This Week in AML

Repatriated Funds, Banking as a Service, Elder Financial Abuse, and More

This week, the US Department of Justice made two announcements about repatriating funds seized from criminal actors. The Federal Reserve issued a cease and desist order regarding banking as a service. FinCEN issued a reminder about the importance of detecting elder financial abuse. John and Elliot discuss how these items impact the financial crime prevention community.


Repatriated Funds, Banking as a Service, Elder Financial Abuse, and More - TRANSCRIPT

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

John Byrne: I'm good, Elliot. How are you doing?

Elliot Berman: I'm good, too. I'm visiting our colleague and friend, Joe McNamara and his family in Erie, Pennsylvania today, and so recording from his AML RightSource remote office.

John Byrne: Great. Great. Good to know. So few things I thought maybe we just start with two items that are relevant to both oversight and asset forfeiture, and that's how monies get repatriated after crimes are committed. So two items this week one late last week the Justice Department announced that they expect to distribute at least $940 million dollars to victims of state sponsored terrorism in 2025. So that was an announcement to DOJ from the special master. This is the fifth round of payments these are payments to any eligible claim from the Victims of State Sponsored Terrorism Fund, and obviously the statute describes how that's delivered.

Congress had set this up, and it is administered by the Criminal Division's Money Laundering and Asset Forfeiture MLARS section, again, under the leadership of the Special Master. That, that was a interesting one, and obviously, with victims, both domestic and international, this is an area of need, but again, they've provided over $6 billion dollars since they started this.

And then the Justice Department with the IRS also separately announced that they're repatriating $1.4 billion of misappropriated 1MDB funds to Malaysia. So the press release talks about the funds that had been, as we know, laundered through major financial institutions here, Switzerland, Singapore, and Luxembourg.

The civil forfeiture complaint makes clear from 2009 to 2015 high level officials of 1MDB, including the infamous Joe Lowe, misappropriated more than $4.5 billion in funds belonging to 1MDBs criminal scheme. This announcement of funding going back to Malaysia is really important. Justice also says that the Kleptocracy Asset Recovery Initiative is led by a team from MLARS with other law enforcement agencies, which includes IRS, and also U.S. Attorney's offices, and they're designed to specifically forfeit the proceeds of foreign official corruption. More information on that is available on both the IRS and the Justice Department websites.

Elliot Berman: Yes and both of the things that you mentioned are are continuing efforts. These are announcements of the latest tranche of repatriations. But the accumulated amount in each case is significantly larger than this tranche. Unfortunately, this is business as usual for MLARS and other parts of DOJ and federal law enforcement.

John Byrne: And you were mentioning before we jumped on, there's a Federal Reserve enforcement action that obviously relevant to the AML community.

Elliot Berman: Yes, Evolve Bank & Trust in West Memphis, Arkansas received a cease and desist order. So it's both the bank holding company that owns it, Evolve Bancorp and Evolve Bank & Trust. They were heavily involved in banking as a service through a group in the bank called the Open Banking Division. And it's very clear from the cease and desist order that they didn't have all of the systems and processes in place that were really necessary to effectively manage the risks of offering that service.

There's nothing wrong with offering that service, but just like making commercial real estate loans or anything else you really need to understand the marketplace and the risks related and then have the processes in place. So it's a lengthy cease and desist order. This is a relatively small bank it's about $1.5 billion in assets and it appears that they may have jumped in with both feet without fully appreciating what they were getting into. They also were doing business with a company called Synapse Financial Technology. I'm going to call them a broker.

They found fintechs who were looking to offer financial services to their end clients and then helped those fintech organizations find banks that were offering banking as a service. Synapse has filed bankruptcy. It's clear in the press release related to the C&D that this order to the bank is not directly related to the bankruptcy.

But there are a number of issues in the bankruptcy about discrepancies in the amount of funds that end customers may have deposited through some of the relationships that Synapse helps create that are missing. Those are not specifically related to Evolve. It's a long order with lots of the things we're used to seeing, things that have to be done in 60 days and 90 days, and new procedures and reviews and reports to the board.

And as I was reading it, the thing that struck me is this is a lot of resources now to fix this problem for a bank this size, and I'll be curious to see if we ever figure out if they decide to fix it or just get out of the business because some businesses are beyond the risk management capability of some institutions. And this may turn out to be one of those.

John Byrne: And our colleague Chuck Taylor has recently done a, this year, right? A program on banking in a service. And I know he's done a lot of work in this space as well.

Elliot Berman: Yes. If you want to see the fully recorded webinar, which he moderated and he had two excellent guests who talked in great detail about the things that you have to think about if you're in this business and the kind of staffing and processes you need in place.

You can go to our website, go to the Resource Center tab, go to previous webinars and look for the one on banking service. It's well worth watching if you're in this space or thinking about getting into the space, it's an hour long, but an hour well spent.

John Byrne: In addition from an agency standpoint, the OCC published on their website the formal agreement with Credit Suisse. OCC had approved a conversion of the branch of Credit Suisse to a federal branch supervised by the OCC back in May. The conversion occurred May 28th. And then there's a series of agreements or elements that have to be done that relate to AML.

They have the general things too, that there has to be a compliance committee with three members of senior branch bank management. They have to do some other things there. But in the AML space specifically, nothing earth shattering, but the action plans are what we would expect, right?

They have to have a description of whatever corrective actions are needed. They have to have well supported timelines, who's in charge of the corrective action. And then in terms of additional activities, if there's changes that obviously notification has to occur there as well. So again, typical but it's always a good reminder to for all of us in AML to understand sort of the basic precepts of, BSA/AML Compliance.

When they talk about it specifically with this branch here, they say that you have to have oversight and reporting structures that are effective. Again, nothing we don't know. Measures to ensure that the services that are provided, have the right levels of confidentiality, and then who's in charge, in terms of working with the business lines, the scope and frequency of assessments of controls and processes, that sort of thing.

So anyway, it's a formal agreement with Credit Suisse for the New York branch, and this was posted and available on the OCC website.

Elliot Berman: When you when you have a federal branch, as they're converting to you essentially have to have all the infrastructure as if it's got its own bank charter. And that's essentially the laundry list of things that you just ran through. And because you don't in the same way as if it's just an operating branch rely on the mothership.

John Byrne: Now last week was it's sad we have to have these recognitions, World Elder Abuse Awareness Day. And FinCEN, based on that put out a reminder on elder financial exploitation. And you and I have talked about that, but it's basically an update to previously issued guidance, right?

Elliot Berman: So they issued a significant advisory two years ago, June of 2022. They also talked they had a financial trend analysis on elder abuse in April of this year . You and I talked about the 2022 advisory, and we published a blog on our website.

You can go to the FinCEN website, see the Advisory, you can see our take on it on our website. Elder financial abuse and elder financial exploitation is a global problem and continues to be a problem. And as you and I are living evidence of the number of people who fit into the elder category keep getting bigger.

It's important for all of us in the community to really be trying to pay attention to. And you're right. It's a shame that we have to have a World Elder Abuse Awareness Day. But as long as we have one, it's a good time to take a moment, think about how you're including that in your training, think about how you're doing detection.

And for those of you in the United States, remember that many states have their own reporting obligations for financial services companies and others, so be sure that you're not only catching the federal related stuff, but also checking to see what state obligations and resources are available to your institutions.

John Byrne: And as we've reported before, it's still ongoing and that's the corruption case against Senator Menendez from New Jersey. Another piece of corruption just recently an indictment first reported by Politico. And this is against what they're calling one of the Democratic power brokers in New Jersey, gentleman by the name of George Narcross was indicted for what is called a long running corruption scheme.

And the indictment portrays reading from the story here quickly years of extortion and threats. They said that this individual ran a criminal enterprise for at least the past 12 years in the, that impacts the the city of Camden. The actual indictment is really fascinating. There's some things in here. I'll just wet your whistle a little bit, but there's some things in here that are pretty phenomenal.

It says, in addition to Norcross' threats, him and his associates conspired to have the city of Camden condemn a developer's rights through legal action so they could gain leverage in their negotiations. Plotted for Camden city officials to publicly accuse the developer of being, quote, not a reputable person, close quotes. Caused certain Camden city officials, including the mayor, to stop communicating with the developer, And here, I'll end on this one, in a recorded call planning this scheme, Norcross explained that, quote, You can never trust this developer until you've got a bat over his head, unquote.

This seems to be right out of some sort of movie or Netflix series, but this will be interesting to watch. Of course, Norcross is claiming he's innocent and he wants to have the trial right away, so we'll see what happens. But again, somebody who is part of the Democratic National Committee, and from all indications, Nobody is surprised, but obviously you'll let the judicial process play out here.

Elliot Berman: Yes. Unfortunately, corruption continues to be a theme. And again, as we have talked about something that, to the extent that the community can, remain aware there, there are times when the funds related to corrupt activity flow through institutions and can be spotted, I thought we lived in a better world, but I guess I have to come to face reality that everybody isn't a good person.

John Byrne: That ship has sailed, my friend.

Elliot Berman: I know. What are you doing on the podcast front?

John Byrne: We just posted the interview that we did with Aub Chapman from Australia, who talked about the second consultative paper by the Australia AG's office to attempt to reform AML. So that went out.

We had a conversation with the Director of Research for Chainalysis, and she talked about the 2024 Crypto Crime Report. Actually, I think it's the 2023 report. In any event, it just came out. And so we asked her to walk through some of the things that they've seen. And it's a really good look at that part of the AML community.

So we got those those are done. We're efforting some other interviews that, I'm working on. Also, as we always say, if you have an idea for somebody or some theme or some organization we should talk to, please send Elliot and I an email. We'd be more than happy to follow up.

Elliot Berman: Yeah, that'll be great. So John you have a good rest of the and I will talk to you next week.

John Byrne: See you later. Take care.

Elliot Berman: You too. Bye bye.