This Week in AML

Intelligence Threat Assessment, New Sanctions Compliance Note, and More

The Office of the Director of National Intelligence has issued its Annual Threat Assessment. The Departments of Commerce, Treasury, and Justice issued a joint Compliance Note on the obligations of foreign-based persons to comply with US sanctions and export controls. John and Elliot discuss these reports, other items, and their meaning for the financial crime compliance community. 


Intelligence Threat Assessment, New Sanctions Compliance Note, and More - TRANSCRIPT

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

John Byrne: Hey, Elliot. Good. Like the past couple of weeks, there's a whole host of things going on. I thought we'd just dive into it. And the first is the annual threat assessment of the U. S. intelligence community, which came out recently. This comes from the Office of the Director of National Intelligence, and it's obviously a combination of a whole series of things that are global and domestic challenges.

They list various state actors where there's issues, transnational issues, but I thought I would just highlight a couple quick things. It's a shortish document, about 40 plus pages, but a couple things that are relevant in our world, and that's money laundering issues, cyber issues, and human trafficking issues.

So some of the things mentioned will be not a surprise. One is that under the category of non state actor issues, transnational organized crime, so transnational criminal organizations that deal in the movement of illicit drugs like fentanyl, heroin, metamphetamines, cocaine, that sort of thing. So Mexico is a dominant producer, so the threat is no surprise there. China remains the primary source for illicit fentanyl. Precursor chemicals, so these are things that are not directly related to financial institution reporting, but certainly can be.

But then they also mentioned under the category of money laundering and financial crimes, that these organizations are laundering billions of dollars of illicit proceeds through US financial institutions, which we know happens. Some use shell and front companies to hide their illicit activities, and some rely on what they call professional money launderers or financial experts. It's a whole gatekeeper issue.

Under the category of cybercrime. Again, these organizations are doing ransomware that improve their attacks, extorting funds, disrupting critical services, exposing sensitive data that's part of it.

And then just finally in the category of human trafficking these transnational criminal organizations and various criminal actors according to the threat assessment, view human trafficking, sex trafficking, forced labor as low risk crimes of opportunity, so they engage in operations to exploit vulnerable individuals in various groups, coercing, defrauding their victims. Many of these are in the Western Hemisphere and Asia. They're most likely to engage in human trafficking with ties to the United States.

And then also there's a section in there on global terrorism. So an interesting report. I always think it's important for AML professionals to look at every possible tool in terms of explaining to senior management why they need to have aggressive compliance, aggressive investigators. And highlighting this report, I think, makes sense. Again it's available online, roughly 40 plus pages. If I'm you, I'm going to do a quick gap assessment in some of these categories and send that along throughout my organization.

Elliot Berman: I did read the report. This is of course the declassified version. It made me wonder, for a moment, what the classified version must look like. Cause there's a lot in here and, it's the kind of thing that, if someone says, what keeps you up at night? This week it was this. Just pretty scary. I think there are balancing issues that are not the focus of this report, but there's a lot in there.

And I think the things you pointed out are very critical for our community, but there's many other things in there as well. State actors and, the potential environmental crisis from global warming and health security and many other things. It's interesting in reading reports like this or threat assessments like this to get another chance to think about the breadth of all the things that have to be thought of to really try to create a secure world.

John Byrne: You also highlighted something that the OFAC, DOJ, and Commerce issued late last week.

Elliot Berman: Yeah. So as you mentioned, Commerce, Treasury, principally OFAC, and DOJ issued what they called a tri-seal compliance note. And that's because there are three organizational seals are at the top of it. It's about the obligations of foreign based persons to comply with US sanctions and export controls. I think all of us in the community are aware that all US citizens and permanent resident aliens, no matter where they're located, are subject to complying with the various sanction programs that are issued by the US government through OFAC.

That's something that sometimes I think gets lost on people because, we talk about how financial services companies should be dealing with it. But you and I as individuals have those same obligations. But there are implications both on the sanction side and on the export control side for non-US persons. So for example the note points out non-US persons are prohibited from causing or conspiring to cause US persons to wittingly or unwittingly violate US sanctions, as well as engaging in conduct that evades US sanctions. And non-US persons who are in the US at any moment along the way as well as all of their entities, if they're doing business in the US, are also subject to US sanctions.

The other thing that I thought was important, and you and I have talked about this recently, is that often US export control laws are, I don't want to say ignored, but a little bit forgotten. And part of the toolbox of the US government to protect the US and also enforce certain restrictions.

And in this case, they specifically talked about certain munitions and dual use items that are controlled through the export administration regulations that are under the Export Control Reform Act. Most of us are not as familiar with those as we might be with the sanction programs. But the key coming out of that is the law follows the goods.

So again, how do you get to non-US persons? We get to non-US persons because as those goods start to move into global trade, the enforcement and control of the export control laws and the regulated regulations still applies.

The enforcement group is Department of Commerce, Bureau of Industry and Security, BIS is its acronym. And again, a high point here, BIS actively enforces US export control laws regardless of where the offending party is located. Anyone involved in the movement of items subject to the EAR, and those are the regulations, must adhere to US export control laws.

So again, a wide net. Not surprising, because if you're trying to manage export limitations you have to go where the goods go, otherwise, once they, leave the port, you're stuck. But, as you pointed out with the threat assessment, this is available online from all three agencies. A valuable read, just as a reminder about the breadth and how you may be looking at transactions and other things to identify suspected suspicious activity.

John Byrne: Two other things. One thing that we, we haven't talked about, but in the March 9th issue of The Economist, there's an article in there about how anti-corruption Investigations and prosecutions are being impacted for various political reasons. So it's a pretty lengthy story. It talks about a investigation that began 10 years ago. It was it was dubbed Lava Jato, and that's a car wash, which was laundering money.

It was considered the biggest investigation since the 1990s. A third of Brazil's senators, nearly half of its governors were drawn in to some extent. So the story talks about that case, but also says that Brazil has some pushback on prosecutions for a number of reasons and Brazil fell 10 places in the annual index perceived corruption released by Transparency International. It's a pretty lengthy piece, a couple pages in The Economist, but they're basically saying that some of the aggressive actions of prosecutors went too far, according to some, and it's now resulted in almost more corruption not just in Brazil, but in Latin America in general.

So it's worth looking at. We do cover corruption, from time to time. And they do talk about the profits from bribes. There's a chart in there that's worth looking at. And they do, I say, they mentioned that the US has done some prosecutions because there's been a connection through US institutions but also as I said, that the environment's changed a bit because of some of the people in power. Worth looking at. Adjacent issue to pure corruption cases, but I thought it was worth highlighting.

And then we talked last week about the Alabama case National Small Business United versus Yellen. This was a federal district court case where they said that the Corporate Transparency Act exceeds Constitution's limits on congressional power, and enjoined Treasury and FinCEN from enforcing the Corporate Transparency Act against the particular plaintiffs in that case. FinCEN has appealed, and they say in a statement on their website that they're complying with the court's order, and will continue to do as long as that remains in effect. So they're not currently enforcing CTA against the plaintiffs in the action, but if they're not part of that injunction, reporting companies are still required to comply with the law and file beneficial ownership reports. As provided for, obviously, in the FinCEN regulations.

Elliot Berman: Yes, and there have been several press releases about significant numbers of organizations complying with that obligation and putting their information in the registry.

John Byrne: One other thing very quickly, the US is going through its budget process, which typically is not super exciting for us in the AML world, but I do want to highlight that the president has put out his budget. The Republicans, it just happens to be the case for all you trolls out there, this is fact, this isn't advocacy one way or the other. The Republican response to the 2024 budget proposal would actually lessen the DOJ budget by 3%. FBI is by 6% and Bureau of Alcohol, Tobacco and Firearms by 7%. So with all the financial crimes still going on, obviously reducing investigations, reducing potential prosecutions, which would be the result of lessening their budgets is, problematic. So it'll be interesting to see what happens going forward. But I did want to highlight that and you just need to look on the various House and Senate websites for more information.

Elliot Berman: John, when people hear this on Friday, they will still be able to register for the AML Partnership Forum, which starts next Monday, the 18th.

John Byrne: Yes, and we're very honored to be part of this as everybody knows. It's a 501c3 organization of private and public sector partners in the financial crime prevention space, and we will have each day conversations with folks in the private sector, but also from the Homeland Security Investigations, IRS:CI, the FBI, Postal Service, Federal Reserve, other agencies will be there.

So people will not only be panelists, but people in the audience will be actively engaged in the various conversations. So we're real proud of this. If you're in the DC area or New York, you can jump on Amtrak and come down for a day or two. It's available on the website. Elliot, you want to remind them again where they can go to get that information?

Elliot Berman: Yes, AMLPF. com.

John Byrne: Great. Sounds, sounds good. Looking forward to seeing you this weekend for the conference. And if anybody has any particular questions, again, this will be posted Friday. Give either of us a call or an email. We're happy to help you out.

Elliot Berman: Yes, and you can still register for our March webinar, which is on countering terrorist financing and its use of virtual assets, which will live stream at 1 pm ET on Thursday, March 28th. So please go to our website, amlrightsource.com and register for that. John, anything else?

John Byrne: No, that's good for now. Safe travels and we'll see you soon.

Elliot Berman: Sounds great. Talk to you soon. Bye bye.