This Week in AML

The FATF Plenary, a Meeting in Puerto Rico, New Sanctions, and More

John and Elliot discuss the outcomes from the FATF Plenary, new sanctions issued against Russia, the results of the Puerto Rican Bankers’ AML Forum, and their meaning for the financial crime compliance community.


The FATF Plenary, a Meeting in Puerto Rico, New Sanctions, and More  - TRANSCRIPT

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

John Byrne: Good, Elliot. How are things with you?

Elliot Berman: Really good. We're having very unseasonable weather. We're supposed to get into the mid 60s, maybe the western suburbs, all the way to 70, and it is still February.

John Byrne: Yeah, and by midnight it'll be snowing.

Elliot Berman: That's correct. That's right. Just wait a minute. It'll change. And our Golden Eagles are back in the fifth slot in the rankings. So that's good.

John Byrne: Yes, I know, and everybody listens at least to the front end or the back end of our conversation to see where Marquette is.

Elliot Berman: That's true.

John Byrne: In case they're not checking the websites. Great opportunities here while I've been in Milwaukee. I mentioned to you offline that I was honored to speak to a Center for Peacemaking's class with the president of the university about issues regarding leadership and social justice.

And the thing that I mentioned was what our industry and our community has done so well, and that is being so proactive in anti human trafficking and how that sort of evolved over the past decade and letting these students know that, we are a career path. You can do things that improve communities in the financial sector. Which is not a newsflash, but I think sometimes when you're in college, you maybe don't think of certain areas certain lanes that you can go in. So I think that's good and we'll see how that turns out.

I also was in Puerto Rico last week for the 20th annual Puerto Rican Bankers AML Forum. And couple things I wanted to mention. One is, I don't think it's the first time, because I think, a previous FinCEN director had been to Puerto Rico, but the recently appointed Andrea Gacki FinCEN director was down there and did a number of things that I think are really important for not just what's going on in Puerto Rico, but the overall banking community.

She led conversations on a FinCEN exchange that was established there during the week, and I know that from talking to some of the participants, they felt that there was a lot of really good information sharing between the financial sector and federal and regional law enforcement and I think that's great. And our advisory board member, Marilu Jimenez, was instrumental in getting that exchange up and running, so that was really great.

Andrea also talked about a number of other issues, some enforcement actions, some things that are important related to public corruption, fraud, and drug trafficking. One of her staffers Dennis Kim, was on the panel that I moderated, and he talked about what we mentioned a couple weeks ago, the most recent notice of proposed rulemakings on residential real estate and on investment advisors. So a lot going on in the island.

The last thing I'll mention regarding Puerto Rico, besides the federal issues, is the sort of global issues that Puerto Rico has been dealing with regarding international banking entities and international financial institutions. So the banking commissioner there has done an excellent job of shepherding a new law in place that 90 days from signature of the governor, which was a couple of weeks ago, will require these IBEs and IBFs to have a minimum of eight employees, two have to be in compliance, there has to be annual training.

So it's actually really interesting. And that obviously we mentioned it briefly last week, but that also was something that we're going to continue to see. And the hope is that these institutions who currently the investments are almost all outside of Puerto Rico will start becoming into the island and help the Commonwealth.

So a lot going on there, but the FinCEN exchange, I give FinCEN a lot of credit for much of what they've been doing in the past, few years is trying to really improve and enhance information sharing. And as we know, it's so important to our community.

Elliot Berman: Sounds like a great set of meetings.

John Byrne: And then while we were there, FATF ended its February plenary. Folks should go on the website and take a look at the outcomes there. A couple quick highlights and then see what you want to add to it, Elliot. They listed the jurisdictions that are no longer under Increased Monitoring, which includes UAE, Uganda, Barbados, and Gibraltar.

They also set up their priorities for 2024 - 2026. And that will be presented in April at the upcoming FATF ministerial meeting. They also spent a lot of time on Recommendation 25, which, as we know, deals with beneficial ownership and transparency, so that guidance will be published at the end of February.

The last thing I'll mention, it's something that we talked about constantly, and I'm real happy that FATF is paying attention to this, and that's protecting NPOs from abuse for terrorist financing, and according to the statement released by FATF, they've now agreed on changes to its assessment methodology for the next round of mutual evaluations. And that is designed to clarify both the existing obligations to apply risk based measures to protect NPOs that are most vulnerable to terrorist financing, but also to prevent the unintended consequences. of what they call incorrect application of FATF requirements.

And then the next, the president who's just been named is from Mexico. Forgive me if I botch the pronunciation. Elisa de Anda madrazo, and she has been vice president from July, 2020 to June, 2023, and she will become the president July 1st of 2024. Again, a two year presidency.

Elliot Berman: You mentioned the the countries that are no longer under increased monitoring. The plenary did add two to that list. Some came off, some came on. The two that came on are Kenya and Namibia. So again, they'll be asked to deal with specific actions that were identified in their most recent review and make certain improvements.

There is a detailed list in the materials in the release that's on the FATF website about the various actions that have to be taken by the different countries on the list. And one of the things that caught my eye there was that Burkina Faso, they are beyond the deadline that was set when they originally went on the list to clean things up, that deadline was December of 2022, so they're well beyond the target time, which would be an indication that they're obviously struggling more than maybe others to come into compliance.

There's a continuing list of countries that are challenged. The Philippines are also past their deadline, January of 2023. And Senegal is behind, theirs was September of 2022. I think countries who get on the list are responsive. But there are definitely challenges for some or many of them at times to really be able to get to where they need to be off the list.

The other things that I saw, payment transparency is becoming an ever increasing conversation in the community that. In the FATF world, that's Recommendation 16, but understanding where the money's coming from and where it's going, but also making cross border transfers cheaper, faster, all those things are happening. That's happening globally, across many platforms, and making all that work together well is really important.

John, I know that last week when we talked, you mentioned that the Biden administration had announced that a new set of sanctions was coming out in response to the Navalny assassination. Do you want to talk about the details now that those have been published?

John Byrne: So the President promised and delivered a series of sanctions close to 300 individuals and entities. Obviously OFAC, together with the State Department, issued these, the largest number of sanctions since the invasion of Ukraine, the unprovoked and unlawful war against Ukraine.

The State Department has designated three government Russian officials in connection with Navalny's death. And then they're sanctioning also 500 targets to impose additional costs. Commerce is adding more than 90 companies. According to the press statement, to deny Russia the resources necessary to support its brutal war against Ukraine, it's designating targets including what they're calling a major cog in Russia's financial infrastructure, more than two dozen third country sanctions evaders in Europe, East Asia, Central Asia, and the Middle East and hundreds of entities in Russia's military industrial base and other key sectors.

I will mention that there's been stories I've seen in the Wall Street Journal, I've seen in The Economist, probably in some of the other major papers, analysis of whether sanctions are in fact harming Russia, and there's some evidence that there's workarounds, especially with secondary sanctions and those sorts of issues, with other countries that are ignoring the rationale for the sanctions.

I still believe from our sanctions experts that we've talked to that it's a valuable security tool, whether it's actually going to continue to impact Russia's financial infrastructure. Who knows. But I would suggest that sanctions folks and other AML professionals take a look at the list of entities covered. It's on Treasury's website. They talk about sanctions evasion, circumvention, backfills, that sort of thing, and some specific examples.

A pretty major response to an additional responses that have already happened and have had some impact. But again, I'll leave the others to continue the debate, but I still think that sanctions are valuable tool. But as we said before, in some of our conversations Elliot, a lot depends on cooperation. If we're going to do sanctions, but some of our allies are not, then that's obviously problematic.

Elliot Berman: Yes 100%. The other thing, and it's more related to this most recent set of sanctions and what prompted them. I saw a report in one of the newspapers, I think it was this morning, that Navalny's death came a day before there was the possibility of an exchange where he was going to be deported to Germany in exchange for several Russian citizens who are being held in Germany.

John Byrne: You had mentioned offline there's a Social Security report, plus a guidance document on scamming, if you want to talk about that.

Elliot Berman: Yes. On March 7th the Social Security Administration Office of the Inspector General is sponsoring something called Slam the Scam. And the goal, of course, is to inform people about red flags and other things to avoid social security recipients and other recipients of government programs from being scammed. There is a website for those of you in the community, I would say this may be the kind of thing that as a service to your clients, you might want to pass that along in however you do, what I'll call client training but it was it caught my eye as it went by and I think it's worth being aware of.

I passed it along to the social media folks here at AML RightsSource and I'm sure that we'll do a little bit about it too.

John Byrne: All right, and the other thing I'd mention, I'm a pretty frequent viewer of last week with John Oliver, and his show just this Sunday did a whole segment on pig butchering. Broke it down for people that aren't in our space to understand some really sad examples of victims, but an interesting, probably 20 minutes just on how it works and what you can do to hopefully not become victimized.

There's an example of a banker, bank went out of business because this banker was so scammed by it. He basically took $50 million from the institution, small bank in Kansas, which obviously made the bank go under. But I'm sure you can watch it online but it was an interesting. Pretty fair assessment of a major problem that our law enforcement partners have been talking about for quite a while.

Elliot Berman: And we've talked, you and I have talked about it AML RightsSource has done some other things about it. Yep. We've just got to get people understanding that, how these scams work and hopefully help everybody be better at spotting them.

Our March webinar is up next in terms of the web of the AML Voices series. It's gonna be Thursday, March 28th at 1:00 PM Eastern Time and 5:00 PM GMT for our friends in the UK. And the topic is countering terrorist financing and its use of virtual assets. We've got two wonderful experts and it's going to be a good, lively discussion.

And you can come to our website and register for that. And by the time you hear this, our February webinar on banking as a service, if you didn't have a chance to see the live stream, will be available on our website as well you. Our colleague Chuck Taylor had two great guests, and it was very practical, very insightful about the challenges and the potential benefits for banks who want to offer banking as a service as a product line and how to really do it safely and effectively so that you get the benefits from it without running afoul of the risks. John, anything else?

John Byrne: Let's remind folks, you can still register for the AML Partnership Forum in Washington, D. C. March 18th to the 20th. That is available online.

It's our third annual. We're super excited because not just the representation from our law enforcement partners, but the panels are very well structured. You're going to learn a lot. As we've said before, no press, no exhibits. This is not a trade show. This is value add, where we ask the audience to be active participants. Take a look at that, and we could certainly give you additional information if you're interested.

And the last thing I'll mention is, as we're recording this conversation that I had a couple of weeks ago, has been posted online on our website and on LinkedIn. And that's the AML Conversations interview I did with Gerald Fitzgerald, who's at George Mason University, and he wrote a very compelling, interesting report on how misinformation is utilized to harm Muslim charities and NGOs, and obviously results in lack of financial access and the the misinformation being done deliberately is what his study shows.

So definitely interesting and just another tool for us that are trying, as they're trying to figure out how to navigate high risk customers.

Elliot Berman: John, enjoy your stay. You and I are going to see each other tomorrow. So I'm looking forward to that and have a great rest of the week.

John Byrne: All right. We'll go outside now because it's going to get cold in about four hours.

Elliot Berman: There you go.

John Byrne: All right. Take care.

Elliot Berman: You too. Bye bye.