One More Busy Week in Financial Crime Compliance

This week the White House hosted the second Summit for Democracy, focusing on reducing corruption and illicit finance. Treasury Secretary Janet Yellen announced a Commitment entered into by the participating countries centered on transparency of beneficial ownership information. John and Elliot discuss these items and how they impact the financial crimes compliance community.

One More Busy Week in Financial Crime Compliance - TRANSCRIPT

Elliot Berman: Hi John. How are you today?

John Byrne: Hi, Elliot. How was your son's wedding over the weekend?

Elliot Berman: Oh, it was wonderful. Everyone had a wonderful time. They were very happy. You know, like anything, like any large live event, it had its deviations from plan. But, everything worked out wonderfully and they're very happy and everybody who was there witnessed a wonderful event.

John Byrne: So anybody that now wants to say what, what happened, can call Elliot directly and he'll, he'll fill them in.

Elliot Berman: Correct.

John Byrne: So, Congress is in, this is the last week they're in until I think a two week hiatus. I'm pretty sure.

So there's a lot of hearing. A lot going on both globally and domestically here in the US. We wanna highlight a couple quick items. And obviously there's a lot of detail with all this, but the first one, as we continue to look at the world of the non-bank financial institutions, the agency known as the Commodity Futures Trading Commission announced a civil enforcement action charging Binance, and several of their current and former employees with numerous violations of the CFTC regulations. What are some of the highlights that you saw from that charge?

Elliot Berman: It has to do with Binance being accused of assisting customers in avoiding compliance with the regulations.

The CFTC is responsible for governing the derivatives markets in the US. Swaps and futures and certain options. And there are products that are offered by Binance, which is the largest crypto exchange, that are types of derivatives that are not legal in the United States.

And Binance runs a bunch of different platforms, and one is for the US, which has a shorter product menu, but the allegations in the civil complaint are that Binance specifically assisted clients in avoiding or rather evading the compliance controls. And one of the ways they did that is they did not require customers to provide identity verification information before trading. Which allowed us customers to go on some of the non-US based platforms and trade in these illegal derivatives, illegal for US citizens to trade in.

John Byrne: Yeah, they actually say in the filing, it's a 74 page document that, Binance and its officers and employees and agents instructed US customers to use VPNs to obscure their location, as you said, and allow the customers that had not submitted proof of their identity to trade, long after announcing such conduct was prohibited.

And these were VIP type customers or high wealth individuals. What, I think is important for our audience is both that the CFTC is active in this space and the chief counsel said, that the enforcement action makes it clear that CFTC will pursue, quote those digital asset platforms and individuals who flout and actively attempt to circumvent CFTC regulatory requirements.

So this is yet another agency involved in the very challenging area of dealing with compliance requirements, whether they be AML related or not, in the digital asset world.

Elliot Berman: Yes. There also have been reports over the last several years that the US Department of Justice has an open investigation into Binance.

Whether that'll turn into anything other than an investigation, is unclear at this point. But, this action by the CFTC is not the only look that, the US law enforcement and regulators are taking at Binance.

John Byrne: Right. I know we weren't planning to mention this, but I just wanted to briefly mention this as a, another global issue, and that is the organization known as the Institute for Economics and Peace came out with their Global Terrorism Index for 2023. So you can go on their website and take a look at it. I just wanted to mention a couple quick things in that index that while terrorism deaths are down a little bit, they're more deadly. So obviously as we continue in the AML community look for financial footprints and reporting data like this, surveys like this are pretty important.

So I just wanted to highlight that. But the other one that we definitely wanted to mention Secretary of Treasury, Janet Yellen, who's been obviously testifying sort of constantly this week and last week, released and it's published on the Treasury website, remarks on, the anti-corruption issue what they're calling the democratic economy at the Summit for Democracy are working on.

So what were some. Highlights of that. And does dovetail into something we just learned before we started recording. And that is an

announcement late yesterday by Treasury on beneficial ownership. But, what were Yellen's key points there and then we can talk a bit about the announcement that came out yesterday, or at least was reported yesterday in the Wall Street Journal.

Elliot Berman: Yeah, so let me just set the stage. In 2021, the Biden administration host ed a Summit for Democracy. 20 Democratic countries around the globe, along with leaders from civil society organizations and international organizations to discuss efforts, I'm quoting here from the press release, to counter corruption illicit finance in order to uphold the rule of law, promote good governance, and ensure an equal economic playing field.

And this is really an anti-corruption effort. It came out of the strategy to counter corruption that was issued by the White House. And this is the second of these and the focus here is a commitment by all of the summit attendees, on beneficial ownership and misuse of legal persons. And one of the things that is clear here is it's very strongly tied to the FATF Recommendation 24.

The update of which came out earlier this year. There's a lot about transparency, and the availability of beneficial ownership information.

The commitment talks about good high quality data in a form that's accessible by law enforcement and other key stakeholders. FATF Recommendation 24 goes further and talks about the access by financial institutions . It's not clear to me whether or not that difference is an effort to keep the commitment brief or whether there really is a distinction being made about access by law enforcement versus access by FIs, which has been one of the discussions about the FinCEN proposal about the US registry.

It is hard to reconcile exactly if Treasury is moving to a new model, that will be more accessible, in terms of the US efforts.

John Byrne: Well, you know, the Yellen statement refers back to something she said at the first Summit for Democracy. Quoting here that there's a good argument that right now at the time or maybe still , the best place to hide in launder Ill gotten gains is actually the United States. And then, the statement goes on to say, by this time next year it will be more difficult for corrupt and criminal actors to hide their identities because starting January 1st, 2024, the companies that are formed or operating the US be required to report about beneficial owners.

And that leads us to what you just referenced. And that is, a story that appeared late yesterday in the Wall Street Journal, and we are recording this on Wednesday, , that the Treasury is gonna change their proposed corporate ownership reporting form. And so they do quote the, acting director, Him Das from FinCEN.

And according to the story, FinCEN is working to issue an updated information reporting form as soon as possible. But a part of this, Elliot came because of criticism from Congress and obviously criticism from groups like Transparency International and some other advocacy groups, right?

Elliot Berman: Yes. And, financial institution, commenters, as well as trade groups. One of the things in the originally proposed form was that filers, were in a position to, check a box that said unknown meaning they didn't know who owned them, and so they just didn't have to report it.

And that was viewed as the loophole that would swallow the rule. We haven't seen the new form, but acting director Das has said that the form will be updated, and a new version will be issued for review. So that's a good sign.

I recommend for those in the community who haven't skimmed through Recommendation 24, the executive summary lays out, a really cogent argument for the importance of beneficial ownership information and its transparent availability and we know that recently there was a court decision in one of the EU countries that actually restricted access, based on the conflict, between privacy rights in the EU and the need to, have this information available.

So this is an area of continued, development. There's no doubt that the direction is globally to try to get to transparent information about ownership and ultimately make it available, broadly.

John Byrne: Yeah, I'll just say too, there's a lot of, conversation in Europe about the percentages. We don't have time to cover that today, but as you know, in the US it's 25% or more that gets included.

But many have always suggested that was way too high. It should be close to 10, and even some cases 5%. So that debate is ongoing internationally and my, educated guess is that's something that FATF may, weigh in on at some point as well, which also could be something that, the US has to react to at some point.

But, we'll stay on top of that and, keep you posted.

Elliot Berman: Yeah, I guess, my last comment, specifically about that, but more broadly is, you know, for many years I think the United States has done a good job of leading, the conversation about, anti-money laundering, compliance and things like that.

But I think in the area of beneficial ownership, we've clearly, not been a leader and Secretary Yellen's comments are certainly directionally good, but we are still well behind what is the global standard.

John Byrne: Right, right. So, a lot going on. We urge you to take a look at the Treasury website, follow what's happening in the House and Senate on these issues and others obviously there's still fallout from the SVB on Signature Bank issues. So there's a lot of hearings that are covering that. A lot of policy debates going on, whether there would be more regulation in some fashion or form. We will stay on top of that as we go forward.

Elliot Berman: John, what's the next thing that you've got going?

John Byrne: Well, I'm, I'm working on scheduling, a few podcasts, but those aren't, done yet. I wanna highlight again the AML Partnership Forum that will be here in Washington DC on April 26th to the 28th. I think we mentioned last week, we firmed up our keynoter, which is. Catherine Chen from Polaris.

We also will have a panel discussion from congressional staff, which will be definitely timely, as well as awarding private and public sector partner awards, which is always important to recognize what our community is doing together. And then many panels and case studies on a whole host of issues that, basically cover the waterfront.

So go on amlpf.com for more information, but look forward to seeing folks there in April.

Elliot Berman: Yes. And our April webinar is on tech enabled managed services, and that'll be April 20th. And you can go to the AML RightSource website and register for that. So John, you have a good weekend and I will talk to you next week.

John Byrne: Take care.

Elliot Berman: Bye bye.