This Week in AML
The US Government Accountability Office (GAO) recently issued a report to Congress. The report focused on how the US Department of Justice is complying with its obligation to report on how Suspicious Activity Reports (SARs) are being used by law enforcement. John and Elliot discuss the report, the value of better information on SAR use, and the challenges in gathering meaningful data and presenting it in an actionable format.
Elliot Berman: John, how are you today?
John Byrne: Hi, Elliot. How you doing?
Elliot Berman: I'm good. It's a beautiful day here in Milwaukee. And it's always good to talk to you. So today's good.
John Byrne: So something you and I are very familiar with is the various GAO studies that have been done relating to bank secrecy for decades. And there's a more, there's a recent one that just came out and I always love the titles, the titles go right to the number of what they've asked to do. They don't try to be funny with titles or whatever. This is action needed to improve DOJ statistics on use of reports on suspicious financial transactions. So you saw that I assume.
Elliot Berman: I did and I did like the title right.
John Byrne: So what was the big take? I mean look, feedback on SARS has been something we've talked about since the late nineties, when they first crafted SARS and it's always been both a challenge and sort of a, I don't know how to characterise it, but there's always been a reluctance on the part of law enforcement not to provide feedback because they do.
But always suggesting that one reason you can't get more is there's never a one to one correlation, a one SARS doesn't lead to one prosecution, which we've Al always understood. Uh, yes. So this one addresses that issue, but it's mainly more about making FinCEN data. I would say more useful for a variety of results and one of them potentially being.
Another thing that's in the NDAA from 2021 is to eventually look at how can we recraft the AML infrastructure perhaps either reduce or modify reporting. And this is just another element of that, um, that would lead lead people to believe whether they could do it or.
Elliot Berman: Right. So there is, as you mentioned, this comes out of the national defense authorization act. The part that in part became part of amla and the goal here is to figure out, I mean, the reason the provisions in there is what's useful reporting that helps law enforcement and other parts of the government to identify potential terrorist activity or money laundering and what isn't useful. So, you know the act had that provision in it. DOJ issued the first report and the GAO presumably was asked to review it and they had a number of concerns about the fact that there wasn't as much data as, um, would be necessary to fully comply, but also, you know, they were more concerned, I think about in the end about the architecture of the report. And so DOJ, when they got this obligation and the statute, somebody at DOJ had to decide who was. You know, who has to go do this report. Right. And they assigned it to the money laundering and asset recovery section. And not for a terrible reason. The reason that is given in the report, because there's a discussion in the GAO report kind of about DOJ’s response to the recommendations that GAO was going to give. They said we gave it to that group because the subject matter experts, they know about suspicious transactions and that kind of stuff, but those folks didn't get any of the data or technology people in the loop. So the report doesn't have a lot of analytics. That group's comment was well, we're not data analysts. So one of the big recommendations is from GAO is that the chief technology officer and the statistical office at DOJ get involved in helping design the data requirements for the report for the next cycle. Potentially working with the real, the affiliated agencies to come up with a common data map. So that this, the information that wasn't gathered can be gathered. If it doesn't exist, people can start capturing.
John Byrne: You know, the other thing that struck me going back to our view that we know there's not a one-to-one correlation in the summary of what they found. Says that Sen receives limited data from law enforcement on the use of reports or the report's impact on case outcomes, because they don't collect that data. And then they say, as a result, FinCEN cannot provide comprehensive feedback to financial institutions on the usefulness of BSA reports. I disagree with that. I think that's true. They don't have all the data. And as you just pointed out, DOJ should have at the very beginning, when they got the report require, got all the right people in the room, but the bottom line is there is usefulness in understanding volume of reporting, categories of reporting, regions of reporting. And they used to FISA does do advisories and they do other things, but they did have a SARS activity review, which to be candid, I was the first co-chair of that publication and that was something. Institutions looked forward to it. Didn't you could argue it wasn't quote comprehensive, but it provided some good typologies examples case studies and some other things. So while it's their overall GAO conclusion is accurate and more should and can be done, I think it's a little bit, um, Mischievous to say the least to say that you can't provide comprehensive information without all of that other input. And I just don't think that's true. We should get the input. But I do think it's much more complicated than that those couple of sentences would lead you to believe.
Elliot Berman: Yes. And I think that even though the statute doesn't speak about doing this in phases, the reality is that an effort to gather.
More and increasingly better data in this space is clearly something that's gonna happen in steps. So you know, as you and I talked about before we started recording the ultimate goal may be to be able to say, we received 2 million SARS and in 50 cases in the last fiscal year, 50 prosecutions in the last fiscal year, we can attribute directly the investigations being started by SARS and the SARS having meaningful impact on the prosecutions.
That might be the ultimate goal, but the fact that you can't get there today, or even next year, or possibly, or likely the year after you start the journey you carve, it's a big project. You carve it up into sections. You know you agree on the basic structure that you're trying to fill in and then you go.
And sequentially, you continue to build better and better data sets. I mean, we do that in business all the time. The government does it in a lot of other places. This is a tougher one than just counting things. But that doesn't mean, you know, you just sort of. Well, this is what we got and, you know, let us give you a report and I don't, I'm not saying they were just doing a check the box, but there's value. I mean, as much as, as a former practitioner, I wanted better feedback. The reason for this report being, or one of the reasons for this report being required is you mentioned at the outset of our conversation is that we're looking to improve and. um, streamline where it can be the reporting regime, so that better data gets to law enforcement and the people who have to generate that data, generate the SARS can focus on the right things and you can get there in phases without having to only get there.
When that end sort of magic bullet, that is available all the time.
John Byrne: Right. And then from the, from an international perspective GAO also looked at three countries. Canada, the UK and Australia, because they have very pretty similar FinSen and looked at how they currently provide feedback. And I thought that was interesting. I think they overall suggested that. It's not apples to apples, but as you look through the some of the charts based on the reporting periods they looked at, I thought it was interesting given the volume that for us in the US FinSen for the period of time SAR reporting 4 million and their staff was 272 Australia. Their SDRs. And they have 405 people. So clearly FinSen has always been correct to say that there's not enough staff to do all the work necessary to process the information, a separate issue from the value proposition of a law enforcement use of BSA data. But it is relevant because obviously their resources are pushed in a lot of different directions.
Elliot Berman: Right. Because that 272 people. Their that's for the time period that was reported that's their total staffing and they have, obviously they have policy obligations and all sorts of other things, not just data analysis. So yeah, I, that number caught my eye just in the fact that, you know, we have a much bigger economy from a trans total transaction volume. We dwarf those other countries. And yet our FIU is on the small end of the range.
John Byrne: Right. And the final, the conclusions are obviously FinSen done some decent work with feedback, but they could use the support from these other agencies and they make the recommendations. GAO does. To make sure that DOJ’s chief information officer and others that do statistical information, that they'd be involved in this. And that certainly makes sense.
Elliot Berman: Yes. Well, I would guess that we'll see a GAO report down the road a year or so out after the next reporting cycle, because I'm sure that the oversight committees will wanna know whether progress has been made. So that's right.
John Byrne: That sounds good. Um, you know, I think in terms of what's going on we have a webinar in September. You want to talk a bit about that?
Elliot Berman: Yeah. So we have a webinar in September. It's gonna be September, Thursday, 29th. It'll be at a little different time. It'll be noon, Eastern time. And some of our colleagues in Europe are going to talk about how the whole ESG matrix, how that's influencing financial risk now and in the future and how financial services company should be taking that into account. I think it's gonna be a really interesting topic. ESG is certainly in what is certainly another dimension to risk analysis and one that will be important to adopt. And John, I know you've got a number of things in the queue you've been very busy on the podcast side recording things, and I know we're getting ready over the next several weeks to post some of those conversations.
John Byrne: Yeah. So we did one with our advisory board member, Don Ford, who's former chief of the criminal division of IRS. We also just recently I also interviewed the new deputy chief of IRS guy. FECO,strong supporter of the partnership forum. And so he's talking about the priorities of the agency currently. And then we have an author. I'm editor of a publication on the countering of financing of terrorism coming out and and several others, including some new interviews for the women in AML project that we're part of as well.
Elliot Berman: Yes. So, uh, stay tuned and John, you have a great weekend and we'll talk next week.
John Byrne: Take care. Talk soon.
Elliot Berman: Yep. Bye. Bye.