This Week in AML

Lots to Discuss and Something Special to Note

This week, John and Elliot discuss Treasury testimony in the US Senate Banking Committee, Treasury’s updated cybersecurity MOU with Ukraine, a DOJ report on pandemic fraud, an interesting article on the impact of Russia sanctions, and more.


Lots to Discuss and Something Special to Note - TRANSCRIPT

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

John Byrne: Hi, Elliot. Good. Lot going on this week, both internationally and domestically. And I thought we'd just dive right into it. As we're recording this, there's an article in today's Washington Post related to pandemic fraud, and there's another issue that ties to that.

The White House is supporting a bill right now, introduced by Senate Democrats, although it looks like it'll get bipartisan support. And that's a bill that would increase spending to 1.3 billion dollars to deal with pandemic fraud. So there's a series of things in there that are supposed to improve oversight of identity theft, give various agencies more support for the work that they're doing in terms of upgraded computer systems and other things like that.

I think it generally has broader support, but we'll see. So this was introduced by Senator Dick Durbin and Gary Peters from Homeland Security and Judiciary so we'll see what happens. That led me into another thing that I just saw today, and that's, introduction by DOJ of their 2024 report on enforcement of COVID fraud.

So it's up on the DOJ's website. Just a couple quick highlights. They talk about the work that they've charged more than 3,500 defendants, there's been $1.4 billion in seizures to recover stolen CARES Act funds, 400 civil settlements and judgments. And then there's some specific programs that they reference in there.

There's a National Unemployment Insurance Fraud Task Force, a pandemic Analytics Center of Excellence and then just a couple other things that they are still advocating, and that's extending the statute of limitations for COVID fraud and extending statutory authorization for pandemic response accountability committee. That's 20 federal inspectors that will oversee relief spending.

So again, those frauds, continue to harm the economy and obviously something that federal government is being pretty active on. And then, like I said, an introduction of legislation and we'll see where that goes.

Elliot Berman: We saw last week or the week before IRS put out a report on their efforts to chase down COVID fraud as well. So this is clearly a huge problem as we all know. And our law enforcement partners are very active in the space looking for ways to recover the money that was fraudulently taken so that the bad actors are dealt with appropriately.

John Byrne: And so sticking with that, and since Congress obviously back in after a couple of weeks off, hearings yesterday, we're recording this middle of the week, but hearings yesterday on the Senate side, one dealing with illicit finance, one dealing with an update on the Corporate Transparency Act.

Just a quick highlight of the testimony from the Treasury Department yesterday. I think it's important again to read the testimony and read the statements from the committee memorandum, and all of that. This is a hearing that was in Senate Banking, dealing with illicit finance issues, and what I thought was interesting, the Treasury is pretty strong in their views that cryptocurrency is being utilized by the Islamic Revolutionary Guard, they're transferring that to Hamas and the Palestinian Islamic Jihad.

They've seen that as well. They've seen Hamas use virtual currency to solicit small dollar donations. And so there's a whole series of things in there that are referenced in the testimony. Treasury offers three recommendations, and I'll just mention one of them, and that's their middle reform. That's modernizing and closing gaps in existing authorities by making sure it includes coverage of virtual asset service providers and cryptocurrency exchanges. Because they both obviously didn't exist when the Bank Secrecy Act was created as we all know.

So there's a bunch of other things in there too issues of offshore cryptocurrency platforms and that sort of thing. So definitely a focus of the Treasury Department and obviously it's been a focus of Congress for a bit. We also mentioned the hearing on the Corporate Transparency Act update there. Anything that jumped out at you from that hearing?

Elliot Berman: No, not so much. I do want to circle back though to the Treasury testimony at Senate Banking and remind everybody that our March webinar was on illicit finance and virtual currency and the full recording is posted to the website.

And if you're interested in this space, in addition to reading the testimony in the committee reports I would say it would be an hour well spent. Our panel of experts really provided a great amount of insight to those of us who are not living and breathing that every day. So I would urge you to do that.

John Byrne: Right. On the corporate transparency, just several witnesses, one of them represented the FACT Coalition and we've talked about them before. They obviously strong proponents of CTA and in their testimony, they mentioned that the implementation has started. But more needs to be done.

And this hearing, by the way, was the Senate Caucus on International Narcotics Control. So it's a sort of a hybrid committee. And the hearing is about opaque shell companies, which the subtext is risk to national security, public health, and the rule of law. So again, Congress is back, so they're trying to cover a lot of things, and I think our area, AML related, we'll see more coverage going forward.

Elliot Berman: One of the continuing challenges in that space is the US methodology for creating and governing corporations. So the CTA is a national overlay, requiring, among other things certain corporations to report into the registry. But every one of the states in the United States can issue a charter to a corporation and actually the U. S. government doesn't issue charters, so we're trying to solve a national problem with a very patchwork quilt underlayment.

In addition to the fact that not everybody's on the same page about trying to solve the various issues, the fact that we've got 50 different states in the business. And as you and I have talked about, and others have talked about, some of those states view issuing corporate charters as a business proposition, meaning a revenue stream without a lot of regulation. I think this problem will continue to be with us for a fairly long time.

John Byrne: Sticking with Treasury related items, also this week, Treasury renewed their MOU on cybersecurity with Ukraine. And in their announcement they said that they have signed this particular memorandum, an updated one, but been in place since 2020. As part of that it facilitates exchange of information between the National Bank of Ukraine and the Treasury Department.

And the press release, you can go ahead and read the MOU, obviously, but it was signed in Washington, Kyiv. And like I said, it does shares information about cyber threats, incidents, threat actors, and best practices. And those of you that are in the cyber security space may want to take a look at the MOU, but again, it's an updated version of the one that was first crafted back in 2020.

Elliot Berman: And this is another MOU of this type on this topic in a series of them that Treasury has been signing with global partners over the last number of months, you and I have mentioned a few of those. International cooperation on cybersecurity is a key priority for Treasury, and this is how they're continuing to implement that efforts toward that strategy.

John Byrne: Do you want to mention the recent article that you highlighted from CEPA on sanctions with Russia?

Elliot Berman: Yes. The Center for European Policy Analysis posted an article on their website recently, and I'll read the tagline. Since the beginning of, Russian aggression against Ukraine many have argued that sanctions are having close to no effect on Russia's capacity to wage war. They're wrong.

The author's zeros in on some changes made to one of the existing executive orders, but the point is it makes very clear that Treasury is prepared to issue secondary sanctions to global financial institutions, which choose to facilitate what are called significant transactions supporting Russian military industrial base.

And the author makes the point that we're seeing banks in India, China, Turkey, and the UAE tightening their sanctions compliance to avoid secondary sanctions being issued against them. And this is having a significant effect on Russia's ability to finance its energy sector, which is the largest sector of its operating economy.

An interesting read, a little wonky, I acknowledge, but you and I have talked a lot about the Ukraine sanctions programs. There's been a lot of action by the U. S. government. UK, EU and others. But there is always that question, is it working? And my takeaway from this is we have to remember that sanctions are not an instant solution. They really take time to work. If you can be patient, which I realize in a situation like the Russia Ukraine war is hard, that they can be an effective foreign policy tool.

John Byrne: You also identified a C&D with the Federal Reserve that has some interesting issues in it the Mode Eleven Bancorp.

Elliot Berman: Yes, so Mode Eleven Bancorp is a bank holding company in the United States. It's headquartered in Wyoming. It has a single bank subsidiary, Summit National Bank, a pretty small bank, just over a $100 million in assets. And for those of our listeners who are in the banking industry, they know that in today's world, that's a really small bank.

It's a broad ranging cease and desist order with all the things you'd expect to see. The bank holding company has to maintain itself as a source of strength for the bank. Directives to the bank holding company board of directors to ensure that a variety of things happen at the bank.

But the interesting thing is, this bank was apparently quite active offering banking as a service through various bank subsidiaries and holding company subsidiaries. And the the C&D orders the holding company to cease all of those activities. We did a webinar a couple months ago the February webinar was on banking as a service. And there was a lot of discussion by our panel of experts about the various risks and having the infrastructure to be able to do it well, and then also understanding the risks that you're taking on because of who the customers are.

And it was interesting, I had not seen a regulatory order in the U. S. prior to this that said, just stop. We'd seen some that said, fix this, fix that, but we hadn't seen just stop. Worth a read. It's available on the Federal Reserve website if you search for Mode Eleven, M O D E, and then 11 spelled out, you'll find the order. Worth taking a look at that.

John Byrne: I think that's it on my list. Anything else?

Elliot Berman: I have two things. One is our partner, Jim Lee, who recently retired as the chief of IRS:CI, we all expected that he would join the private sector and he has done that. It was announced this week that he's joining Chainalysis. We wish Jim good luck there.

And then I have a quiz question for you. What happened on May 15th, 2020, that our listeners might be interested in?

John Byrne: It was too early for the vaccine to be ready, as I recall. I think it was roughly a little bit later than that, although time tends to block that out. I'm going to guess that was roughly around the time, or maybe the exact time, that we did our first This Week in AML. I cheated a little bit because I looked it up, but I think that's what happened. And how many of those were there? Have there been thus far?

Elliot Berman: You are correct. May 15, 2020 was our first episode. And since then, including the one that we're recording right now, this is our 200th unique episode. You'll recall that around the holidays, we finally got a little lazy and did a few archive versions. But other than that we have done 200 episodes as of Friday, April 12th.

John Byrne: And so our goal from the very beginning was to give you a snapshot of what we thought were relevant, important items for that particular week.

Obviously sometimes a lot more goes on. So we try to identify a few that maybe you're aware of through other Publications and media, or maybe not, but then it gives you hopefully a reason to dive into these particular issues, depending on whether you're an investigator or compliance officer, an advisor, an attorney, what have you.

We've tried to do that. Hopefully we've been successful. Couldn't really do it without the strong support and work of the RightSource staff. They do a great job of taking our conversations and getting them up, posting them and making sure they're on various platforms for you to access. So we really appreciate their work there.

And I think our theme has been, and I'll let Elliot fill in any gaps that I leave here, but our theme has always been our community is made up of the private and the public sectors. Obviously, you just heard us mention Jim Lee, the strong support that the private sector has had with their law enforcement and regulatory partners has been essential to making the AML community strong and diligent and be able to deal with all these issues and challenges that arise.

So we've tried to do that and obviously we've also tried to be relevant wherever you sit, whether you're in the US or anywhere else around the world, that whatever issues we're touching on have some relevance to what you do each day.

And what you do again Elliot, I'll stop here, but what you do makes a big difference. And so hopefully we've added a little bit to that.

Elliot Berman: I echo everything you said. And as we've said before, if there's something you want to hear about, whether it's on This Week in AML or our AML Conversations series or our webinar series, we'd love to hear from you.

We're trying to be sure that we're getting information and viewpoints to you that are helpful. John, I want to thank you. When this started out, I know that the we were figuring out what to do, but I've enjoyed doing all these episodes with you, I look forward to doing many more. This is by no means an announcement that we got to 200 and we're done.

We plan to continue to do this. And and look for ways to continue to make it better and more relevant. Thanks for the 200 episodes, and I look forward to a bunch more.

John Byrne: And we have other things that are coming up, but I think that's a good ending to this one. Elliot, I obviously share what you've said as well, and working with you has been great.

Obviously, we've known each other for decades. This has been a fun way to both stay engaged but also, hopefully, add a little bit of information to the community out there.

Elliot Berman: Agreed. You have a great rest of the week and I'll talk to you next week.

John Byrne: Take care.

Elliot Berman: You too. Bye bye.