Another Busy Week in Financial Crime Compliance

This week the US Department of Justice announced an indictment against seven individuals for a $100 million stolen identity refund scheme. The Office of the Comptroller of the Currency announced a penalty and prohibition against a former senior official at Wells Fargo. The US Treasury Department announced it has agreed to give in camera access to certain SARs to a House oversight committee. John and Elliot unpack this busy week and share their insights on these topics.

Another Busy Week in Financial Crime Compliance - TRANSCRIPT

Elliot Berman: Hi John. How are you this week?

John Byrne: Good Elliot getting ready to jump in the car and go to Columbus, Ohio to see Marquette play on Friday and hopefully on Sunday.

So it'll be a fun week to see some Marquette alums and more importantly, to see the Golden Eagles play Vermont and then potentially USC or Michigan State on Sunday.

Elliot Berman: They finished strong in the Big East tournament and in the final pre-tournament rankings they finished sixth. Quite a season for the young team and for us alums following along.

John Byrne: It's been great. Crazy week, and we're only in the middle of it. There's a number of things we just want to quickly highlight. Obviously we are all well aware of the issues with Silicon Valley Bank and Signature Bank. And we'll leave to other experts to talk about what's happening and what's going on.

A lot's happening there and as I've said, we'll leave that to the experts, but all of us in our community, watching that carefully.

Elliot Berman: Yes. And then a number of other things.

One is there was an announcement from the Justice Department about seven people being charged with, this is quoting from the press release, sophisticated stolen identity tax refund fraud scheme that sought over a $100 million from the IRS. So that's a big one, and we'll talk about that. What else is on your mind?

John Byrne: And then also there was a $17 million fine paid from the the former head of Wells Fargo. And forgive me, I don't have the name right in front of me, Carrie Tolstedt. That was from the OCC, and obviously that's a clear example of an executive in a financial institution being directly responsible in this case for sales practices that we are all well aware of in the creation, which is an understatement of unreasonable sales goals to its employees. But the agreement includes, a prohibition order obviously to ban Tolstedt from banking, but also the payment of a $17 million fine in settlement.

So that is on the OCC's website today, and again bears reading. It's fraud related. So it's certainly adjacent to our community and the various topics that we look at.

Elliot Berman: Yes. And just for clarity she was the head of community banking.

John Byrne: That's right. I'm sorry.

And the other thing I wanna mention we've seen this in various publications. I saw it in the New York Post, saw it in moneylaundering.com. And that is that a House oversight committee is apparently, according at least to the reporting, getting access to Suspicious Activity Reports filed by financial institutions on Hunter Biden.

It'll be done in camera, so they won't be getting paper copies, but they'll be able, according to the reporting, to review Suspicious Activity Reports. Regardless of your politics. This is very troubling to the financial sector because the value proposition for filing SARs is that information does not necessarily mean a crime has been committed, but it's the bank making a determination based on their analysis that the transactional activity is potentially illegal, but clearly suspicious.

And they get filed that way and you get a civil, safe harbor for filing those those reports. Now, if Congress gets access, which is not the first time, apparently the Senate Permanent Investigations Committee couple years ago did also get access, I believe, in camera of SARs. But none of those SARs were ever leaked.

That's the key. If any of these get leaked you can, as they say, your bottom dollar, the financial institutions will have to think twice about filing SARs, even with the civil safe harbor. For fear, there'll be reputational damage. So I can't overstate enough that regardless of what you think about the politics, it's got nothing to do with that.

It has to do with a 30 year history of protecting SAR confidentiality, and I think this is an important area. So the hope is, the fervent hope is, that these documents, even though they're getting seen in camera, will not be leaked. I am not as optimistic about that, but let's hope that I'm wrong.

Elliot Berman: Yes. And that safe harbor is something that, was important and seriously discussed back and forth by all the all the right stakeholders back at the time, and it's been tested a number of times and been upheld. As you point out, there has been at least one prior disclosure to a congressional committee, but I too am concerned for the same reasons, thinking back to the days in counseling clients about how to determine what is suspicious and how to make SAR no SAR filing decisions.

And you weren't being required to make a crime has been committed determination may, help frame that decision process. If there is disclosure about these, that could have some kind of a chilling effect.

John Byrne: I'll tell you this. Going back in time when SARs were first crafted, I was at the American Bankers Association and when these first filings occurred at the time there were several cases of IRS agents that review the SARs and then actually went to the bank and said, you filed these SARs we're gonna talk to the customers that you filed on. We immediately protested and to the IRS's credit, they made sure that stopped almost immediately. But the fear there was ramifications to the institution from the customer that learned that SARs were filed.

So this is a little different. But again, the key is the confidentiality and the protection of that information. Once that changes the whole system could come tumbling down. So you have to really think carefully about this.

Elliot Berman: Yes, I agree.

John Byrne: So let's talk about the case with IRS and the Justice Department.

This is, as you've said to me offline, this stolen identity refund fraud, is unfortunately very common. And this is, these are cases that DOJ and IRS have been working on for quite a while.

Elliot Berman: Yes I did a little looking after reading this press release and you and I talking about it, and there's a fair amount of material, not surprisingly, on both the Justice Department Criminal Division's website and on the IRS website going all the way back to beyond 2012, but in 2012 the Criminal Division did something that it rarely does, and that is that where it has primary jurisdiction of these cases, it actually shared that jurisdiction with the US Attorneys' offices in an effort to move these cases along in a more expedited way because of the impact. The Criminal Division and the IRS have both testified to a number of congressional committees over the years.

This is a crime that is very, hard to detect. So more often than not the enforcement is reactive and it weighs heavily on the elderly. And essentially the fraud is capturing live social security numbers from any source that the fraudsters can get them.

And that can be from phishing, it can be from stealing them from other sources like hospitals and places like that. And then using those to file

fraudulent returns in the name of the holder of the SSN and claiming, since the returns are made up claiming l refunds large and small and receiving the refunds to the fraudulent address that's included in the filing and receiving the refund based on the first layer of processing by the IRS on the filed return.

In this case it was obviously much bigger. There were over 370 false returns filed claiming total refunds of a little over $111 million. So if you do the arithmetic, these are large returns, with very large refunds related to them compared to the average filer.

John Byrne: I think those kind of things unfortunately just play on people's feelings that, you know, that somebody can figure something out that they can't. The fact that they're focusing on these scams is really important, but they get elevated now because we're in tax season, of course.

So I, I think it's important that we take a look at that and do our best to do outreach to our friends and neighbors, and especially the elderly, to make sure they're not caught up in a, in any of these scams.

Elliot Berman: Yes. Another element that the IRS works hard to emphasize is that they don't make phone calls to individual or corporate taxpayers just asking for your social security number or things like that. And they this would be a as you said, an outreach opportunity for our colleagues and listeners to reach out to their customers and remind them at this time of the year to be on guard both for phishing emails and also those fraudulent phone calls.

John Byrne: Just quickly going back to the Wells Fargo case, in the press statement from the OCC, they referenced back to the earlier charges and orders of prohibition. And besides the former head of the community bank the community bank group risk officer, the former general counsel, chief auditor, the executive audit director, all had to pay fines and penalties back several years ago.

And as a hundred page document if you really want to get into the weeds and what happened. But the bottom line is that the bank promoted and maintained a business model. That clearly incentivized employees to engage in serious misconduct for many years. In terms of sales practices, so the media's covered this pretty extensively, but if you wanna go back and look at some of the examples, typologies, if you will, in, in there the O CC has links to those previous orders on their website.

Elliot Berman: Yes. And for those of our listeners who are not familiar with prohibition, This means that anyone against whom a prohibition

order is issued can no longer work at an insured depository institution in the United States. Which basically takes away their opportunity to work in the industry that presumably they've spent a lot of time in.

It's a very serious. Penalty in addition to the, the, obviously the cash penalty. But these were very serious activities and the government's pretty, I think, measured in when they use Prohibition. But in my opinion this certainly seems justified.

John Byrne: Next week we will have a webinar on March 23rd, one o'clock Eastern Time. I'm happy to say we will have Alan Ketley, the executive secretary of The Wolfsburg Group, and William Langford, who is the co-chair and William, is with Mitsubishi Bank. And we're gonna drill down on Wolfsburg's various guidance documents, statements, comment letters and the whole mission of that organization that's been around for a couple of decades and really does have a a major say in global policy issues.

So we're gonna have a great conversation on that again next next week on March 23rd at one o'clock Eastern.

Elliot Berman: Yes, and you can register for that at our website. That's aml ightsource.com. And we're looking forward to having a large group in the audience. We also want to put in another shameless plug for the AML partnership Forum, which will be April 26th through the 28th at the Mayflower Hotel in Washington, dc.

This is the second of the forums, and you can register for that at amlpf.com. This is a public-private partnership that we've worked on with both other organizations in the in the private sector as well as our law enforcement partners. So there's heavy participation from HSI and the FBI and IRS-CI. We have a great lineup of presentations. There's no vendor hall or anything like that. There's no press. This is behind closed doors, an opportunity to really trade best practices and learn from each other and to network. So we'd urge you to if you haven't already, to take a look at the website and to sign up for that and join us in Washington.

John Byrne: That sounds good, Elliot stay safe. Have a good rest of the week and we'll talk again.

Elliot Berman: Yes, drive carefully and enjoy the games.