This Week in AML

IRS:CI’s Annual Report and So Much More!

It has been another busy week. IRS:CI issued its Annual Report for 2023, the US Treasury announced the creation of a new fentanyl task force, and several other interesting things surfaced. John and Elliot discuss these and their meaning for the financial crime compliance community.


IRS:CI’s Annual Report and So Much More! - TRANSCRIPT

Elliot Berman: Hi, John, how are you today?

John Byrne: Good, Elliot. Quite a bit going on and for it being December, which is, as we both know, not that unusual. A lot of end of the year activities. get reported on. But we've also seen a number of announcements that we thought we'd quickly highlight. And as always, tell folks to go to the source and get more information.

But the first thing that I'll mention, because they're such great partners of the AML community, is that the IRS issued, IRS CI, their 2023 annual report. And as we mentioned on previous conversations, we are efforting to get an interview with Jim Lee before the end of the year, which I think we'll be able to do.

He's been traveling like crazy all around the globe. But this report, always issued at the end of the year, focuses on enforcement actions and focuses on the work of IRS:CI. And one thing that I know Jim mentions all the time that's listed here in the release, that CI is the only federal law enforcement agency that spends 100% of its time on financial investigations.

So I think that's an important note that we wanted to highlight. But for 2023 again, take a look at the report. There were more than 2,600 criminal investigations. They found over $37 billion from tax and financial crime. And this is really very impressive an 88.4% conviction rate on cases that were accepted for prosecution.

Obviously, as we mentioned, they focused on tax fraud and money laundering, cybercrime. What else in the report jumped out at you?

Elliot Berman: One of the things that caught my eye was the number of IRS:CI staff for fiscal year 23. And that total is a little over 3,100 broken up about two thirds special agents and one third professional staff, so analysts and those types of folks. And that's about a thousand or nine hundred less than they had in fiscal year 2010.

So we've talked off and on over the last number of years about the importance of funding additional resources at IRS including in CI. And I think this it was a reminder to me that funding and support has been slow to come forward and continues to be hot button issue in Washington.

So that was one thing. And the other thing is just a reminder to me of the breadth of things that they do. They look at financial crime broadly, but they look at fraudulent tax refunds. They look at claims and, false use of claims and credits. But they look at cyber crimes and tracking funds through cryptocurrencies.

They talked in a number of different places, how they're seeing be connected or involved with frauds and money laundering and other things. They talked about the effort that they put forth in terms of investigations related to fentanyl, and general threats to national security that have a financial component.

Working to try to dismantle transnational criminal organizations. And the collaboration they have globally with sister agencies in other countries, providing training for financial crime investigations to the staff members and other national taxing authorities.

It's a really broad mandate. And with just 3,100 folks, they get it done.

John Byrne: Yeah, I think that's the key, right? And that's where I don't think the American people are aware that they do all that, and that makes money for the US Treasury. Speaking of the US Treasury and fentanyl that you just referenced the Department earlier this week announced a counter fentanyl strike force, and that's going to include IRS:CI, also the Office of Terrorism and Financial Intelligence. But this is a key priority of the Biden administration to deal with this.

And this is created by the Treasury and will be chaired by the Undersecretary Brian Nelson and Jim Lee, as we mentioned. And that will allow work streams and staff and resources, FinCEN, OFAC, and other parts of the government to work as needed on this. So definitely an issue that is important to Americans wherever they are throughout the country because fentanyl is such a major problem.

And this again will help target elicit supply chains and allow the sharing of financial intelligence, especially with the private sector when they're able to do that. Having a focus on something makes it really important, but putting the resources and connecting all these agencies and all these experts is really going to be something that you'll definitely be able to see a targeted focus. Take a look at that announcement. It has various elements on how they plan to do the partnership. It's also going to be partnering with foreign financial intelligence units, and I think that's important as well.

Elliot Berman: Yes another one staying in the tax area, Bancque Pictet, a Swiss private bank and asset manager entered into a deferred prosecution agreement with the US Treasury related to the banks, conspiring with US taxpayers to hide over $5.6 billion in secret bank accounts.

They're gonna pay a $122.9 million fine, which in part represents about $50.6 million in uncollected taxes as a result of the scheme. And this goes back a ways. It goes back to activity from 2008 to 2014. Again, as we've talked off and on, and as actually is pointed out in the CI annual report, an effective voluntary taxation system is the backbone of our economy.

And when you find people looking for providers who will help them not participate in that voluntary tax payment process it's good to see that we're ferreting them out.

John Byrne: Yeah, and related to both the international scope of these issues, but also what we mentioned earlier the collaboration, a bill was introduced in the Senate recently. We don't normally pay that much attention to separate potential pieces of legislation, but this one was bipartisan in scope. So I think it was worth mentioning because I know the folks at DHS, Department of Homeland Security, are pretty excited about the possibility here.

The bill is called Combating Cross Border Financial Crime, but basically it would create a fusion center. And that fusion center would be housed within DHS, and that would coordinate information sharing, so law enforcement could be better able to work with their local and international partners. But the fact that it's both bipartisan and creating, again a resource becomes pretty important.

So they're going to be able to coordinate and analyze financial crime data all throughout the federal government. And so that center would be, again, in DHS, and they're pretty well positioned to deal with cross border trade related data, given all their work in the import export space and in areas like that.

But the bottom line is, this is going after transnational crime, tax evasion that we've talked about before, terrorists, of course, and kleptocrats. So legislation introduced late last week. Even though we're in December, I think this has the potential of moving because again, it's both bipartisan and it's dealing with issues ranging from terrorist activity to what's going on in China and other places.

Elliot Berman: Yes, it'll be interesting to , see what happens if it gets out of the Senate when it gets to the House. But it might be one of those rare opportunities for people to put aside their differences and move something along that's helpful for the whole country.

John Byrne: We also as we go to record today saw this both on LinkedIn and various press reports and that's an administrative penalty on the Royal Bank of Canada. This comes from a 2023 review. And so this penalty is $7.4 million in Canada for committing three violations.

Take a look at this. The violations, as I said, were found in the course of a compliance exam and they're spelled out. But basically, they deal in part with failure to file a number what they call suspicious transaction reports in Canada and some other activity there. This was done under the authority of Canada's Proceeds of Crime and Terrorist Financing Act and the reporting regulations. So I assumed you saw that in the press as well.

Elliot Berman: I did. Again, it's a reminder that other countries besides the US are paying attention to these rules and expecting banks to pay attention to the basic rules. I didn't see anything particularly exotic in here. Other than, a breakdown in day to day quality operations. And it's, as you always say, these kinds of announcements are an opportunity to do an internal review and also a training opportunity.

John Byrne: Yeah, and the last thing, as we're recording today the FBI Director Chris Wray is testifying before, I believe it's the Senate Judiciary Committee, and he highlights a few issues, including the continued attacks by foreign terrorist organizations and calling out specifically what happened on October 7th, the massacres in Israel, and the recent increase in hate crime investigations and all that.

But he spent most of his time talking about something the FBI is concerned about, and that's making sure that Congress passes an extension of the FISA Section 702 authorities. Which has to be done before the end of the year. He spent most of his testimony talking about that. This is the Foreign Intelligence Surveillance Court and that's a process that has worked extremely well, law enforcement will tell you, over the years, for all sorts of reasons.

So I, obviously, I'm not sure where this all stands, Elliot. But this was what he spent most of his time talking about in this morning's hearing, which actually might still be going on as we record this.

Elliot Berman: Yes, it's an important issue and with the need for reauthorization or extension to occur yet this calendar year. We're just literally running out of days.

John Byrne: Elliot, you have a webinar coming up this month. Do you want to describe that?

Elliot Berman: Yes. It's going to be Tuesday the 19th. It's at our regular time, 1 pm Eastern time. And the topic is where's compliance technology going? There's a lot of conversation in the community and more generally about new technologies coming to bear and what they might do.

We're going to sit down with two experts, Phil McLaughlin, who's our chief technology officer, and Ken Harvey, who's a corporate director but also on our advisory board and has spent most of his career in bank operations and technology. And we're going to talk about the state of now but also what's coming and what are some of the hurdles to make some of the future things happen.

So I'm very excited and I think it's a great way to end the year. You can still sign up on our website, amlrightsource.com. So I'd urge people to do that. And John, you're putting something together for January. I know we don't have all the details yet, but why don't you give people a teaser on that?

John Byrne: Yeah, , it'll be on an update on the human trafficking challenges that we continue to face. We have a commitment from the group Polaris to participate and I'm efforting some from bankers to be part of that as well. It's Human Trafficking Awareness Month in January as well.

I also want to mention that next week we'll be posting an interview that I did with Mark Friedman. Mark is with Rebel Global Security and he's going to be talking specifically about advice in the corporate security space for financial institutions in response to violent threats from Hamas and Hezbollah, both cyber and physical. So that's obviously relevant.

And then as I mentioned, we're hoping to get Jim Lee, sit down for an interview before the end of the year. And I actually would just tell folks, take a look at our resource page, we have some interesting previous interviews we've done, and some clips from webinars, some great blog posts, and this is done to to help you in the community. And we're always looking for more recommendations that you have for people we can interview or topics. And please feel free to send those to either Elliot or myself.

Elliot Berman: Great, John. I know that you're traveling tomorrow, so travel safely. And I will talk with you next week.

John Byrne: Take care of yourself. Stay safe.

Elliot Berman: See you soon. You too. Bye bye.