This Week in AML

The Latest from FATF and a US Senate Committee Report

The FATF June Plenary has ended, and the Homeland Security & Governmental Affairs of the US Senate issued a report on intelligence failures before January 6, 2021. John and Elliot discuss some of the outcomes of the FATF meetings and look into the key findings in the Senate committee report.



The Latest from FATF and a US Senate Committee Report - TRANSCRIPT

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

John Byrne: Good morning, Elliot. Doing good. Thanks. A lot going on in the legal avenues, I guess the best way to describe it from all sorts of things in the court, the Supreme courts. This is their last week to release their decisions for the year. So people are watching that, nothing necessarily connected to our world .

But as members of the broad community, we're always interested in what the Supreme Court is doing. So that's going on. There's been a number of hearings that are begun to be scheduled. I did see that, I believe this is that it'll be after the 4th there'll be a July hearing where Christopher Wray, the FBI director is scheduled to appear.

I think it's part of the appropriations process, but my educated guess is that could be a very, both interesting and compelling hearing to say the least, given all the conversations in the past six months on the FBI and law enforcement and that sort of thing. So that's all coming. But two things I wanted to reference and get your take on. One of course, the FATF June plenary ended late last week.

And there's some outcomes there. We're going to do a full deep dive into that plenary, the outcomes and the potential operational impacts and what we can glean from what the delegates discussed and reports that are pending, in our July 27th webinar. But we want to mention that a little bit, but I wanted to start with a report just released yesterday from the Senate Committee on Homeland Security and Governmental Affairs.

It's over 100 pages. It's entitled Planned in Plain Sight, and it's a review of the intelligence failures in advance of January 6th, 2021, which, as we all know, an attempted coup on the United States. The reason we want to highlight this briefly. Is obviously we strongly support our law enforcement partners, but to be fair, there are some critiques here and make up your own mind based on the report what you think about those.

But in our world, domestic terrorism, sadly, has become a major element in which financial support can enable domestic terrorism. So anything that sort of touches on that, is important for us to pay attention to. And so this is mainly focused, if not almost entirely, on intelligence collection and gathering.

But there are a number of recommendations and, according to the report, some fact finding that are concerning. So what did you take from the report, Elliot?

Elliot Berman: The biggest one I took from the report was a failure of Information sharing and in some cases I guess I'd say risk recognition. But it certainly echoed some of the things that you and I have talked about many times, some of them on our podcast, but certainly in private conversations over the years since 9/11 .

It was a major theme in the 9/11 Commission Report. It created a change in the intelligence infrastructure in the United States. And here we have the two principal domestic intelligence agencies, not for lack of effort, but not necessarily recognizing the magnitude of what they were seeing and certainly not coordinating and sharing the, hey, I'm seeing this, are you seeing that? And what do you think?

And the title of the report, as you mentioned, Planned in Plain Sight to me is very telling because it was not as if this was planned in a cave and suddenly, came rushing out of the doorway. The bad actors were not particularly aggressive in hiding what they were doing and certainly didn't hide what they were doing since you can tell from the prosecutions that a lot of this stuff was able to be uncovered pretty easily. So again, all these years later, the the ghost of 9/11 is still floating around.

John Byrne: And one of the criticisms of 9/11 I think the term was a failure of imagination. So just a couple of quick recommendations in the report. They want improvement of interagency coordination of significant events. And possibly designating a lead federal agency, which I think is interesting. And then they also say something that I think we all grapple with, and that's understanding open source information. And so one of the recommendations is to clarify the policies of Homeland Security and the FBI and certainly others for using open source, including social media.

So obviously, given the state of information, dissemination, disinformation, that's a tough ask, but it certainly makes sense. Anyway, take a look at that report when you get a chance. I think there'll be certainly more on that going forward.

Shifting gears, as we mentioned, the FATF plenary concluded on June 23rd, late last week. This is the first full year of the two year term of President Kumar of Singapore. So we had a German two year presidency, and then Singapore represented in a two year presidency. So they had over 200 jurisdictions represented. Typical plenary, it had reports, updates on mutual evaluations, but there was a couple of I guess one was a mutual evaluation of Luxembourg and some other countries.

You can take a look at that at your leisure. They also mentioned a number of things that they want to continue to focus on. And regarding mutual evaluations, they had a presentation about improving those assessments that are happening in the 5th round, the next round of these. They're constantly updating both how you train the delegates or the representatives that are part of that. So that was part of it. But there's also a number of strategic initiatives. They updated folks on the virtual assets issue. I guess there'll be a report coming out on that. They in fact, it's supposed to have come out this week sometime.

That was one, continued work on combating corruption. That's also an issue we talk about constantly. And the one thing that I know, Elliot, you got some thoughts on as well, back last October, not last October. I'm sorry. 2021 started its first look at an issue that we've talked about quite a bit and had experts on to talk about.

And that's what they're characterizing as combating the abuse of NPOs for terrorist financing. Basically the issue that NPOs get put into buckets and categories that make it sometimes difficult for institutions to provide financial access, the whole issue of de-risking. To see FATF focus on this makes a lot of sense.

I know some of our colleagues from Charity Security Network and InterAction, some groups participate in these dialogues. But I just wanted to highlight that there'll be an update on their best practices paper for public consultation. And that's something where I think we, meaning those of us in the private sector should actively consider commenting on but when FATF does these, it's a great opportunity. And then they'll finalize the work at the next plenary in October. So I know you saw that and some other things from the outcomes.

Elliot Berman: Yes. Staying with what you pointed out. One of the things that I think FATF does extremely well is they have a process for internal development of updates or new material or new positions, and then they move to public consultation, but they keep the process moving.

So here in June, they're announcing we're going to go to public consultation. We're going to bring the results of the public consultation on the de-risking issue back at the next plenary. So as opposed to things that in some other comment processes, if you will, can seem to languish for a long time. FATF seems to be pretty good about moving things along.

One of the things they're going to focus on is, and I'm quoting from the executive summary that they issued at the end of last week, mitigating the unintended consequences of incorrect or inconsistent implementation of the FATF recommendations, which can lead to de-risking. There are several recommendations that touch on risk analysis and things like that.

And part of this public consultation is really looking at potential changes or revisions to Recommendation number 8 which impacts this area. So I'm very impressed with FATF's work over the years, and I find it very interesting that they recognize that there's room for improvement, even in their own work.

And their pronouncements or guidance or recommendations carry a fair amount of weight globally. And so I think that this will be good to get this issue back out front again and make that happen. The other thing that they did talk about is continuing to try to strengthen the standards to address virtual assets and virtual asset service providers.

Again, quoting from the report, they noted that global implementation of these measures remains relatively poor, and three quarters of the jurisdictions are only partially compliant or not compliant with the FATF's requirements in this area. And as we know virtual assets and virtual asset service providers have been a hot issue, again, globally.

Not just in the United States with all kinds of problems, not everything being illegal in any sense, but financial failures, regulatory failures, other things. FATF is certainly trying to continue to push that part of their recommendation set. Recognizing that it's an important part of global commerce and needs ongoing attention.

John Byrne: Yeah, and just a quick congratulations, the vice president going forward starting July 1st will be Jeremy Weil. Who is with the Department of Finance in Canada, and he will be taking over as vice president. July the 1st. So I wanted to acknowledge that coming up in the next week.

Elliot Berman: John, you mentioned earlier that we're going to do a deep dive into the outcome of the plenary at, in our July webinar. That's the 27th. It's at 1:00 PM Eastern Time, the live stream, and you can register on our website, amlrightsource.com.

John, other things you wanna mention to our listeners?

John Byrne: Next week we'll be posting an interview that I did with Gary Shiffman from Giant Oak. Gary has joined us before on AML conversations, and we're going to talk to him about a very interesting article regarding the use of algorithms in the compliance world that I think you'll find fascinating that's coming up. And I'm still working on a couple of interviews from folks that are just trying to get us on the calendar, on sanctions, some more on antiquities and art theft in that space, and as always, we're looking for more content from any of you.

If there's an issue you want to see us cover, a person you'd like us to talk to, please feel free to reach out.

Elliot Berman: And for those of you who did not get a chance to attend the live stream of our June webinar on identifying and validating models, the recording of that full webinar will be available on our website by the end of this week.

If you're interested in that topic, I think you'll find that our in house experts who did a great conversation about various elements of model identification validation. Worth a quick look once that's available.

John Byrne: And to our friends in in the United States enjoy and have a safe 4th of July.

Next week. I'm sure folks will be going with see friends and family and going on some vacations. So those of you that are celebrating the 4th of July in the United States. Enjoy your your next few days.

Elliot Berman: Yes, you too, John and have a great weekend.

John Byrne: Take care.

Elliot Berman: Bye bye.