Corruption, AI-based Fraud, Cybercrime, and Changing Priorities

This week, John and Elliot discuss corruption, including the dropping of charges against New York Mayor Eric Adams, the Basel Institute on Governance’s new quick guide on strategic corruption, and the DOJ’s pausing enforcement of the Foreign Corrupt Practices Act. They also discuss issues raised by BaFin about AI-based fraud, actions by Europol on cybercrime, and other items impacting the financial crime prevention community.

Corruption, AI-based Fraud, Cybercrime, and Changing Priorities - Transcript

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

John Byrne: Hi, Elliot. Like Milwaukee, we in northern Virginia got a bunch of snow last night. We don't handle it as well as you folks do, but it looks like it's warming up. We probably about 6 inches of snow out here and I'm out near Dulles airport. For us, second snow storm, of 2025.

Elliot Berman: Yeah. Started snowing this morning around 7:30. The prediction is around the same amount. I live pretty close to the Lake Michigan shore. And sometimes these kinds of storms, you get what they call lake enhancement where you get more moisture in the snow late in the storm. So it's going to snow all day. And the streets will be clear by tomorrow morning.

John Byrne: For our audience, I neglected to say this last week. And I wanted to note this, that as they say, a friend of the pod Dave Stewart has retired from SAS after 35 years. And Dave was a weekly listener and gave us some feedback and was always really great at the SAS conferences I've been fortunate to attend giving us plugs. Dave did a lot of great work at SAS in the technology space, but obviously it was also a strong proponent of networking.

I don't know if Dave's still listening to us every week, but wanted to say, Dave, we really appreciate your career work and congrats.

Elliot Berman: Yes. Congratulations. We're showing our age that many of our contemporaries who've been doing this alongside of us are now retiring. I suppose you and I'll have to think about that one of these days.

John Byrne: So the fire hose continues. We will cover some international issues, but I want to mention a couple of things. I think the theme today is corruption scams, other frauds. I want to lead with one item that people are aware of and that is the new deputy attorney general, I'm not sure exactly how it made its way to New York, but SDNY has now decided to drop their, charges against Mayor Adams. This indictment, to remind everybody, which came in September of last year, charged Adams with federal crimes, including conspiracy, bribery, and solicitation of foreign campaign contributions.

The prosecutors also alleged that Adams solicited and accepted two types of improper benefits from Turkish officials and nationals. And in return, Adams allegedly used his official power to shortcut the safety inspection process on a skyscraper known as the Turkish House to the satisfaction of foreign benefactors.

Those charges have been dropped. We'll leave it to others to do their own research on that, but I will tell you that from all the reporting the actual rationale for dropping the case, some have claimed lacks some legal logic. We'll put it that way.

But I'll just quickly turn to something international and then let you take over from there. But also in terms of the area of corruption the folks at the at the Basel Institute on Governance, who's been kind enough to talk to us in the past, they just posted their second in a two part series on corruption in this particular posting, you'll find it on LinkedIn and on their website is on what they're calling strategic corruption.

They explain what is strategic corruption, which includes attempts to subvert political systems, commercial activities, like obtaining control of critical natural resources and infrastructure, abuse of financial systems and structures. Anyway, this is a clear 5 page direction on what they believe are elements of strategic corruption, some good resource information and some good recommendations. So the basel group, like I said, always does some really good work. So we wanted to mention that their quick guide is available on the basel institute for corruption dot org website.

Elliot Berman: BaFin, the primary German financial regulator their president, Mark Branson, gave a speech at a conference talking about new technologies and he urged banks in Germany who have had good financial results to take some of those as he called them bumper funds and deploy those to improve the industry's ability to detect and interdict AI based frauds.

Noting a theme that you and I have talked about almost every week now. The continuing explosion of fraud and the adverse impact it's having on and companies. Other regulators in the European area have made similar comments. The UK's Serious Fraud Office issued a similar statement not long ago.

And there was reference to the FBI public alert in December, which we talked about AI based fraud. So a scene not to forget it's still around and we're going to be dealing with it for the foreseeable future.

And staying in Europe, Europol took down two of the largest cybercrime forums through a joint effort. The two platforms Cracked and Nulled, had more than 10 million users in total. Both of these underground economy platforms offered a quick entry point into the cybercrime ecosphere. So the operation took place toward the end of January and there was seizure of a variety of types of property, servers, cash and cryptocurrencies.

Two folks were arrested. And the announcement talked about the fact that there is now a growing trend on platforms to offer cybercrime as a service. As you and I have talked before, a lot of the illegal activity going on is becoming routinized. It's not just random actors trying to create fraud, but it's people developing it as a business model.

John Byrne: Sticking with fraud is a bunch of things, especially the online elements of fraud. The Economist in their February 8th edition has a whole section on what they call Scam Inc. The subtitle is online scamming is a vast, sophisticated, and fast growing global enterprise. Nobody is safe. There's some interesting analysis, as there always is in The Economist.

They say just reading from a quick section here, the industry is growing fast, in Singapore, scams have become the most common felony. The UN says that in 2023, the industry employed just under 250,000 people in Cambodia and Myanmar. Another estimate puts the number of workers at 1.5 million.

And they report a number of things in this edition. One is man in Minnesota lost $9.2 million, how a banker in rural Kansas collapsed, how the bank collapsed, sorry, when its chief executive embezzled $47 million to invest in crypto.

The tail end of the piece in the editorial part of this focus on scams was really interesting. This is what they say. When criminals move money and people through many jurisdictions. Global law enforcement just can't keep up. So many scam bosses are from mainland China, and the Chinese Communist Party does arrest hundreds and thousands of alleged scammers. At a time, this is The Economist speaking, at a time when America and China are at loggerheads, scamming is one area where they could, and should, work together. That's an interesting analysis. But anyway online scamming, obviously, they talk about pig butchering, which we've covered as well.

Staying with that world the joint chiefs of global tax enforcement, the J5 announced earlier this week that a Canadian national has been charged with stealing approximately $65 million in cryptocurrency from two DeFi protocols.

And again the J5, which includes the U.S. mentions also that the defendant exploited vulnerabilities in what they call KyberSwap, Kyber with a K, and index finance, decentralized finance protocols to steal from investors. So that's on the IRS website, but also J5.

And then just quickly, Elliot, on the IRS, I did read something in one of the trades that said that the head of Homeland Security has now requested, I don't know exactly how this works in terms of authority, that IRS agents who have the ability to perform arrests and have always had that ability, that they want them to do more immigration related work, which obviously would take IRS CI agents away from typical financial crime investigations, which they do so well.

I am not sure if there has to be a formal chain of command in this administration. But anyways, the IRS has been asked to do some immigration related arrests. So I wanted to mention that as well.

Elliot Berman: FinCEN and DOJ have announced a settlement with a subsidiary of Brinks, the the armored car company, that involves paying $42 million over the next three years. Following an admission of willful violations of the Bank Secrecy Act. The subsidiary was a money transmitter that among other things failed to register, but also transported very large amounts of cash across the Mexican border and between various other money transmitters all without any anti money laundering compliance controls.

Why is this important? It's the first time that a armored car service or one of its affiliates has been fined under the Bank Secrecy Act and it's a reminder that there are a lot of places where AML compliance requirements exist and not everybody for whom they exist really pays attention to them.

John Byrne: Going back to corruption as a theme, Trump has signed yet another executive order. He did this a few days ago and this one directs the attorney general and again, the line of authority for an independent Justice Department escapes me, but directs the attorney general to pause enforcement of the Foreign Corrupt Practices Act, the FCPA, which has been around since 1977. Until new enforcement guidelines and policies that address that enforcement are published. This comes on the heels of other memorandum issued by the new Attorney General Bondi. There was at least 15 memoranda issued in the past week that touches on the FCPA.

And would obviously give those of us in this world that represent and advise clients some direction on where this might go. But a couple of things I think are worthy of mentioning right now, and I've looked at some law firm analysis of this and basically paraphrasing a lot of the law firms have said, okay, don't make any quick decisions regarding FCPA because there's a 5 year statute of limitation in terms of your advice to clients, but stay tuned with these with this oversight. But a couple of the things that are important to reference Elliot, one is a new focus from the traditional ways in which one looks at foreign bribery to cartels and transnational crime.

So that's both from the Bondi memorandum and from the executive order. But one of the things that I think is a little, disturbing for those of us that have paid attention to this is that there's also the disbanding of the. DOJ's Kleptocracy Task Force. And that's one that was created to go after oligarchs in Russia and other places that are moving illicit funds and using laundering money and that sort of thing.

So that's been disbanded to focus again on cartels and transnational criminal organizations, which is important to focus on, but to the exclusion of those, it becomes I'd say a bit problematic. But I wanted to mention that's out there though as well. So changing priorities, combination of the executive order plus all the Bondi memorandum.

Besides disbanding the kleptocracy team, they also disbanded the kleptocracy asset recovery initiative. Remember that initiative focused on forfeiting the proceeds of foreign official corruptions and then when appropriate using those recovered assets to attempt to benefit the people harmed by these acts of corruption.

And that included the major case of we remember 1MBD, the Malaysian sovereign wealth fund. A lot of the law firms have done some really good analysis here. We're going to do our next webinar is in February is on corruption. So we will cover this in more detail next week.

Elliot Berman: And you can register for the webinar at our website, amlrightsource.com. John, the other plug, I want to put in is the AML Partnership Forum for 2025 will be in Washington. And it is March 19th through the 21st at the Mayflower Hotel in Washington, and you can register for that at amlpf.com. We encourage you to attend. It'll be a great two days spread over three with law enforcement and the private sector discussing critical issues as they evolve that will help us all keep our eye on the financial crime prevention ball.

John, anything else?

John Byrne: Doing some interviews in the next week with a couple of experts from a variety of places. I'll just leave it at that because we're still efforting to make those schedules final, but it looks like we'll have a couple more podcasts in the hopper in the next week or so, which we'll post in the next few weeks. So we're working on that right now.

Elliot Berman: Sounds good. John, you have a good week and I will talk to you next week.

John Byrne: Sounds good. Take care.

Elliot Berman: You too. Bye bye.