FinCEN’s New Advisory, Debanking Tensions & the Rise of Chinese Money Laundering Networks

This week on This Week in AML, Elliot Berman and John Byrne break down a wide range of developments shaping the financial crime landscape. They unpack a new joint advisory from FinCEN and federal banking agencies targeting risks tied to unauthorized labor and its implications for banks. The conversation then turns to escalating concerns about “debanking,” including controversy over blocked charitable donations and its implications for access to the financial system.

The episode also dives into a congressional hearing on Chinese money laundering networks and how evolving typologies are challenging traditional approaches to tracking money. Plus, insights on prediction markets and potential manipulation, fraud trends tied to social media platforms, EU sanctions targeting crypto, and progress in combating antiquities trafficking.

FinCEN’s New Advisory, Debanking Tensions & the Rise of Chinese Money Laundering Networks - Transcript

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

John Byrne: Good, Elliot. I know we texted. I wasn't able to connect with you in person in Milwaukee over the weekend, but great couple of days. As I mentioned to people before, I also do a podcast with Marquette University, and I sat down with the president of the university, and that's gonna get posted in a couple weeks. So it was a fun conversation.

This is somebody who is only the second lay president at Marquette University, and the first person of color. A very interesting guy. First person in his family to graduate from college. It was great to have that opportunity to do that.

On the other hand, this is the 102nd day of the war with Iran as we record this. It doesn't look like there's anything slowing that down anytime soon. So our thoughts are always with our servicemen and women, and hopefully they stay out of harm's way.

Elliot Berman: And the civilians in the area as well.

John Byrne: Yes, of course. Of course. Hey there's a bunch of things, but let's mention the joint advisory from all the federal banking agencies, and the Treasury Department issued a separate statement on this. I'm simply reading the title. The title is The Joint Advisory on Non-Work Authorized Populations and Their Employers and Risks to the Integrity of the Financial System. So our audience can guess what this is about.

This is a 12-page document. They reference the executive order from January of '25 if you'll remember. The title was Protecting the American People Against Invasion. So you can again guess what we're doing here. But they have a list of methodologies and typologies associated with what they're calling the hiring, concealment, and exploitation of unlawful alien workers.

Again, lengthy document. Advisories are always good training tools. You plug them into your first line of defense and your second line and throughout. But the red flag indicators, I'll just highlight a couple quick ones here and then see if you have anything you want to mention. They say red flags to report this to FinCEN include a customer that's an individual that receives recurring P2P payments from a small, recently established company in the agriculture, construction, domestic service, hospitality or staffing industries. That's one supposed red flag.

This one jumped out at me. Opens an account for a company in those same industries that I just mentioned, and is attempting to use a commercial mail receiving agency, instead of a business address. And finally, a customer in a small company in the same list of industries with beneficial owners, so I guess we'll have to figure out who those are, that have no known prior involvement with or in the company of these industries and may have had prior fraud convictions.

Anything you want to add to this advisory?

Elliot Berman: You referenced the January executive order, there was also one last month that was entitled something like Ensuring the Integrity of the US Financial System. And an advisory of this type was mandated in that executive order. This is FinCEN checking that box as well. I'm not sure there's anything really new here. It is something that the industry has paid attention to. Turning it into an advisory pushes it back onto the A list. From a real risk to the financial industry or the financial system, in my opinion, this is something to deal with, but it's probably a B list compared to a lot of other things. One of which we're gonna talk about in a few minutes.

John Byrne: A well-known lawyer sent me a note saying this is just another indication that banks becoming the immigration police. So I'll just leave that out there.

Elliot Berman: We're definitely getting our badges back.

John Byrne: There's no question. And we won't use the line, "I don't need no stinking badges." You can look that one up.

OCC Comptroller Gould testified this week on various agency activities, and again, we're gonna follow up with something related to this in a little bit. Here's what he said about debanking, and I'm quoting exactly from his statement. "Our banking system will only remain relevant and trusted if it resists pressures to deny access based on political or religious beliefs or lawful business activity. We've made considerable progress in reviewing the activities of the largest national banks and are investigating complaints of alleged debanking consistent with the president's executive order." Unquote. There's been no evidence released thus far about those reviews of those largest national banks.

So maybe it makes sense to jump to this now. We talked about this prior to recording. There's been some reporting about the fact that several institutions have denied their customers the ability to send, donations to the Southern Poverty Law Center. This is from The New York Times, lawyers for the Southern Poverty Law Center asked a federal judge to throw out charges accusing it of defrauding its donors, saying it was part of a retributive campaign by the administration to use the Justice Department.

But here's the second part of this. 15 attorneys general led by Minnesota AG Keith Ellison, have urged both these entities, Vanguard and Fidelity, to reconsider their decision. And then we just saw the other day a letter sent to both of those entities by Maxine Waters and Jamie Raskin minority members of both the House Financial Services Committee, ranking member, and ranking member of House Judiciary.

And I would just question the fact that given what I just read about what Gould said, how is this activity inconsistent? So I don't know if you have thoughts on that.

Elliot Berman: My thought is that based on how the OCC and others as well, have tried to define debanking rather than de-risking, it feels like this is directly in the zone that should be restricted. The Raskin and Waters letter went as you mentioned, to Fidelity and to Vanguard, as well as to Charles Schwab.

John Byrne: That's right.

Elliot Berman: And just for our listeners who don't know the mechanism, if you have what's called a donor-advised fund that's held by one of these money managers, you can direct them to make charitable contributions to qualifying charitable entities. And as the letter points out the Southern Poverty Law Center is a bona fide charitable entity according to IRS approvals and records.

I agree with you. It's being attacked on many fronts, as you pointed out, and we'll see what the courts do. We'll see how these entities respond to the the request for information. The letter has a long list of questions that the writers want answered.

John Byrne: Staying in the States earlier this week, there was a hearing in the Oversight Committee of House Financial Services on Chinese money laundering networks. I know you watched some of that and looked at the statements. What jumped out at you about that hearing? Obviously, this Chinese money laundering networks is a priority of this administration and because of its connection to cartels and just in general, obviously. So it's not something that we're not aware of.

So it's always useful to have these hearings that, further amplify what the issues are and what the typologies are, and that sort of thing. What jumped out at you?

Elliot Berman: What jumped out at me is what we already know, but reemphasizing the fact that Chinese money laundering networks have become the industrial engine for large dollar money laundering. Their business, their clients, if that's if that isn't too facetious, are the large drug cartels in Mexico and other large transnational criminal organizations. And they, the Chinese money laundering organizations networks continue to refine and improve their methodologies. By coincidence this week, we posted a blog post on our website written by one of our analysts that talks about exactly one of the new methodologies, and that is the fact that now there are methodologies to move value without actually moving the money.

And so many of the approaches that we have taken in the past of following the money as it moves around the globe, need to be recalibrated because what's moving now is the value, but the money never leaves wherever. And I'd commend people to take a look at that blog post. It's a nice quick instruction on how this new process is working.

This is a serious problem. When I talked before about B-list things, this is an A-list. And this should be near the top. At the Forum we talked about Chinese money laundering networks and the concerns that people have. So I think this is something that needs to stay on the top of people's list.

The hearing itself because of the fractious nature of what's going on in Congress, they tend to not as good at information gathering as maybe they were in a more bipartisan time, but still worth a look.

John Byrne: You highlighted an article in the publication Fast Company on prediction markets in terms of their relationship to what they're calling political graft. You wanna talk about that?

Elliot Berman: These prediction markets you basically can bet on anything. This particular example had to do with Santos putting out a press release saying he's gonna be in person at the State of the Union address. Then on Kalshi their, his announcement caused the price of yes shares, as they described them, meaning yes he's going to be there, to spike. At about 6:00 PM on the day of the State of the Union, he tweeted that he was watching State of the Union from an airport TV and was not part of the plan.

Almost immediately the price of yes bets on Santos attendance, of course, tumbled. Sure enough, when Trump began speaking Santos wasn't there. Before he sent the market-flipping tweet, he hopped on Kalshi and bet that he wouldn't be there and he's now the subject of a CFTC, Commodity Futures Trading Commission investigation. As we've talked about before, they're the federal agency that oversees these predictive markets. And the Justice Department is joining the investigation.

But it's an illustration of the fact that the fix is in. And it's very interesting CFTC has come out saying that these predictive markets are not betting because a number of states have attempted to put strictures in place saying that they fit under their various betting statutes. We'll see. The fact that public corruption can now be systematized in this way is a little disturbing.

John Byrne: So it'd be like you and I betting on how long our podcasts are gonna be to the second or whatever.

Elliot Berman: Exactly, and I've got a timer running so I know when we have to stop, and you know when to place the bets the other way.

John Byrne: You can't make this stuff up. The Global NPO Coalition on FATF has created a new free resource for folks in the civil society area. This is a group that we've worked directly with on the tough challenges they're having. This is how non-profits can better understand and engage with FATF Recommendation 8 that deals with terrorist financing, as we all know. It's in both English and Spanish. And it offers guidance on the recommendation and standards, non-profit integrity and good governance, and this one's important to us, engagement with financial institutions and governments, and then for some to participate in the FATF mutual evaluation process.

This is based on their experiences in Latin America, but it's free, and we would urge folks to take a look at this. Also I would mention the document that we helped draft back in 2018, I believe, with ACAMS and members of the World Bank similarly, had a similar goal to have both civil society and banks better understand each other.

So I think this sort of falls in that same category. So if you get a chance to take a look at it and share it with your colleagues. Global NPO Coalition on FATF. And you can find this, the website is called OSFLE, O-S-F-L-E dash learning.odoo, O-D-O-O .com. I'm sure you can just Google Global NPO Coalition on FATF and you can find it.

Elliot Berman: Two quick things from Europe. The first is Lloyds Bank in the UK, put out a report that more than two-thirds, about 68% of the fraud cases that they've identified and reported have originated on the Meta platform. They find that people in their late 20s and early 30s face the highest risk and that people under 25 were most vulnerable to ticket scams.

It was interesting. It was in the Sunday Times of London. The head of fraud prevention at Lloyds said, and I'm reading the quote here, "Meta profits from this as gangsters pay to advertise on its platform and by drawing people on to their marketplace where criminals lurk." They noted that in their statistics, the average fraud claim submitted to Lloyds now exceeds £500. That's up 100 pounds in the last year.

They're not big, but that's a significant percentage increase and given the total number, it's a big deal. There was a quote from a Meta spokesperson that said they removed more than 159 million scam adverts last year that with 92% taken down before users reported them.

"We fight scams on and off our platforms because they're not good for us or the people and the businesses that rely on our services." Interesting, just a word of caution.

And then the other one that was interesting is AMLA was holding AMLA Day in Frankfurt, and there were some meetings around it. So AMLA Day was, I think Tuesday of this week. But there were gatherings of related folks all week. And a French member of the European Parliament gave a talk, and she zeroed in on the links between organized crime and crypto and stablecoins, and she said that they were terrifying.

And she goes on to talk about criminal cartels and human traffickers, don't look at crypto as a tech innovation or curiosity. They look at it as a gift. Something to be aware of. You and I have talked about this. The establishment of stablecoin rules is a big deal in the US still incomplete. And the trend of the rules that we're talking about in the US is certainly different than EU and UK.

Something to be aware of. This is a, top of list kind of concern in a developing area and we should all be aware of it.

John Byrne: Two final quick things from me. The Organized Crime and Corruption Reporting Project has announced that the EU is planning a massive 21st sanctions package that will both target Russian banks and crypto. This is beyond traditional banking. The measures will target 11 cryptocurrency platforms that are accused of helping Moscow circumvent Western financial restrictions. And along these targeted measures, according to the announcement, the EU plans to tighten its blanket ban on providing crypto asset services to designated third countries.

The sanctions package will impose trade controls on 50 companies operating outside of Russia. These include entities based in China, Turkey, Kyrgyzstan, Kazakhstan, UAE, and India.

The last thing I have, and we've talked about the the issue of antiquities throughout the time of This Week in AML. Manhattan DA Alvin Bragg has announced the recent return of 20 cultural objects, the value that more than $100,000, to Pacific Island nations. The objects were recovered pursuant to a number of criminal investigations that targeted Southeast Asian cultural heritage, and all of them been laundered through museum donations in an alleged tax fraud scheme by indicted antiquities trafficker Subhash Kapoor. The office has returned 10 equities to Papua New Guinea and a number of other locations.

The last thing I wanted to mention, it has now convicted 18 individuals of cultural property related crimes, recovered more than 6,200 cultural treasures, including books rare books, works of art, and antiquities, and valued more at $485 million. So this work was done by the chief of the antiquities trafficking unit, a gentleman by the name of Matthew Bogdanos, who I actually went to high school with many moons ago. And the assistant district attorney, James Edwards Labear, and then special agents from Homeland Security Investigations.

So all of that information is available on the website. Again, DA Bragg announces that it's the first ever return of antiquities to Pacific Island nations. I don't have it in front of me, but Senator John Fetterman of Pennsylvania issued a statement encouraging the movement of the antiquities regulation that has been proposed such a long time ago by FinCEN to move forward. So that was a statement issued by his office. So that's obviously related to this to this issue.

Elliot Berman: John just want to remind people that the June webinar will stream on June 25th at 1:00 PM Eastern Time, and the topic is Built to Last: How Regulation is Strengthening Fintech. We've got a good roster of speakers, and we're looking forward to doing that.

And I know you've always got some things that you're working on. Anything you want to talk about?

John Byrne: I'm working on how to sit a certain way so my Knicks win the NBA finals.

Elliot Berman: To try to help them, which wasn't a big help, I'm wearing an orange shirt today.

John Byrne: We appreciate that. So as they like to say, "Go New York, go."

Elliot Berman: All right, John, you have a good rest of the week and I will talk you to you next week

John Byrne: Take care. Stay safe

Elliot Berman: You too. Bye-bye