Connecting Fraud and Money Laundering

The US Department of Justice announced an indictment charging four people with fraud and money laundering. John and Elliot discuss the connection between fraud and money laundering and how the detection of one can lead to the detection of the other.

Connecting Fraud and Money Laundering - TRANSCRIPT

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

John Byrne: Hi, Elliot. Fine. We're recording this in the middle of the week after July 4th holiday in the States a number of mass shootings around the country. So it does put more than a damper on celebrations and things. But we just got to keep pushing forward. So a number of things have happened in the past couple weeks but we want to highlight a few of them.

I'll just start. We're doing a deep dive into the FATF plenary in June. Also wanna mention though that part of one of the outputs of FATF last month was an update of the best practices paper to combat the abuse of NPOs. The age old issue that sadly we've been working on for quite a long period of time, about financial access, de-risking that obviously harms a number of organizations, but particularly humanitarian groups. So the point here is that they are updating recommendation 8 and the interpretive note, but also there's a best practice paper and it's open for public comment.

There's a variety of stakeholders that should be interested in this and I know are, and the comments are open till August the 1st. As we've said to our client base, if you would like us to comment on your behalf, not identifying institutions with particular issues and recommendations that you have, we'd be more than happy to do that.

We have a history of doing that. I said August 1st. I'm sorry, August 18th. So that's available on the FATF website. But again, it's just a constant issue. We know that some charities are high risk, but we also know that many are not. And so I think there's a great opportunity here. So I just wanted to flag that.

I know there's a issue you wanted to update us on and then something that was announced by DOJ in Puerto Rico and other places. But I know there's another item that you want to highlight.

Elliot Berman: I just wanted to put in a plug for a new series that we'll be launching. In addition to This Week in AML, many of you are familiar with our AML Conversations series. And as part of that, we're adding a new thread called the Solutions Series. You'll be able to find it on our website and on SoundCloud and wherever else you get your podcasts.

The first one should be posted by the time you hear this episode of This Week in AML and the focus is bringing some of our internal experts to the microphone to talk about technical aspects of your financial crime compliance program.

Some education about various things like selection of a transaction monitoring system or a major upgrade of one. Information to bring all of us up to speed on how artificial intelligence is unfolding as another tool in the compliance space. And watch for those let us know what you think.

And we'll be doing those on no particular schedule basis but please watch for those. And then, John, coming back to what you suggested a moment ago if people would like to have us accumulate comments, should they send their ideas to you?

John Byrne: Yeah, they could send them directly to me And we'd be again more than happy to share drafts. Like I say, obviously, we won't identify the institution, but it's we're interested in themes. We're interested in your recommendations. Many of you have commented over the past decade about this issue. So this is another opportunity, especially when a group like FATF is looking for. All stakeholders to provide input.

So we're more than happy to take advantage of this as we have our partners in the humanitarian world, the various associations we've worked with, they would certainly welcome comments from the financial sector.

Elliot Berman: Sounds good.

Earlier this week the DOJ issued a press release, which you alluded to briefly, about an indictment that was issued in Puerto Rico in the federal court in Puerto Rico regarding for people who were indicted for conspiring to launder funds from various fraud schemes.

John Byrne: It's a superseding indictment that charges those for individuals with account of conspiracy to launder funds through wire and mail fraud. But the key here is both that, of course, but also the combination of various agencies that worked together on this, I think, is really important.

So the Postal Service, Labor Office Inspector General, and the FBI, San Juan Cyber Task Force are all investigating these cases, but they all emanated from these various scams against the elderly, and that's been a priority for DOJ, FBI, and many other law enforcement agencies.

So I thought that was worthy of comment based on that. And then they also mentioned in the press release. If you know anybody 60 years old or older, and it's been a victim of financial fraud, contact the National Elder Fraud Hotline. So sadly, there's a lot of these cases but we thought it was important to highlight that, and also the involvement of the US Attorney's Office in Puerto Rico were involved in this as well.

Elliot Berman: I think this is a good reminder about is the connection between fraud and money laundering. Fraud is a predicate offense from money laundering, but if you get away from the the legal technicalities, I think the more important piece is that very often the results of a fraud lead to money laundering because if the fraudsters are successful, they now have a huge pile of ill gotten gains and they need to figure out a way to make them usable.

And so that of course leads them to money laundering. If you'll recall, you and I chatted, and I don't think we talked about it on This Week in AML, but we did chat back in March when 41 people were indicted in Atlanta. For a $30 million pretty complex fraud they were stealing retirement funds and all different kinds of things.

There was a money laundering component to that, and those folks were sentenced about a month ago. So again, this connection between fraud and money laundering, from a operational perspective, if you will, by the bad guys continues to be strong. And so sometimes the frauds are found first and then the money laundering.

Sometimes the money laundering gets detected and when everybody pulls on the thread, law enforcement ultimately finds that, the source of the funding is not something like human trafficking or sex trafficking or the sale of illegal drugs or things like that, but it's actually a fraud, sometimes a pretty garden variety fraud.

John Byrne: Right. Exactly. So there's always that connection. And with age old debate on fraud and money laundering, I think those two have, as you've mentioned, clearly been connected. And so we'll continue to follow that. As we close this down a couple of things I wanted to mention. I said last week that I was going to sit down with Gary Shiffman, which I did, and that interview will be posted this week.

As I told you, Gary has done a very compelling piece on the use of algorithms in compliance and the ethics of that. I think that's pretty important. That's coming up. I have a couple of things we are scheduling, dealing with antiquities and art theft, sanctions, several other issues.

And also I've had the pleasure of interviewing over time Steph Casella, who is the expert, the world expert, I could say without hyperbole on asset forfeiture, and he's kind enough to guest lecture my class in a couple of weeks, and we're going to see if Steph would be kind enough to update us on what's going on.

He does a lot of work internationally, where he travels to jurisdictions and helps them craft asset forfeiture laws and explains the value proposition there. So that's another thing. And as we always say, if there are individuals, topics and themes you'd like us to consider for our conversations, we'd love to do that.

We are a slave to algorithms. So we'd like you also to read and review our weekly conversations and the other conversations, send them to your folks. Give us your thoughts on these. That's always pretty important. We get some nice feedback from those that reach back out to us about what we're able to provide on a weekly basis.

So we want to keep doing that.

Elliot Berman: Yes. And you mentioned earlier that we're doing a deep dive webinar on the FATF June plenary. That is later this month. It's the 27th, the live stream will begin at 1 p. m. Eastern time. And you can register on our website. And in August, we'll be doing a webinar that will focus on AML best practices.

So this is a good opportunity to listen in to the panel of experts and hear ideas that may help you do a review of your own program or a tune up of your own program. So we urge you to tune in for that. That'll be August 24th registration will open later this month. John, I will talk to you next week and I hope you have a good weekend.

John Byrne: All right, Elliot. Stay safe. Talk soon.

Elliot Berman: You too. Goodbye.