Basel AML Index 2023 and More

It has been another busy week. The Basel Institute on Governance released its AML 2023 Index. The US and the UK  issued sanctions on Hamas leaders and financiers, and the US House Financial Services Committee approved several interesting new bills. John and Elliot discuss these activities and their meaning for the financial crime compliance community.

Basel AML Index 2023 and More - TRANSCRIPT

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

John Byrne: Good, Elliot. I know we're all getting ready for Thanksgiving next week but there's so much going on this week, I thought we'd dive right into it.

One of the things I wanted to mention up front is the House Financial Services Committee, as we are recording this is having a hearing later today. So you can look at it when you hear our conversation on Friday on crypto crime. And this is a subcommittee hearing. The subcommittee is actually a Digital Assets, Financial Technology, and inclusion Subcommittee.

And I just wanted to highlight one thing but there's a lot of interesting witnesses. One of the witnesses is Allison Jimenez, who's the President of Dynamic Securities, and I've had the pleasure of working with Allison. She joined us at a conference in Missouri earlier this year and is clearly an expert on the technology side of AML, which includes crypto. In her written remarks, she offers up a series of recommended actions based on her experience, and she lists them in the following order: that FinCEN should regularly publish the number of cryptocurrency related SARs, that the SAR form itself should be updated to include cryptocurrency as a financial product or instrument. She also recommends updating it to specifically categorize SARs filed by cryptocurrency related institutions. Again, all those things can be done without legislation. Proposed legislation, though, she encourages that should consider cryptocurrency illicit finance by cryptocurrency miners, validators, and mining or validating pools.

And then she also cautions that any legislation should not provide weaker oversight to stable coins, given their growing use in illicit finance. So clearly been a focus on the House side, and I believe the Senate side in the US as well, but you also flagged an editorial from the Washington Post on this just recently, and what was their conclusion, or what was their recommendation?

Elliot Berman: It was interesting, and I recommend that our listeners go and read the piece. It is an opinion piece by the editorial board of the Washington Post, and I'll give you the headline, regulating crypto might end it, and that's just fine. They do talk a lot about the risks related to cryptocurrencies, some of the big failures that are known to everyone, and the challenges of the use by criminals, money launderers, and terrorists.

So it's an interesting piece. But again, I think this whole issue of more regulation, how much more, and how to make it all work is top of mind not just in the US, but certainly in the EU and in the UK as well. Plenty to think about there and plenty to pay attention to as it continues to unfold.

John Byrne: And staying with the legislative side of this, that same House Financial Services Committee passed through a number of pieces of legislation the other day in bipartisan fashion, which is always useful, especially when you have members of Congress threatening to beat up witnesses or elbowing people in the hallways. It's nice to see that they can actually do some work.

But a couple of them I would flag. One is one they're calling the OFAC Licensure for Investigators Act. Basically, what it is saying that OFAC, on a case by case basis, and maybe in a pilot program to start, would allow financial institutions and other entities to continue to work, process transactions with sanctioned entities so that law enforcement can do investigations.

So it's a let's do some undercover work, but make sure we, protect the institution for working with OFAC or whatever entity that is pursuing the investigation. I thought that was interesting. There's a number of other pieces there too. You should take a look at focusing on Iran and focusing on oil imports that sort of thing. But anyway, a series of bills that passed out of the full committee, which means, they got a shot of going through the full house and we'll see what happens there. But I wanted to flag that as well.

Elliot Berman: Yes. And as long as we're flagging House activity and we certainly covered it in the last go around. There was action this week by the House to pass a continuing resolution to keep the US government funded, and that's now going to the Senate. The deadline, I believe, is midnight on Friday. There are indications that this will move through and get to the President's desk before the deadline.

John Byrne: Right, and so from an international perspective, the Basel Institute on Governance has just issued their AML Index for 2023, and their headline is, Action on Money Laundering, More Urgent Than Ever. They're an independent group that's been doing indexes for a number of years, and they look at over 18 different indicators and their headline besides the phrase I just mentioned is, the average global money laundering terrorist financing risk level increased from 5.25 in 2022 to 5.31. 10 is the maximum risk. And they give you a series of reasons why and not to give away too much because I'm going to be doing an interview with the project leader of Basel next week, but one of the things that they focus on is making sure that countries cut off funds for terrorists, but not civilians.

And so they say countries need to do a better job at preventing terrorist financing through what they're calling bogus NPOs but they also warn that it's essential to take what they're calling an informed risk based approach and don't indiscriminately cut off funding to whole classes of NPOs. Because that obviously, as we all know, we talked about it many times affects, hinders vital humanitarian assistance and human rights.

So again, we're going to talk more about this in a more lengthy conversation next week, but I believe the AML index is always a useful training guide for entities like our own that are global and trying to provide the best service we can for our clients and the big broad AML community.

Elliot Berman: Yeah, the two other big takeaways, and again during your podcast, I'm sure you'll go much deeper, but the besides the NPO item is that governments, and I'm quoting here, governments facing challenges to implement financial sanctions from identifying the beneficial owners of companies, something you and I have talked about many times, and outsmarting enablers, also something we've talked about, of money laundering and sanctions evasion.

And then the other one is governments struggling to fund efforts to address climate change, food insecurity, and natural disasters while losing trillions of dollars to corruption and organized crime and recovering not even 1 percent of those stolen funds. These are things that we have talked about that I know are top of mind to our the community.

I recommend the report. It runs to about 55 pages but it's a worthy read and there's a lot of interplay between the Basel report and the activities that you and I regularly talk about at FATF in terms of their recommendations and how well countries are doing in terms of implementing them and whether or not they're effective. That's a key part of the index.

John Byrne: Sticking with global issues this week is the US and the UK announced they're taking coordinated action against Hamas leaders and financiers. And that's a third round of sanctions against Hamas affiliated entities. The action designates those officials and other mechanisms by which Iran provides support to Hamas and the Palestinian Islamic Jihad.

So that's that came out through the Department of Treasury. So I wanted to highlight that. And there's a lot of information within that release that tells you not just who the officials are, but what the sanction implications are. Quick aside, I did an interview that we'll be posting soon with Dan Tennebaum, who is a sanctions expert. And I do ask him specifically about how you show success with sanctions. And so he goes into detail about that so I would urge folks to watch for that when it's posted. So that's going as well.

And then there was what you call a readout from FinCEN. A readout is just minutes, if you will, high level minutes of meetings. And the release came out this week, but it was talking about a November 9th meeting at the Harvard Kennedy School on the role of cryptocurrency and financing terrorism. So going back to our original comment about the hearing that's going on this week, another conversation about that and the Undersecretary for Treasury for Terrorism and Financial Intelligence, Brian Nelson was involved in that.

He also convened a roundtable with MSBs trying to figure out, what else can be done to deal with the countering of illicit finance. So obviously a lot going on in this space. Globally, and then specifically in the crypto response to the crypto world, if you will.

Elliot Berman: Yes and as we talked about in other episodes In the US, there continues to be efforts, by law enforcement to investigate potential, corruption by public officials. This week Mayor Adams of New York City there was an indication that he was being investigated related to some potentially alleged, activity in giving some preference to the country of Turkey in terms of the building of its new consulate in New York. So again, no, there's no determination of wrongdoing, but prominent US officials are being investigated where appropriate. Coming all the way back to the Basel rooting out corruption is an important part of an effective global program.

John Byrne: And look, he's been to Turkey five or six times and has met with Erdogan, so there's a... There's a lot of smoke there. The FBI seized his phone records, and that sort of thing. So you've got to watch this. And sadly, corruption is bipartisan. We got to stay on top of this.

It's important. You're right. It's only alleged. And he's saying publicly that he's cooperating and that there's nothing untoward here. It's simply trying to help certain classes of immigrants within New York. We'll see how this plays out, but it is important we stay on that.

Just related to that one other thing, we've talked before and we've interviewed several of them. The International Consortium of Investigative Journalists, ICIJ Number of things that they're working on, but something that I think people should take a close look at. On sanctions related issues, they say that based on their investigations, that PwC has served dozens of oligarchs through its Cyprus branch.

And that obviously is, if that's sanctions evasion, that's criminal activity. We'll see. But this is a pretty dramatic charge. So I would just urge folks to take a look at that. The ICIJ website is free, so you can read the articles on there, but this was just posted in the past couple of days based on a pretty lengthy investigation from at least what we've seen.

I'll try in the next few weeks, even though we're hitting the holidays, see if I can't get somebody from that group for a more lengthy podcast, but again, something we should take a look at, because sanctions evasion is also something we've talked about quite a bit you and I, and also with people that we've interviewed.

Elliot Berman: So a couple of things as we wrap up. One, you mentioned you and I are going to take the holiday weekend off next week, but we will post an archive edition. So please watch for that. Secondly, our November webinar will have occurred by the time you hear this podcast. So watch for the recording to post to our website probably by the end of the month.

The December webinar, which will be on December 19th, which is a Tuesday, and we're going to be talking with some of our, some experts on where compliance technology is going. So that'll be I think a good conversation and one that is worth people registering for, which by the time you hear this you'll be able to register on our website.

So I say folks, go to our website for information on our podcasts, on our webinars, on our blogs. We also repost everything on LinkedIn, so please feel free to follow us there. And we'd like a rating. If you could give us a rating to this week in AML, that's very helpful, lets us know people are listening, and so we would appreciate your feedback.

John, you have a wonderful Thanksgiving, and I will talk to you the week after, and go Golden Eagles!

John Byrne: Fourth in the country! All right, take care.

Elliot Berman: Yep, bye bye