This Week in AML

US Illicit Finance Strategy, FinCEN Fentanyl Exchange, Old Fashioned Structuring, and More

John and Elliot discuss the 2024 National Illicit Finance Strategy, FinCEN’s new Exchange series to fight fentanyl trafficking, the second stage consultation on reforming Australia’s AML/CFT regime, and several other items. They share their insights on how these reports and actions impact the financial crime prevention community.


US Illicit Finance Strategy, FinCEN Fentanyl Exchange, Old Fashioned Structuring, and More - TRANSCRIPT

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

John Byrne: I'm good, Elliot. How are things going?

Elliot Berman: Things are going well. Big spring project here at the Berman house where the deck that was put on many years ago is being torn off starting today and we're building a new deck so we can spend time in the backyard in the summer.

So that's exciting. What's new with you?

John Byrne: Summer there's about two weeks and then you should have done your work on HGTV, man.

Elliot Berman: Yeah, I'd rather do this a little more quietly than that. So I know that we're going to talk about some interesting stuff today, but I do want to give our listeners a chance to know that after they hear this episode, but before our next episode, you're going to receive a pretty prestigious award from Marquette University.

I'll screw up the name, so I'll let you say it. But I just wanted to congratulate you publicly because I think it's very cool that all of your work over the years since you graduated from Marquette. Is being recognized.

John Byrne: I appreciate that. It's an award from the College of Arts and Sciences, an alumnus of the year award. I obviously very appreciative and honored. The whole family's going to come out you and Karen will be there as well. So we're very appreciative of that. So it's very exciting. It's a very cool thing. No matter what kind of recognition you get, if you get it from your alma mater, it's particularly special. So thanks for mentioning that. I appreciate it.

Elliot Berman: Yeah. Okay. What do you want to talk about in the AML community this week?

John Byrne: Last week, after we finished recording, the 2024 Illicit Finance Strategy came out, and that's a document that all folks that are listening should take a look at. It's useful for training, for gap analysis, and other things. And I just wanted to call out a couple of things, and I know you want to do the same.

They list benchmarks and progress, supporting actions to the benchmarks. And there was a couple that are relevant to the things that we've talked about before. One of them was to continue to assess the need for additional action on sectors that are not subject to comprehensive AML CFT measures.

And that includes, of course, antiquities, and the art industry, so a bunch of others too. They're talking about Treasury looking at all of those, continuing to do risk assessments, and one of the benchmarks in progress is to continue monitoring the risk related to the art market following the publication of the study of the facilitation of money laundering and terror finance through trade in the works of art, and analyze if there's needed steps to control that risk.

So remember, Treasury did a study, They said art clearly is being used to move illicit funds, but we don't consider it a priority right now because we have other things we have to consider. So that's mentioned in there. What's also mentioned is a very lengthy discussion about Treasury's strategy to combat de-risking and improve financial inclusion.

I'd ask folks to take a look at that. It's relevant on a number of levels, but also that Treasury continues to call out the negative impacts that occur in some instances by de-risking for groups like the ones we've talked about, humanitarian organizations.

One of the benchmarks that they reference is continued engagement with industry and relevant international standards setters to strengthen the supervision of those that look at financial service providers and make sure that if there's a risk of exclusion that they cover that. So there's a whole host of things. Our partners in the humanitarian world were very comforted by the statements in here. They felt that it was really important and I think that tells you something, because they've been obviously frustrated.

So that's in there, and of course, Treasury says they want to continue to engage with those actors in the humanitarian world, with NPOs and other institutions. The last thing I'll mention is something we've also talked about, that in previous money laundering risk assessment, In the 2022 risk assessment, there was a discussion about the challenges dealing with Puerto Rico and other U. S. territories in terms of illegal activity, moving illicit funds. The update in the 2024 document says that Treasury has taken several actions against IBEs, International Banking Entities, and IFEs that operate in Puerto Rico that have willfully violated the BSA, so they've taken civil money penalties, and that sort of thing.

But they also call out, in a positive way, the Office of the Commissioner of Financial Institutions, OCIF, in Puerto Rico and we know that department well. They collaborated closely with them and are committed to ongoing and robust cooperation to hold those institutions accountable. And they also say that OCIF has overseen a consolidation of the banking financial system over the past several years, as riskier FIs have exited the jurisdiction.

Reference to the updates that Puerto Rico is, it's still a challenge, but giving them credit for some of the improvements. So those are just a couple things. And I know you saw some other things in this document.

Elliot Berman: Going back to your first point the assessment and addressing the gaps. One of the areas they do talk about as a gap, but again, we haven't seen any activity is gatekeeper professions. So I don't know that they're signaling, but I'm going to hope they're signaling that we may see some kind of a gatekeeper regulatory proposal in the near term.

Another one of the big broad goals you mentioned is to continue to make progress on a regulatory and supervisory framework for financial institutions to be more risk focused and effective. And that's something that's been discussed in bits and pieces for a long time. I think you and I have been talking about risk based examinations and things like that for 20 years.

It's important, but I think it's a, always been a challenge to implement. I'm looking forward to see how they might go about doing that. They also talked in there about public private partnerships and the importance of information sharing between the public and private sectors and the next thing we're going to talk about actually focuses in on that.

And then one of the other pillars is supporting responsible technology innovation, and harnessing technology to mitigate illicit financial risk. And that's an interesting one. In there they talk a lot about new payment systems and having them be responsibly developed and things like that. Some of that has to do with transparency in the systems and other things. So it'll be interesting what that really means as we go forward.

The other thing that caught my eye at the very beginning of the document was they talk about and I'm quoting here, the 2024 Strategy addresses key illicit finance threats related to, and then there's a long laundry list, but the very first one is large scale fraud schemes. Then they go on to talk about potential potent ransomware, opioid driven overdose epidemic foreign and domestic terrorist attacks, corruption, etc., etc. All of these are important, but I thought it was very interesting that large scale fraud schemes was first.

And we've certainly talked about that and seen it. And it's interesting how fraud and money laundering now are very intertwined. And anything on a large scale on the fraud side, definitely is going to have a money laundering component. So I just thought that was interesting, not an oh my goodness, but interesting to see how things are evolving along the lines of other things you and I have talked about.

John Byrne: You're going to talk in a minute about an information exchange update that's important, but you also mentioned as we evolve, and in some cases how we haven't evolved, and what I mean by that is a press statement from the U. S. Attorney's Office in New Jersey in Newark, just announced a Middlesex County, New Jersey man admitted structuring over $250,000 in bank deposits and pled guilty from March of 2021 to November of 2021.

This person purposely engaged in a pattern of structuring. activity deposits over $250,000 to avoid the reporting requirements in excess of $10,000. For example, during one of the deposits the the individual accidentally provided a teller with more than $10,000 to be deposited. When the teller informed me that the cash total was more than $10,000, He took some of the money back to ensure that it was under $10,000.

I'm only laughing because this thing is structuring has been an issue for almost 40 years, right? And people talk about smart criminals. This belies some of that discussion. But the bottom line is people are still trying to avoid the reporting requirements. This particular individual obviously was caught and pled guilty.

And it does carry a maximum penalty of 10 years in prison and a fine of $500,000. Wanted to mention that as a continuing lack of criminals understanding that banks are paying attention to the basic blocking and tackling. It doesn't say that a bank noted this, but I am 100 percent sure they did.

Elliot Berman: Yeah I also chuckled. Probably 35 years ago I can remember having folks in an operations area raise their hand and say we think we have to file, I think at that time it was called the report of apparent crime, but it was what became the SAR. It was literally a little old lady who was at the window. She put like $11,000 down to deposit into her account. They started asking all the questions to fill out a CTR and she took back $1,500. And then it was like now I think we have to file a report of apparent crime. Nothing's changed. But it's a good reminder, as you pointed out, that while we look at all the more sophisticated stuff we also have to continue to look for the mundane and the ordinary.

John Byrne: You were going to mention the recent FinCEN exchange announcements.

Elliot Berman: Yeah. So FinCEN announced that they were starting, and they did hold an exchange at the Boston field office. And it was IRS CI and Treasury and FinCEN working with the private sector and exchanging information related to Treasury Fentanyl Strike Force Initiative. This is the first of what will be a series of these but a good example of what's in the strategy that we just talked about that you get people together in a room, you exchange information and that makes us all not only smarter, but better at detecting and identifying and ideally in this case helping law enforcement interdict.

John Byrne: A couple other things on my end, just reference things that are coming up. What they're calling the second stage consultation of reforming Australia's AML CTF regime is open now for public comment, and the comments are open. are out through according to their announcement June 13th.

The proposed reforms are supposed to modernize the infrastructure keeping it in line with international standards, reduce complex and regulatory burden on industry. So that's an interesting dynamic there. Make sure the regime responds to constantly evolving threats. And the last one is to harden Australian businesses and sectors against exploitation by serious organized criminals.

So this document is out for public comment. We are efforting to get a lawyer and AML expert for many decades to sit down and talk to us about his thoughts on this consultative document and what he sees. So I'm hoping to get that done before the 13th. So there's value for filers, but obviously given the time difference and everything else and the holiday weekend, we'll try to figure it out.

But the bottom line is you'll still get great analysis from somebody on the ground who's worked with banks and with law enforcement on this second stage consultation. But I did want to mention that.

Elliot Berman: I think that'll be really helpful. And then I know that later today you're going to have a chance to interview some of the primary authors of the Dubai Unlocked report that we talked about last week and we'll have a chance to provide more of a deep dive to our audience and we'll try to get that produced and published in the next week or two.

And then, yeah, I

John Byrne: Sorry to interrupt. I was just mentioned that, and I think we talked about this last week, the key here is these reporters have they said all the, that this project has unveiled alleged money launderers, drug lords. Political figures accused of corruption, businessmen sanctioned for finance, all these individuals have some stake, if you will, in Dubai, whether through property or businesses, so I'm looking forward to that conversation.

And obviously, as Elliot said, we will post that at some point upon completion. Really again a tribute to investigative journalism. We need them much, especially nowadays. And so anytime we get a chance to talk to journalists that have uncovered activity of any kind that's relevant to our community, we want to identify them, but also give them a chance to give us some, hopefully some great information.

And maybe some ideas for strategies going forward.

Elliot Berman: Sounds good, John. You have a great rest of the week, and we will talk next week, but we'll also see each other next week, which I'm looking forward to.

John Byrne: Have a safe Memorial Day weekend, and we will talk next week. Take care.

Elliot Berman: You too. Bye bye.