FinCEN’s Audit, UK PEPs, and Wildlife Trafficking

The Inspector General from the US Treasury Department has issued an audit report on FinCEN’s BSA data retention processes. The Financial Conduct Authority in the UK is reviewing the treatment of domestic PEPs by financial services companies. Moody’s Analytics issued a white paper on wildlife trafficking. John and Elliot discuss these developments and what you should know about them.

FinCEN’s Audit, UK PEPs, and Wildlife Trafficking - TRANSCRIPT

Elliot Berman: Hi John, how are you today?

John Byrne: Hi Elliot, doing well. My son's getting married on Saturday, so we're doing last minute preparation for that. It's been a eventful few weeks with my grandson coming and now Kevin's wedding pretty exciting time. We're all looking forward to seeing everybody in just a couple days, weather's gonna hold up for the most part since it's gonna be an outdoor wedding. It'll be a little warm, but not as toasty as it's been here in Northern Virginia the past couple days. Everything should be fine.

Elliot Berman: Just right. You love it when a plan comes together.

John Byrne: A lot of things going on. Congress and the states are back. They haven't yet caused any trouble. Just wait a few days. That'll change. But we have had more information on the January 6th attack on the Capitol, a few more sentences were handed down this week, so there's clearly been accountability for close to, I think, at least a thousand people.

I could be overestimating, but I think that's the number. So a lot going on in terms of that, but in our space, financial crime and sanctions and all the issues that we cover. A couple things that came out this week and late last week I thought we'd mentioned. One is the Inspector General of the Treasury issued an audit report.

I think it's the beginning of a series of reports that they've been asked to do. And this is related to BSA data. So the first one that they have just released takes a look at the BSA record suppression requests FinCEN manages. And I think you did see that, right?

Elliot Berman: Yes. And for our listeners this part of the Office of the Inspector General, this function is the same thing that they're all used to seeing in their own organizations for internal audit. So OIG does other things, they do investigations and that kind of thing, but this is really just an internal audit function.

And I did see this. It gets a little convoluted pretty quickly, so you and I should probably try to stay up at about 50, 000 feet.

John Byrne: Absolutely .

Elliot Berman: So they had two findings one is that, I'm quoting here from the report, FinCEN did not, (1) timely process and adequately document the disposition of suppression requests to include notifying requesters in writing. And then the second is it didn't ensure that bulk data recipients removed suppressed records. from their respective databases.

John Byrne: And they issued a series of six recommendations. And if you look at the report, FinCEN agrees with the recommendations. In some instances, they maintain that they have either completed that process or or in the. are in the middle of implementing. So there was no disagreement. So each of the six recommendations, there's a response from management, if you will. So that's all there.

Again, you can read this at your leisure, but two that are relevant for those of us in the compliance field, updating of policies, right? So update the policies and procedures, get a timeline metric, that's one, update it to require a review of requests, again, for timeliness and appropriate processing.

The biggest thing that, I don't know that it's lacking necessarily, but none of the recommendations talked about FinCEN getting additional financial resources. Because I think as we all know, it's a very small agency charged with many big tasks. But I'm sure I'm not sure, but I'm guessing that it's not the IG's role to advocate for funding, but that would seem to be a recommendation that would help with these other six.

Elliot Berman: Right. We will see reports on other parts of reviews that the OIG does of FinCEN. And again, these are what I would view as ordinary course, I don't know the cycle of their reviews, but this is standard, day in, day out business kind of stuff.

John Byrne: All right, and so the second thing that we want to mention based on what we talked about previously, and that's the whole notion of institutions that make decisions onboarding, elimination of account coverage, depending on policies and procedures. We talked about a couple of banks getting called out in Tennessee, for arguably making decisions based on religious beliefs, which again, I think you and I both thought that was a stretch.

But the FCA in the UK has launched what they're calling a review of the treatment of politically exposed persons, PEPs, and, there was some earlier stories about this when it now comes to light who the private bank was, it was Coutts & Company, that they had exited what was the leader's name? I forget Farage, is that...

Elliot Berman: Yes.

John Byrne: So they did that and he claimed it was for political purposes. So I'm sure this is in response to this, and it says that the FCA is going to, while they can't make changes to the law they're going to do this review and obviously report the results.

And the review is going to look at how firms apply the definition of PEPs to individuals, how they conduct proportionate, what they're calling proportionate, risk assessments of UK PEPs, their family members, and known close associates. How they apply EDD and ongoing monitoring in line with that risk, how they decide to reject or close accounts of those individuals, how do they communicate with their customers, and then how they keep their controls under review to ensure they remain appropriate.

I'm really curious what they're going to say about effectively communicating, because that's really been the major criticism of those that lose accounts that they don't know why something has been exited.

And as we both know, many of the reasons why those announcements are, those communications are pretty short and sweet, and they say it doesn't fit our business model or what have you, is because the fear that you might be tipping off somebody that they were the subject of a STR internationally or an SAR here in the States.

So it'll be interesting to see what the FCA says about communication. And let's face it, even though it's in a different jurisdiction in the US, we're all paying attention to what all these government agencies are doing. So I think that's going to be something to keep in mind. It does not say when the report will be done, but we'll keep you posted.

Elliot Berman: No, it does. It says a review will report by end of June 2024. So it's basically they'll be done in nine months. And just for clarity this is a focus on domestic PEPs. So I think that, to the extent that the Farage and other situations is what prompted this, that it may have been prompted with the idea that financial institutions are being too tough, and this review could actually come out the other way.

John Byrne: That's what I say. It's definitely going to be something that we have to pay close attention to so it'll be, but it's clearly a response to some of the focus and some of the noise on account closures. That's been going on.

You give our industry dual obligations, right? You gotta be tough, gotta do risk assessments, gotta do all these things. And then, oh, wow, by the way, You're exiting relationships based on that risk. We want to know why. So I think it's very hard position that they put the financial sector in.

So again, definitely warrants being looked at. Obviously FATF is very much supportive of domestic PEP oversight, and even though we don't have it in the States, there's been some inkling that could perhaps happen at some point.

Elliot Berman: Yes, absolutely. So the one other thing that we noticed this week is during the summer Moody's Analytics, which does a lot of white papers and things like that, some of which they do under contract from specific individual clients, but other things they do for more general release.

They published a white paper, after taking a look at the proliferation of wildlife trafficking. And that's a topic you and I have talked about over the years. Recognizing that, there are a variety of types of trafficking that are illegal, but also end up being part of money laundering schemes and other larger sets of illegal activity.

And this I think it's worth a quick read by people. It's not a long white paper, but it does talk about the fact that transnational criminal organizations have gotten much more involved in wildlife trafficking, where it used to be smaller operators it's now, unfortunately, becoming a business.

And they're using some of the same supply chains that are used for wildlife trafficking to also link that up with other illegal activities, smuggling and things like that. I didn't read it and go, oh my goodness, I never thought of that. But I did read it and say, it's a good thing to keep on our radar.

Depending on where you are geographically, you may be seeing this a lot more in your institution than in other places, but it's not local to just one or two locations it really is a global problem and it has adverse effects, not just the potential money laundering aspects and the sanction avoidance aspects, but it has a huge environmental impact as you deplete animal herds in their natural habitats and things like that. I would recommend to people that they take a look at that. In the description of today's episode on our website, we'll link to the report.

John Byrne: That's great. Elliot, what do we have coming up in the next couple weeks?

Elliot Berman: On the 28th of September, we have this month's webinar It's on Managing a Fraud Program in the Current Environment, and Chuck Taylor, our colleague in the Financial Crime Advisory Group, is going to moderate. Will Voorhees, who's the Head of Enterprise Fraud at Truist, and Patrick Knuckles, who's a Fraud Investigations Manager at Kroger Personal Finance, are going to talk about fraud and how to do an effective program and kinds of fraud that maybe aren't as obvious.

We'll be doing that. And you've got some things that are starting to get lined up, too.

John Byrne: We're gonna post the interview I did with Stef Casella on asset forfeiture. Jonathan Lopez, former DOJ lawyer and an active member of our Partnership Forum, has moved to a new firm that he's creating, and we're going to talk later in the month his views on corruption. He's worked FCPA cases, and give us some recommendations there.

Don Ford, who is a member of our advisory board here at AML Rights Source is currently at Cambridge at the International Symposium on Economic Crime, and he's posted a few things on LinkedIn I would ask folks to take a look at. Also, he was one of the founders of what we call the J5 and they met in Cambridge for various conversations so that collaboration continues.

In a couple weeks I'm gonna be going out to Missouri, and I've done this for five or six years. The Missouri Bankers put on a two day BSA conference that we run for them, and it's almost all community banks. So we get a sense from that audience what are their clear challenges.

So we're going to be talking about fentanyl, marijuana banking, we're going to obviously be covering what the regulators think are issues. We're going to have a couple of sessions on fraud with FBI and local attorneys there. So we'll bring back some additional content that we can have conversations about, but I always find these programs refreshing because, again, these institutions don't typically get a lot of training or at least training where they can interact with their colleagues, unlike large multinational institutions, so it's really good to hear how they're handling their challenges, which go far beyond simply BSA.

They tend to wear multiple hats, as we both know. So it's always good to hear that. That's later on in the month, the 18th to the 20th. We'll I'll be out there, so I'll talk to you all about that when I get back.

Elliot Berman: Yes. And lastly John, you and I will both be at the ACAMS meeting in Las Vegas at the beginning of October. And I would invite any of our listeners who are also there to introduce yourselves if we don't already know you.

We'd love to hear from you about topics that you'd be interested in and things like that. We'll both be on the ground there and I'm going to give John a plug. John's going to be receiving a Lifetime Achievement Award from ACAMS along with our friend and colleague, Rick Small at Truist and Dan Soto at Ally.

We look forward to seeing our listeners while we're in Las vegas.

John Byrne: All right, have a good rest of your week and in addition to enjoying our wedding now we both know football season's starting, so go Giants, go Packers.

Elliot Berman: Enjoy the wedding, John.

John Byrne: All right, take care. Bye.

Elliot Berman: Bye bye.