In this week's episode of This Week in AML, John Byrne and Elliot Berman unpack a wide-ranging set of developments shaping the financial crime compliance landscape. They discuss the evolving geopolitical environment, including sanctions activity involving Iran, Russia, and North Korea, and examine new reports highlighting how cryptocurrencies are being used to evade international sanctions.
The conversation also explores the rise and risks of meme coins, recent SEC efforts to combat retail investor fraud, FINRA's independent review of its enforcement program, and the Federal Reserve's proposed AML program rule. John and Elliot further discuss policymakers' growing interest in AI governance, including questions surrounding financial crime prevention, customer identification, and responsible adoption of emerging technologies.
Whether you're focused on AML, sanctions, fraud prevention, regulatory policy, or AI in compliance, this episode delivers timely insights on the trends reshaping financial crime risk management.
Sanctions, Crypto Workarounds, AI Oversight, and the Future of Financial Crime Compliance - Transcript
Elliot Berman: Hi, John. How are you today?
John Byrne: Good, Elliot. As we are recording the ceasefire with Iran seems to be over. There's the NATO summit is going on as we speak, and reporting from The Wall Street Journal talked about the comments that Trump made that the ceasefire was ending.
Couple of other things I saw in The Wall Street Journal risk and compliance report, they said the Treasury Department had granted a license to Iran on oil sales, and that's been revoked. There was a June temporary license, that now is revoked. I will tell you this, down the street, there's an Exxon station. It's not a plug for Exxon, but it's a place where I get my gas. This morning on my morning walk, 35 cent increase since yesterday that's not nothing.
The other thing I'll mention just quickly about the NATO summit, The Wall Street Journal is also reporting that a bipartisan group of lawmakers are pressing Treasury Secretary Bessent to support what is called long stalled legislation to impose new sanctions on Russia. This is a bipartisan effort both in the House and Senate. It's been paused for a number of months because the White House didn't support it. And according to The Wall Street Journal today, they're gonna pressure Bessent to move on that.
Elliot Berman: And I think also I read a report that President Trump indicated that he was supporting the loosening of sanctions against Turkey.
John Byrne: And if you'll recall, those sanctions were placed on for many human rights violations.
Elliot Berman: Correct.
John Byrne: Which I would imagine have not ceased.
Elliot Berman: The quote was, "We don't sanction friends." So where would you like to go from there, John?
John Byrne: Yeah, that's a good question. Sticking with some reports from The Wall Street Journal and other media outlets, there was a front page story on the 4th of July that there's a number of countries that have been avoiding sanctions through the use of crypto. Iran, North Korea Hamas, Hezbollah. I think for those of us that are paying attention to sanctions on a regular basis, we should take a look at that. That was an interesting investigative report.
Elliot Berman: Yeah, the focus being their use of cryptocurrencies to evade sanctions because they don't flow through banks and the detection regimes and reporting regimes in the crypto space are not as robust across the ecosphere as they are in traditional banking.
John Byrne: By the way, it also is reporting that the Trump meme coin has lost $3.8 billion since it was first announced. But Trump has made $636 million in transaction fees. So according to various stories initially the meme coin went for $73.35, now it's $1.76, or 97% less.
Elliot Berman: So just for our listeners who maybe aren't following this whole area, meme coins, they're cryptocurrencies inspired by... And I'm quoting from something that Charles Schwab has posted about meme coins is inspired by internet jokes, memes, or viral pop culture moments.
Unlike major assets like Bitcoin or Ethereum, which were built to solve technical or financial problems, meme coins generally lack real world utility. Their value is driven almost entirely by social media hype, influencers, endorsements, and community sentiment. And another definition said that they're more like collectibles.
The SEC has a statement about meme coins on their website saying they typically are purchased for entertainment and social interaction and cultural purposes, and their value is driven primarily by market demand and speculation. In this regard, they're akin to collectibles, so that, that concept again, and they typically have limited or no use or functionality.
And as you pointed out the meme coin creators receive transaction fees. So every time there is a transaction, it's like a click fee, they get something. So regardless of the 97% reduction in value, as long as people are still trying to trade them the creators continue to get fees.
John Byrne: No use or functionality is a key phrase.
Elliot Berman: I am a collector of some things, but not for their volatile value. I collect fountain pens, but I collect them because I use them, and I have more than you need to do your daily writing. But it's not about checking sources to say, "Oh, I have a, a Montblanc this or that. I can sell it for X or Y." That's not my purpose for collecting. I know there are collectors of many different things who do them for their value, but many collectors also just buy and hold, if you will. Yeah. I guess a lot of people are now buying and holding the meme coin.
John Byrne: I must say in our garage there's a big bin of Beanie Babies that will never be worth anything. So I thought I should at least confess to that.
Elliot Berman: What you may find, 'cause this is what I've found, is that the bins of Beanie Babies that are in my attic have actually come back to life because our granddaughters like to play with them.
John Byrne: Yeah, and my grandson does enjoy some of those,
you mentioned the SEC. There's something else you talked about before we recorded. Do you wanna give us that update?
Elliot Berman: Yeah, so they announced earlier this week that they are creating a retail fraud working group designed to strengthen the division of enforcement's effort to identify and combat fraud targeting everyday investors.
And I'm quoting here "The retail fraud working group will leverage staff and resources across the commission to identify fraud and other misconduct targeting retail investors, including offering frauds, pump and dump schemes market manipulation, and breaches of duties to customers by investment advisors and broker-dealers."
So that's a good thing. By the way, it won't apply to meme coins because the SEC has determined that they're not securities and they're not done through broker-dealers. But I think this is a good thing. You and I have talked a lot over the last year about the truly explosive growth of fraud in the financial services sphere, and this is one more place where this is happening.
I think it's also interesting that there's a renewed interest in what I'll call more retail securities activities in people's retirement accounts and things like that. And ideally if this group is effective that will add some protection to these potential changes.
John Byrne: Also the SRO, the self-regulatory organization FINRA issued the results of a report. They had an external review of FINRA's enforcement program done by a law professor and a former SEC commissioner, and the the results included their comments and recommendations regarding enforcement. It's a 28-page report. It's worth your time. The one thing that jumped out at me among others, was a very positive look at the enforcement at FINRA.
But they also recommended that FINRA should publish its enforcement guidelines. It's similar, these are my words, but similar to the FFIEC exam manual. But all in all, a pretty positive result on how FINRA handles enforcement.
Elliot Berman: I agree with you. Interesting report for people like you and me who try to find interesting reports to read.
John Byrne: Staying stateside, the Federal Reserve put out their notice of proposed rulemaking for the AML program rule. They just posted that earlier this week, so that information's available on the website. One thing that I thought was worth mentioning is Governor Michael Barr voted against the proposal. A separate press release was issued for his rationale for that. It's only a couple of sentences here, so quoting from the statement Governor Barr said the following. "I cannot vote for the proposal to amend the Board's regulation that requires state member banks and other supervised institutions to establish and maintain an AML- and CTF program because of the introduction of a new, according to Barr, undefined standard for issuing matters requiring attention and for enforcement actions.
I am concerned that the, quote, significant or systemic, unquote, standard may have unknown effects on the board's ability to effectually substantiate that a supervised institution establishes and maintains AML and CFT programs in compliance with the rule. Finally, he says, "I believe it's critical that the Federal Reserve maintain a strong AML/CFT supervisory program."
We talked about this before we, we recorded, not that a board member wouldn't vote against moving forward on something, but a separate press statement on that.
Elliot Berman: Yes. The details of the Fed's version of the program rule are essentially identical to what was issued by the other agencies a few weeks ago.
John Byrne: That's right. The House Financial Services Committee Democrats issued what they're calling an RFI, a request for information regarding AI technology. A 14-page series of comments and questions. I'm surprised that it's not bipartisan. I didn't look that carefully as the rationale on that, but obviously you want policymakers to get as much information as possible regarding technology like AI so that they are accurate in whatever they decide in terms of legislation and regulation, what have you. There's a series of questions for the public.
A couple of them jumped out at me just because it impacts our world. Under the category of national security, there's several questions. Question number 37. So they want stakeholders to respond to this. How can examiners help financial institutions to adopt responsible AI technology that lowers financial crime risks affecting both the institution and their customers?
Specifically related to what they're calling the yet to be initiated testing methods rulemaking that was mandated by AMLA in 2020, what standards should the regulators promulgate in the rule for financial institutions to test and adopt new technologies and internal processes? And question 38, some experts claim that the method of identifying the customer will shift dramatically due to AI models and tools, potentially changing how FIs create and execute their, quote, CIP program, unquote, as required for financial crime compliance.
Please describe those potential changes, benefits and drawbacks to different stakeholders, and how law and regulation related to or impacted by customer identification may be adapted to capitalize on the new tools. Again, a series of questions. Hopefully this will be something that we continue to pay attention to, meaning that when the response comes in, that there's a hearing or there's a report.
This request for information is pretty important and hopefully will be bipartisan going forward.
Elliot Berman: Yes. A couple of quick things internationally. A Chinese court has sentenced a former senior local official in the eastern Chinese city of Nanjing to death over corruption. And also convicted him of abuse of power and money laundering.
This involved 324 million US dollars in value where he illegally accepted that amount of money and property while holding various government posts from 1993 to 2023. Major league corruption. I don't know that I've ever seen an indication of a death penalty before.
And then India's central bank along with its the whole government, continues to wrestle with what kind of guardrails they wanna put in place for cryptocurrencies. The central bank has reasserted a call for a crypto policy leaning towards prohibition which is interesting. A lot of what's going on here is their serious concern about the anonymity of people who hold crypto and the self-reporting, so they're required to self-report about transactions for the purposes of tax collection. So if you remember in the US there's a place on your 1040 form where you have to indicate if you had virtual currency transactions and then provide IRS information with your tax return.
That is intended to capture transactions that would have a taxable nature and therefore collect the tax. India's struggling with the same thing, but they're way behind in terms of making a decision about what they're gonna do. So I thought that was interesting just that a country as large as India, which has i think they, the article said that they, the central government noted that there were 39 million holders of of virtual assets that they were aware of.
John Byrne: Europol has a number of reports just released in the past week. One is an announcement of over 1,000 arrests in a global operation against human trafficking. Another one is 28 arrests in international strike against child sexual exploitation. And a lengthier report on what they're calling the emerging drug trafficking corridor from Western to Eastern Europe being disrupted. So all that is available on the Europol website.
And then just something I saw late yesterday from Dow Jones the Risk Journal. They're reporting that UK's Financial Conduct Authority has another report out and that said banks that are rapidly adopting AI for consumer services amplify risks. 147-page review, they outline their assessment of how AI will affect the FI industry and what steps should be taken to safe adoption.
Elliot Berman: The last thing I have, John, is that Transparency International has issued a comprehensive report about connecting the dots, how financial intelligence units expose corrupt money flows, and how they could do better.
It's an interesting report. You can find it on their website. They did research across 20 countries, and found that many FIUs lack direct access to crucial information, including beneficial ownership, tax, and law enforcement data limiting their ability to connect corrupt money flows.
And one of the recommendations they make is that government should give FIUs clear powers, reliable access to data, operational independence, and adequate resources to ensure that law enforcement and prosecutors use financial intelligence to investigate corruption and recover stolen assets.
Anything else, John?
John Byrne: Not on my end. I am efforting a conversation with folks at the Antiquities Coalition. We mentioned last week the Rome Statement that they highlighted. This week they also posted on their site the announcement by the Manhattan DA's office that they were able to get what were called sacred Khmer treasures back to Cambodia. And in addition to announcing that, they also acknowledged that the Antiquities Coalition helped them in that effort. So we're, we'd like to get an update from those folks about all the different things that they are doing.
And then this week we posted the conversation I had with Jon Rusch. Jon Rusch is a anti-corruption expert, former DOJ lawyer. I met Jon years ago at the Treasury Department when we first started doing all this, and had a really nice conversation. He's got a Substack that I would urge people, it's a free Substack to subscribe to. Plus, they do a monthly update on anti- corruption-related resource, both stories and reports.
Elliot Berman: And this month's webinar will be streamed on July 22nd. It's on AI in financial compliance, building smarter, faster, and more reliably. It's going to be moderated by our colleague Joe McNamara, because that week you have a daughter getting married, and I have a daughter getting married, so we're gonna be a little less on the grid.
And and I urge people to sign up. But he's got a great panel organized, and I think it'll be a really interesting perspective. It's not on the technical issues related to AI, but more on use and guardrails and things like that. So I'd urge you to do that. And John you have a great rest of the week, and I will talk to you next week.
John Byrne: All right, Elliot. Stay safe. Talk soon.
Elliot Berman: You too. Bye-bye