter never really goes away quietly.

John Byrne: That's for sure. Have yourself a great rest of your week. Stay safe, and we'll talk next week.

Elliot Berman: You too. Bye bye.