This Week in AML

Infrastructure Security, Marijuana, Real Estate, and Much More

This week, the White House released a new National Security Memorandum on Critical Infrastructure Security and Resilience. The Attorney General recommended reducing restrictions on marijuana. Global Financial Integrity and several other organizations released a report identifying 25 cases in which illegal, allegedly illicit, or suspicious funds were funneled into commercial property in the US. John and Elliot discuss these and other events of the week that are important to members of the global financial crime prevention community.


Infrastructure Security, Marijuana, Real Estate, and Much More - TRANSCRIPT

Elliot Berman: Hi John, how are you this week?

John Byrne: Hi Elliot, good. We are now in the month of May, so another, probably in the U. S. at least, another two months of congressional activity and then obviously as people know that are here, once we get in full swing into the election campaigns in the fall, not as much activity.

So I think anything that's going to happen that could be impactful to our world would potentially happen now in from a legislative standpoint, certainly from a regulatory standpoint, there is a lot going on. Guidance documents, that sort of thing. I just want to highlight a couple of quick things and then there's more to talk about with some of the other issues.

But just the other day, the White House issued a National Security Memorandum on Critical Infrastructure Security and Resilience. And this is Memorandum NSM-22, and it's really the entire federal government, if you look at all the people involved, from the defense industries to the banking industries to UPS and all that. The document talks about ways to strengthen and secure infrastructure.

And so they have some policy principles about working together, so shared responsibility. Something that we well know in the AML space, the risk based approach they advocate, doing risk assessments because you've got to consider all threats and hazards. Minimum requirements, federal, state, and local levels. That's relevant to critical infrastructure protection.

And then accountability, where do you go to when there's issues? And as we said on the front part, too, in the information exchange, there's other things in there as well. But those of you that are very active in the cyber area, and even those of you that it's an adjacent issue for you, just take a look at that. So that just came out. So I thought we'd mentioned that.

And then really this morning, as we're recording, another report was issued, a group that we've talked to, and actually had participate in some of our webinars, and that's Global Financial Integrity, they worked with the FACT Coalition and something called the Anti Corruption Data Collective, released a report that highlights 2.6 billion dollars laundered through US commercial real estate. That's from publicly available data. They make that pretty clear. The money originated from around the globe. Funds that they deemed suspicious from 14 countries, including Iran, North Korea, Russia. A variety of the sources of funds were in the types of properties, commercial properties, so hotels, shopping malls even an equestrian facility.

The head of Global Financial Integrity Tom Cardamone, who we've talked to before, he said that the fact that 14 of these cases involve investments by PEPs, politically exposed persons, or Russian oligarchs, speaks to the lack of due diligence involved in commercial real estate deals.

So some of it's inadvertent, some of it is laws and regs that obviously they've been very strong proponents of changing. So a couple of recommendations in the paper. They want FinCEN to adopt a reporting obligation for multiple real estate professionals. The rules should cover transfers of ownership that don't constitute a sale. So they think since current rules only refer to purchases of real property by a legal entity, that's not enough.

And then the rules should cover transactions by trusts. Because as they note, an increasing number of housing is now owned by legal entities and arrangements, including trusts. They said, for example, in LA, 23% of rental units are owned by trusts. So interesting report. Obviously, these are strong advocates for more transparency. Just issued this week, and it's on their website.

Elliot Berman: And that part of the real estate sector is outside the scope of the proposed rule by FinCEN.

John Byrne: Exactly. Yeah.

Elliot Berman: Which is non finance transactions for residential real estate. While the FinCEN proposal is a great move in the right direction. It is not a blanket solution to the risks related to the broader real estate sector.

John Byrne: So what else are you seeing this week?

Elliot Berman: Financial intelligence and other news outlets reported that TD Bank issued a press release late on Tuesday of this week that it's taking a financial provision related to potential exposure from investigations by U. S. law enforcement and regulators into its anti money laundering compliance program in the U. S. There's been no announcement by any of the regulators or law enforcement, but this is the kind of announcement you'd expect a public company to feel it had to make under the accounting rules and securities laws. So more to come on that.

And then you pointed this out to me yesterday that the U. S. Attorney General has proposed to change the classification of marijuana from a Schedule I controlled substance to a Schedule III which has a lot of steps. One of the first steps was they had to go to the, Drug Enforcement Administration and get a sign off, but there are many more steps. So I know you wanted to talk about that, but I thought that was interesting.

John Byrne: And since, that's something that our community has been following it's a lengthy process, right? I think that's something to, even though this is a positive for those that want to be. Quick aside in the survey that we worked on with HSF RightSource several of the responses had to do with banks that were interested in continuing to bank cannabis in some form.

So there's definitely a fairly large group of at least respondents to the survey that said that. So this will be certainly of interest to them.

Elliot Berman: Also the FBI has issued a reminder to people who are doing activity in the crypto space using exchanges that they should use exchanges that are registered as money services business.

Again, this is in the US. That brings them under a anti money laundering compliance program obligation and will also help weed out the fraudsters and things like that. Again a reminder from the FBI about that.

John Byrne: You know, didn't get a lot of play, but there was an op-ed piece in the Washington Post this week from David Ignatius who reminded everybody that Christopher Wray testified a few weeks ago, the FBI director, for budget priorities. And he talked extensively about terrorism threats. And just to repeat something that I think we're all aware of at this point , one of the major concerns for the FBI are lone actors.

And they see that as a threat both from domestic violent extremists and homegrown violent extremists both primarily located here. And so that's a, top domestic terrorism threat. Obviously, there is a financial review component to that, but he also, mentioned that these acts obviously could hit all sorts of places.

I would just add that not suggesting it's terrorism yet, but there definitely has been some reporting and some actually today that I saw in the media that the protests on some college campuses include people that are not college students and in fact law enforcement counterintelligence, especially in New York, have been watching some of these individuals.

So they're not connected at all to protesting what's going on in Gaza. They are using those opportunities to commit, if not violent acts, certainly physical acts. So something to think about going forward. Again, There's no hard data on it yet, but that's something that they announced today.

So something we should just file in the back of our minds in terms of eventually, will there be any sort of financial aspects of domestic terrorism that we should be looking for? So just something to think about. It just shows how Elliot and I, everything is so connected, sadly in society. And obviously our community, the people that do financial crime prevention and detection and reporting are, I won't say front lines, but they're certainly working with the partners that are on the front lines.

Elliot Berman: Yes, the interconnectedness is becoming more and more obvious as we see fraud and money laundering being tied more closely together. As well as fraud and then money laundering even to if not domestic, certainly international terrorist groups.

Another thing that I saw that I think is worth our audience being aware of, FinCEN, put together a webinar that is available on YouTube. And it's about the actual step by step process for a company to determine if it has to register its beneficial ownership information in the registry, and if so how exactly to do it. What information it will need, literally what buttons that will click and all of those kinds of things.

It wasn't the most sophisticated piece of video I've ever seen, but it gets the job done. What's the use for our audience? If you have clients who come in and ask you about this, which oftentimes they lean on their financial service providers for all kinds of advice that's broadly financial, this would be a resource where you could say to them, if you go to this place, there's a really good a half hour, step by step how to. This is a how to video and it makes it quite clear how to determine if you have to file. What your deadlines are and exactly how to do it. I commend FinCEN for finding another channel to add to all of the other support material related to the BOI registry that they have put out.

John Byrne: The last thing I want to mention is the Basel Committee on Banking Supervision. Put out a new version, actually the first one since January of 1999, on what they call sound practices for banks interaction with highly leveraged institutions. Basically, guidelines are counterparty to credit risk management.

The guidelines include resolving industry weaknesses that they believe exist in that risk management. Including how to conduct comprehensive due diligence, onboarding on an ongoing basis, developing a comprehensive credit risk mitigation strategy, measure, control, and limit that using a wide variety of metrics, and building a strong framework.

So this is tangential to the financial crime space, because if you have weaknesses in this space, that can enable financial crime. It is out for comment it looks like till August 28, 2024. And again, this is Basel Committee on Banking Supervision. So you can go to bis. org for more information on that.

Elliot Berman: And the last one I have is I saw that FATF has in the process of reviewing its Recommendation 16, which generally is aimed at, person to person wire transfers and wire transfers more broadly. And as part of its announcement of considered changes, it's including the idea that banks should be paying attention to the cash withdrawals by their customers at foreign, meaning out of home country, ATMs as a possible avenue for money laundering.

And what caught my eye was not that proposal, but that the Wolfsberg Group, another group we talk about regularly has pushed back against that part of the proposal saying, and I'm quoting here from an article quoting them, the banking group, meaning Wolfsberg, said it is concerned that FATF suggestions could lead to quote substantial adverse impacts close quote on customers traveling abroad and potentially delay or prohibit customer access to their funds.

So again, no action to take but Interesting. FATF continues all the time to be looking at its various recommendations and what makes sense as best practice globally. And this was an interesting reaction by another group made up principally of large international banks.

John Byrne: That sounds great. So going forward we're doing a special edition of AML Voices. It'll be on May the 10th at one o'clock ET. We're really pleased that we're going to have with us Guy Fico, who is, as just named the new chief of IRS CI, along with Don Fort, both from our advisory board, also former IRS CI chief, and now he's director of investigations at Kostelanetz.

And we're going to talk about the broad topic is preventing financial crime, but we're going to talk about priorities from IRS and some other very valuable issues. And so really looking forward to that. We're happy we were able to get on Guy's calendar and again, May the 10th at one o'clock ET.

Elliot Berman: And you can register for that at our website. And then I know we have other things in the pipeline that you'll be seeing, but we'll talk about some of those next week. John, you have a great rest of the week, and I will talk to you next week.

John Byrne: Take care, Elliot. Stay safe.

Elliot Berman: You too. Bye bye.