Global Risks, Digital Shifts, and the Future of Financial Integrity

In this episode of This Week in AML, Elliot Berman and John Byrne cover a wide range of pressing global and domestic issues shaping the financial crime prevention landscape. From the humanitarian toll of economic sanctions and corruption risks in Ukraine’s reconstruction, to Australia’s cybercrime trends and the evolving U.S. stablecoin regulatory framework, the conversation dives deep into the intersection of policy, technology, and ethics. They also discuss the controversial “debanking” executive order, the phasing out of federal paper checks, and the disturbing rise of sextortion scams linked to Southeast Asian fraud compounds.

Global Risks, Digital Shifts, and the Future of Financial Integrity - Transcript

Elliot Berman: Hi John. How are you today?

John Byrne: Good Elliot, um, heading out in a little bit for the SaaS Counter-Terrorism Conference. It's their 20th anniversary. They started it back in 2005. So, uh, SaaS has always been a leader in that space. And looking forward to. Moderating a panel with some of our, uh, all of our friends, actually.

We have, uh, Jim Candelmo, Dan Soto, Megan Hodge, and Rick Small. The recently retired Rick Small, who's not retired. Retired, he's gonna working through next May. But announced his retirement from Truist just the other day. And wants to continue to be a, a thought leader in our space. And, uh, so I'm looking forward to seeing everybody later today.

And the conference is actually tomorrow, so I'll, I'll report on anything I pick up. During the conference, 'cause they're gonna do a session on ai, there's gonna be a couple of other sessions. So anything, uh, that we haven't talked about before I'll be sure to mention.

Elliot Berman: Sounds great. Uh, and give my best to all the folks when you see them.

Uh, where would you like to start today?

John Byrne: A bunch of, uh, there's a bunch of things going on. I'm efforting a actually I think we are scheduled on this one now, an interview with, representatives of the charity and security network. I think actually Ashley, who has done it before is gonna be our main contact.

But the reason I mention that is because that group has done a lot of excellent work on how humanitarian groups struggle, continue to struggle for financial access and other issues. And so some unintended impacts of recommendations they posted on LinkedIn, a study that was issued late last month from the, uh Center for Economic and Policy Research. Interesting report. Uh, the title is the Effects of International Sanctions on Age Specific Mortality, calling it across National Panel Data Analysis. Um, so it's a new study that estimates that over half a million people die each year. Due to unilateral economic sanctions, which is a which is both heart wrenching, but fascinating.

So again according to the summary, the findings show a significant causal connection between sanctions and increased mortality. Strongest effects were for unilateral economic and US sanctions, whereas they found no statistical evidence of an effect for UN sanctions. Again, whether this is, I'm not saying accurate or not, whether the data shows any of this or not, just read the report.

I think it's always important. We constantly talk about the unintended impacts of sanctions, but we also talk about. The value of sanctions as a national security tool. So I just think it's important to get all sides and all stakeholders in this very important topic. So, uh, ask folks, uh, to take a look at that.

Again, the study report was done late last month in July. Uh, so we urge folks to take a look at that.

Elliot Berman: Just for context, the in quoting that, uh, 500,000 person deaths number, the study notes that, that's similar to the global mortality burden associated with armed conflict. So just, yeah. I mean, half a million people is a lot of people, but, you know, how does that fit into other, uh, geopolitical things? And, and that was an in, for me, that was an interesting context. Note, where do you want to go from here?

John Byrne: Well, since we're, uh, talking about international impacts, and obviously we've just seen the, the summit late last Friday in Alaska, and the meeting in the White House with European leaders president Zelinsky and the Trump administration, the Basel Institute on Governance.

Another group that we've worked closely with and done several interviews with have just, released a report that analyzes corruption risks in Ukraine's civil infrastructure restoration efforts, which I think is very important. And it highlights 10 key priority risks and suggests mitigation measures.

I won't read them all but uh. Some of the priority risks that Basel identifies are absence of comprehensive legal framework for recovery process in relation to, uh, experimental projects, deficiencies in the organization of supporting services during construction projects, and then legal uncertainty around.

Requirements for justifying direct contracts. So again, the Basel group does a lot of excellent work. This was jointly published by Ukraine's National Agency on Corruption Prevention and the State Audit Service together with the Basel Institute on Governance, uh, with support as they state here from Switzerland.

So just another thing to take a look at in terms of we know. That whatever the, this horrific war ends, there's gonna be a lot of work that needs to be done to Ukraine. And, um, making sure that the infrastructure, not the physical infrastructure that's critical, but that the governance infrastructure is important and deals with potential corruption issues is also essential.

Elliot Berman: Another, uh, international component, uh, for the second year in a row, Australia has, uh. Issued a report on cyber crime in Australia. This is a survey a report of survey results. This covers the year 2024. Uh, they did one for 2023 as well. They had a little over 10,000. Online participants and they identified a number of what I'll call broad themes.

Uh, they noted that victimization has decreased for some cyber crime, but remains high overall. Uh, they noted that vulnerable sections of the community continue to be overrepresented as victims. They said that help seeking among victims has increased, but cyber crime remains significantly under reported.

And I think we've seen that in, uh, interviews we've done, webinars we've done, and in other reports we've read and reported about, and they talk about health and social harms were the most common, but that financial losses and impacts on small to medium businesses hasn't changed very much. Two thirds, uh, almost two thirds of the respondents indicated that they had been a victim of at least one type of cyber.

Crime measured by the survey during their lifetime and almost half had been a victim of a cyber crime in the 12 months prior to the survey. So, probably no surprises here. Interesting that they do a nationwide survey like this, and as they do more years they'll be able to create more trend data. But, uh, again, like so many of the reports we talk about.

Worth a look just to, help those of us in the community know whether we've got our eye on the right targets.

John Byrne: Oh, that makes perfect sense. We talked last week and actually I think the week before when I chatted with Joe McNamara about the executive order on quote. De banking unquote which is to me going to challenge the entire a ML community.

But you've, you highlighted a story in Reuters that was, uh, just published the other day. Uh, this. The headline is just 35 complaints of Deaking that cite political bias despite the Trump order. Remember that executive order targets alleged deaking of conservatives. Banks, of course, deny closing accounts for political or religious reasons.

The article also quotes representatives of JP Morgan that say regulators should. Allow for more transparency, which is always an issue that we talk about. But I thought it was interesting. Less than 1% of customers who filed detailed complaints about checking, savings, account closures within the CFPB an agency, unfortunately it's going away over the last 13 years, accused banks of acting with or for political or religious reasons.

Even though, again, quoting from the story as the White House mounts a campaign to stamp out what they're calling. Quote, systematic, systemic abuses unquote, that have wrong conservatives. Couple points about this. Obviously these are, uh. These are claims to the CFPB. The counter argument is that some don't know why accounts are closed, so the banks don't share that.

But if we've said many, many times if you file a sar r against a financial, against an entity, a financial institution obviously can't disclose that. So that's why you get those fairly limited. Responses that say we're closing your account 'cause it doesn't fit our business model or what have you. But uh, what's important here is the premise for this executive order.

So I just leave it there. Good story by Reuters, well respected, uh, organization, obviously. Uh, looking at the facts again, I'm very, very curious and very interested on how this is gonna play out going forward. Yes.

Elliot Berman: It is hard at the moment to envision exactly how all of this is gonna happen. And you and I have talked also about the more pressure there is on financial institutions to do things without truly assessing risk.

Uh, the more risk there'll be to the financial system. And I, you know, I only have to remind everybody of 2008, nine, and 10 when risk analysis in the mortgage lending space and in other lending spaces sort of went away, and we found out that that doesn't work very well when it comes time to be paid back.

So we'll just have a see.

John Byrne: Yeah. Quick aside on that on the, uh, I believe on the 26th of this month, my interview with Bob Simpson, a mortgage fraud expert will be posted. And so you're gonna wanna listen, listen to that that interview that we did Elliot, uh, since we are in the the crypto world, if you will, the us uh, the stablecoin issue, I know there's a couple things you wanted to highlight that's, uh, going on.

One includes a Treasury request for comment, and then, uh, we can talk about some of the other items.

Elliot Berman: So, as people are aware of the Genius Act, which, uh, in part is intended to create the cryptocurrency landscape in the United States whether it truly does that or not, we'll have to wait and see.

But as part of the act, uh, SEN has some rule writing. Obligations, they've issued a request for comment. Uh, it offers and I'm quoting here from the press release, the opportunity for interested individuals and organizations to provide feedback on. Innovative or novel methods, techniques, or strategies that regulated financial institutions use or could potentially use to detect illicit activity involving digital assets application program, interfa interfaces, APIs artificial intelligence digital identity verification, use of blockchain technology and monitoring.

It'll be interesting to see what the comments are. I'm sure they will be broad and deep. And more interesting will be what does sen do with what will no doubt be a pile of information. And John, I know you pointed out to me that the, um, a number of the financial. Associations, uh, the American Bankers Association independent bankers and others issued a joint fact sheet about a portion of the Genius Act recommending, I think, recommending some modifications or clarifications.

You wanna talk about that?

John Byrne: Yeah, I wanna give credit to, uh, Jason Mcla. He runs a, uh, a newsletter called Finan FinTech Business Weekly, and he identified, uh, got his hands on this, uh, letter. Uh, a letter went both to the administration and also to the Senate Banking and House Financial Services Committee.

Again, the banking trade groups were the A BA, the Bank Policy Institute, and a number of State Bankers Association. The key here is they are arguing. There's a loophole in the Genius Act, which allows uninsured outta state special purpose depository institutions to operate without host state approval.

And the letter describes the loopholes as, uh, prohibitions on non-financial companies like Apple, Google, Amazon, and Walmart becoming stablecoin issuers. But again, according to Jason's analysis, the interest yield topic is the most significant at this point. So the, the letter argues that the prohibition on issuers paying interest quote from the letter is easily bypassed when exchanges or other affiliates offer yield.

Or rewards to stablecoin holders undermining the law and distorting market incentives unquote. The, there's a fact sheet that you mentioned. It said the loophole could help lead to as much as $6.6 trillion in deposit outflows that they said would reduce banks' ability to lend. So again, this this came after the passage.

One would have to question why this wasn't brought up beforehand. You know, having been a lobbyist in my previous life this would be a problem after the fact. So, it's gonna be interesting. I would imagine that this is gonna get covered in those, uh, in those comments. Of course, I'm sure that Treasury is asking for.

So interesting, uh, both interesting angle and like I said, I wanted to give credit. To Jason for identifying this and getting it on our radar

Elliot Berman: and broadly related to this. I noted this morning when I was looking at things that Wyoming, the state of Wyoming has announced the establishment and issuance of a state.

Sponsored the first state in the US to sponsor its own stablecoin. So we'll have to see where that goes. I also wanna think back with you for just a moment. There was a time in the United States, I wanna say it ended around 1870, but don't hold me to that year. But before that, were banks issued their own currencies.

All right. Um, there, there really wasn't a true national currency. And the reason that we ended up establishing a national currency, uh, well actually we started establishing a national currency back in the Civil War. But the reason that. We basically told banks you can't issue your own currency anymore, was because, not surprising, it was kind of a mess.

If I had, uh, first National Bank notes and I went to another town, it was sort of a tossup whether those notes are gonna be accepted as currency because people had to know enough about First National Bank to know whether or not they were actually valuable. There's a little bit of that, it feels to me going on in the stablecoin universe.

So if everybody who wants to issue a stable coin just goes and issues a stablecoin, it's not clear to me how that's really gonna work in an economy as big as the US or across bor international borders. But we'll see. I expect, uh, we'll see how that unfolds over the next 10 or 15 years.

John Byrne: We also note that in addition to Treasury asking for comments, they're reminding people that they're phasing out paper checks on September 30th.

We've talked about that before, but obviously that's going to be an interesting transition for, for many that don't have access or maybe know how to get electronic. Um. Deposits or checks obviously a good idea in general. It's, uh, it's bipartisan. People have talked about getting rid of paper checks for a long time, so it's, this is gonna be another area where they do warn in the note, uh, that, um, be careful about the, you know, scams, government impersonation, scams and that kind of stuff, which, uh, I'm sure they'll do a lot more of that.

So this'll, this'll be interesting, but again, phasing out paper checks on September 30th.

Elliot Berman: Right. And I think that's both for recipients of benefits as well as for vendors. Uh, so you got sort of two big classes of folks. The vendors are probably a little bit ahead of the people, the vendors who don't receive, who are currently receiving checks, maybe in a better position to make the shift quickly.

Many people who. Continue to receive physical benefit checks from the federal government. Uh, do it because they don't necessarily have, uh, a bank account, so they'll have to figure out, create a recipient account. What else would you like to talk about, John?

John Byrne: Something just, uh, hit my feed, uh, late last night.

And this is something that another person that we've interviewed before, Alison Jimenez has talked quite a bit about, and that's sextortion issues. This is, uh, she posted an article from Wired Magazine that, uh, highlights that scam compounds in Southeast Asia. While they've conned people outta billions Analysis now shows them linked to sextortion against children as well.

So the article said there's research from something called the International Justice Mission, and uh, I believe this is an individual, Eric Heinz has found that almost 500 reports around child sextortion can be linked to scam centers in Cambodia, Myanmar, and Laos. Laos, sorry. Uh, it's in Wired magazine.

Again, just another, just another horrific method in which, uh, people get preyed upon.

Elliot Berman: I saw that, uh, that article in my Wired magazine Daily Feed this morning didn't get a chance to read the whole thing, but it was a reminder of the, uh, maybe this is the wrong word, but inter institutionalization of frauds and scams in these, uh.

Centers that are, that we've talked about that are being run many in Southeast Asia are not, but not exclusively, uh, that also often involve forced labor and even human trafficking. So, a big ball of a mess there. Um, not clear how it's gonna be resolved. Anything else, John?

John Byrne: No, that's it. We have, uh, our fraud topic as our webinar next week on the 28th.

Looking forward to talking to our panelists about that. As I mentioned, I got a couple of interviews coming up next week that we'll put in the system. I was able to sit down with, um, Lisa Arquette, a former FDIC, uh, deputy Director of, uh, op Risk and other things at the FDIC for a lengthy interview.

About her career now that she's retired and some of her thoughts about what were some of the career highlights and challenges, but also what's going on today. So that'll be, uh, that'll be up most likely after Labor Day. Uh, that's that was interesting. And then as I said, we've got Bob Simpson's article or interview coming up.

I'm still efforting our folks from the Antiquities Coalition. That hasn't, uh, we haven't finalized that, but I'm also, as I said, talking to. Folks from the humanitarian world on on Monday. So a lot going on. Again, tell us if you want us to interview somebody or some topic or some theme, uh, we're more than happy to follow up.

Elliot Berman: Sounds good, John. So drive carefully. I know you're driving down to the SaaS conference and uh, I will talk with you next week.

John Byrne: Take care. Stay safe.

Elliot Berman: You too. Bye-bye.