This Week in AML

They Are Busy at Treasury, FinCEN, and BaFin

This week, John and Elliot discuss several items issued by FinCEN, including elder financial abuse and environmental crime, Treasury Undersecretary Nelson’s visit to Puerto Rico, and BaFin’s fining of Commerzbank.


They Are Busy at Treasury, FinCEN, and BaFin - TRANSCRIPT

Elliot Berman: Hi John, how are you today?

John Byrne: I'm good, Elliot. I saw a colleague of ours from PNC, Jim Candelmo, yesterday. We were able to take in a Brewers Pirates game in Pittsburgh, which a beautiful stadium PNC Park and a beautiful night for baseball. Just checking in and seeing how things are going up there. So just back from that. So how are you doing?

Elliot Berman: I'm good. I'm going to see the Brewers play this weekend. But they'll be playing at American Family Field here in Milwaukee.

John Byrne: So I'm not going to bore people with my New York Knicks fandom. So we'll just pass it on. We drove them crazy enough with Marquette basketball.

FinCEN has done a bunch of things in the past week. They obviously have been working on a lot of different areas, but especially last week, there's several items that I want to quickly highlight. We've talked about a lot of this before.

One is late last week, they renewed the GTOs, the Geographic Targeting Orders, so beginning April 19th, which is early this week, and ending on October the 15th of this year. As everybody knows that the GTOs require US title insurance companies to identify the natural persons behind shell companies used in the non financed purchases of residential real estate in certain metropolitan areas.

And then in addition, we've also talked about a lot of the good analysis that they do on SARs and other data’s that they process. They also released a report on elder financial exploitation and apparently $27 billion in a one year period and they go into the different categories of elder scams, elder theft and they give explanations. As we know, elder abuse results in the loss of personal savings, access to retirement savings and investments.

There was also a piece on I believe it was on 60 Minutes, or it might have been CBS This Morning last Sunday that talked about romance scams, which is an offshoot of elder abuse. But some interesting data points in here. They said that, FIs began filing reports about some of the key terms in elder abuse from a 2022 advisory. And there've been almost 16,000 a month between June 15th of 2023 and January of 2024, which is crazy. So again good information in terms of internal training for your staff, but also to stay up to date on, a major problem that affects us in the financial crime space.

And then the last thing, very quickly. They issued an announcement, basically, building on previous reports, just reminding financial institutions to remain vigilant on environmental crime, because Earth Day this week. And I'm old enough to know the first Earth Day when I was in 8th grade, and I remember taking our bicycles to school, which was only about two miles away, and that was, we were starting a trend.

Unfortunately, a lot more still needs to happen, but that was way, way back when you can Google when the first Earth Day was. Anyway, they built on previous reports, one they issued in 2021 December of that year a financial threat analysis, and in the previous month, a attention for the first time to environmental crimes and related financial activity.

Again, FinCEN has done a bunch of things. That one gives you an opportunity to go back into previous reports. And again, it's a good training tool for your staff.

Elliot Berman: I want to go back for a minute to the one on elder abuse because there's a reminder in their conclusions. It always takes my breath away when I see it, but we all need to continue to focus on it because particularly in those circumstances where we're in a branch setting or in an in person setting, this can really be in play. And that is that adult children were the most frequent elder theft related perpetrators.

While there's lots of other scams, the romance scams, and all these other things, which are all things we need to figure out how to combat, but the fact that a relative, and those interactions often happen in person, can be the person who's the perpetrator using coercive behaviours and other things like that. Again, as you said, a good tool as a reminder to go back and take a look at your training and things like that.

John Byrne: Now since we mentioned FinCEN, I know you identified a a recent article in the Wall Street Journal about the recent proposals on investment advisors you want to talk a little bit about that?

Elliot Berman: Sure. As everyone knows there are two proposals out from FinCEN, one is to include certain investment advisors who are not already covered under regulations of the Bank Secrecy Act to bring them in, and the second is the real estate industry as it relates to the same things, so non financed purchases of residential real estate, as are covered in the targeting orders, but to create regulations that require some party in the chain of activity for one of those purchases to do record keeping and reporting.

And the Wall Street Journal article talked about the fact that comment letters from industry sources in both of those industries have sent in strongly worded comment letters, that indicate that they don't believe that there is as much money laundering going on or that it's really a systemic problem.

And as a result that these regulations are unnecessary or at the very least are too stringent and should be reconsidered and rereleased with what I'll say as a lighter version. There have been many comment letters already submitted about these proposals. And as we all know FinCEN doesn't reply to individual comment letters.

Sometimes in the final rule they'll review themes in the comments and things like that. This is a theme that we have seen before. For investment advisors there was a 2015 proposal that ultimately was not enacted in part because of the strong pushback by the industry.

But as you and I have talked before, it seems that it's time for those two sectors to come in. We've talked about the need to have art come in, antiquities is in under the AMLA although the regulations haven't been written. But these are loopholes. These are large sectors where significant money changes hands. And these comment letters are not very compelling to me.

John Byrne: Again, related to criticisms and comments, we mentioned a couple of weeks ago some court cases that are attempting to reverse the constitutionality of the CTA. So I think cases in Alabama and I believe Michigan, there's been a case. And just as we were going to record this, a number of members of Congress in the House and the Senate. have filed an amicus brief, friend of the court brief, in the National Small Business United v. Yellen case, and that's the Court of Appeals case for the 11th Circuit, and this again is on the constitutionality of CTA.

Just to reference some part of the brief, the drafters said, responding to the dangers of illicit money being hidden in corporate forms, Congress passed the CTA after it determined that requiring disclosure of beneficial ownership of legal entities, including shells, is crucial to combat money laundering and its attendant national security and law enforcement risks.

The CTA, quoting again, is a garden variety valid exercise of Congress's core Article I authorities, supported by extensive congressional fact finding and a robust legislative record. Obviously there's other things in there. So a number of Senators and Maxine Waters of the House signed on to this. What is interesting the amicus brief filers were only from the Democratic side, although Republicans did support the CTA when it was introduced in the past through the Congress. That's just an interesting sidelight to that. But that's something we'll continue to watch, but the full text of the brief is available on the various websites including the US House Committee on Financial Services on the Democratic side, and then on the Senate side from Senators Whitehouse, Wyden, Warren, and Jack Reed. Wanted to mention that.

And then I'll just close this out by saying, you and I talked about, the work that's being done by the Commissioner of Financial Institutions in Puerto Rico, Natalia Zequeira Díaz and there's a piece today on the Treasury website that Brian Nelson, who's the Undersecretary for Terrorism and Financial Intelligence, is, as we speak, in Puerto Rico, meeting with, not only Natalia, but the Governor, the Resident Commissioner, and then a number of folks from the commercial banking sector to discuss various issues related to illicit finance and, to help promote awareness in the business community there about beneficial ownership.

So that I thought was very interesting. As we know Puerto Rico got called out in the 2022 money laundering risk assessment. And since that time, there's been some aggressive work ensuring that international banking entities and IAFEs, various legislative vehicles, so that they'll do more compliance, more robust compliance and due diligence, and that's interesting.

And then late last September, FinCEN did issue a $15 million civil penalty against Bancredito International Bank and Trust Company, for violating BSA. So more to come on this, but I think it's really noteworthy to mention that Brian Nelson is in Puerto Rico. And this comes on after Andrea Gacki was there, the head of FinCEN, for a conference that I was also at back in February, where she spoke at the conference, but also met with local leaders, law enforcement, and bankers to talk about some of these same issues.

Elliot Berman: Clearly a lot of attention there but I think positive attention as opposed to negative attention. So I think that's good. One of the things that we saw this week is we talk a lot about FinCEN and the US bank regulators issuing enforcement actions and fines. That's not restricted only to the United States.

There was a report this week that BaFin, which is the German financial regulator, had fined Commerzbank for some anti money laundering program problems. They actually were in a bank that it bought. Which for those of you who are doing acquisitions, it's a reminder how critical, your due diligence of your targets overall compliance, but particularly your anti money laundering compliance is. The report indicated that after the issues were identified and they were mostly in the client onboarding and EDD spaces the Commerzbank is now compliant. This is not a US only thing and for our listeners in other jurisdictions or in the US who do business in other jurisdictions, be aware that the attendant requirements are being watched by all of the regulators.

John Byrne: The last thing I have on my list here is late last week, the ministers of FATF met in D. C. to reaffirm their support, for all the issues that FATF has been working on in the past several years. The report that they issue is a good reminder of all the areas of coverage whether it's corporate transparency that we've talked about issues with proliferation finance, all sorts of things. What's happening in terms of the next round of assessments, mutual evaluations information sharing, all sorts of things.

So it's a, it's not a lengthy report. It's about 5, 6 pages, but it does give you a good summary of all the things that we've touched on a good deal of these, but that again is a declaration of the ministers of the FATF released on April the 18th.

Elliot Berman: John we've got something a little different happening for the May webinar. Do you want to talk about that?

John Byrne: So typically our webinars are the fourth week of the month. This one is going to be on May 10th. It's going to be again, 1 o'clock Eastern time. We were able to get a strong supporter of the private sector, Guy Ficco, who's the new IRS CI chief with Don Ford. Don Ford, member of our advisory board. He's with the Kostelanetz Law Firm and also a former IRS CI chief. So we have some interesting topics that we're going to cover, including the priorities of IRS CI, updates on issues with tax evasion, financial crime in general, and some other things.

And so that's on May 10th. You could register right now, go on our website, and I think you're going to find it not simply interesting, but also compelling. IRS has been a tremendous supporter of the private sector and working together I think we've done a lot of good things and so really happy that Guy who just started and obviously he's doing a lot of travel and a lot of work with all that's under his command, if you will that he's going to give us a little bit of time on May 10th.

Elliot Berman: Anything else that you want to talk about?

John Byrne: I think that's it on my end. By the time you listen to this, we will have our April program and maybe you just want to let folks know about that because you can always listen to it afterwards once we're able to post it.

Elliot Berman: Yes. So the April webinar was about using enforcement actions to help maintain and review your compliance program. You should be able to hear it by the end of next week. So it'll be on our website by May 3rd.

John Byrne: Sounds good, Elliot. Have a safe rest of your week, and we'll talk again next week.

Elliot Berman: Sounds great. You be safe too.