CTA Enjoined, Basel AML Index, Sanctions Impact on Humanitarian Efforts, and Cyber Risks

This week, John and Elliot discuss the Federal Court decision enjoining the Corporate Transparency Act, the latest Basel AML Index, the Human Security Collective's recent sanctions mapping study, various actions by the US Treasury, remarks by the UK’s new head of cybersecurity, and other items impacting the financial crime prevention community.

CTA Enjoined, Basel AML Index, Sanctions Impact on Humanitarian Efforts, and Cyber Risks - Transcript

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

John Byrne: Good, Elliot. Obviously, we were off last week. We ran a legacy This Week in AML, so it's been a couple of weeks. A lot of interesting things, but for once, because we do record early in the week, we have something that is in the AML world, breaking news. So why don't you go ahead and describe that, and I'll chime in.

Elliot Berman: Yeah the U. S. District Court for the Eastern District of Texas, a judge there, this week issued a nationwide preliminary injunction against enforcement of the Corporate Transparency Act. Basically stopping the deadline for companies to register in the Beneficial Ownership Registry and also for using the data that's already in there come January 1st.

It's a long opinion. It is only an injunction, so that means the judge determined that there's enough of a case for the plaintiff to win, ultimately, in a trial. It's a constitutional argument, primarily, that since the formation and management of corporations is something that is ceded to the states that the federal government requiring the sharing of this information is essentially beyond their power.

We'll see where this goes from here, but for now I think the small business lobbies are happy, and FinCEN, I'm guessing, is scratching its head, and as we look at some other things in today's episode, I think we're going to see that if this is the final outcome, it will impact the US standing in terms of its efforts to be high up on the list of countries that do a good job at anti money laundering.

John Byrne: So two things. One is the response from the National Federation of Independent Business and related groups for the AML community, this should make you grin because I think one of the things we've always talked about in the CTA was how FinCEN was really trying exceedingly hard to make sure information was getting out there, how to make this filing fairly simple. But I will just read from the NFIB's press release. They said this is a huge victory for small businesses nationwide. It said that they were a mere four weeks away from the deadline to file the their information in accordance with CTA, recording requirements that are, quote, a harmful invasion of small business owners privacy and misuse of their valuable time, unquote.

So here's the thing. We have a new administration. We have Republican House and Senate. And we have a Supreme Court decision that reversed Chevron. I think this is just the beginning of several very strategic attacks on laws and regulations that could impact what AML professionals have been doing since the beginning of the creation of our infrastructure.

So I just leave it there. It will be interesting to see. As you said, this is a preliminary injunction, but obviously the compliance deadline is stayed for now and so at least the reporting companies that haven't already filed will not need to file. So more to come on this, and a lot of our friends and experts on LinkedIn, I'm sure, will weigh in the next couple of days. But I thought interesting response, but a clearly one I expected from an association of small business representatives.

Elliot Berman: I think the next thing we should talk about, as I just alluded to a moment ago, is the Basel AML Index. Maybe a month ago, we talked about the fact that they announced that they had made some minor changes to their methodology, and we can talk a little bit about that, but the Basel AML Index, so that's from the Basel Institute on Governance. It's an annual index, we've talked about it over the years, came out this week. And John, if you'd like to start maybe just a high level explanation of what it is.

John Byrne: The rankings, again, we've talked to these folks and actually interviewed folks from Basel before, and they give you risk scores for the I think 164 countries, and it's based on 17 publicly accessible sources.

So FATF, Transparency International, the Global Initiative Against Transnational Organized Crime, and this has been produced since 2012. And so there's 17 indicators, and as I said, 164 jurisdictions. So you should take a look at, they have an interactive map, they have, again, the rankings, and you can download the full reports.

Just to give you a quick sense of the rankings, the worst country for an AML perspective is Myanmar at a overall score of 8.17. And the best country is San Marino at 2.96. Before Iceland at a even three. You can go ahead and look at not just the data, but the reports that gave them the direction to get to those rankings. So definitely a very interesting one. And one that I know considers corporate transparency related issues and regs in their global ranking.

Elliot Berman: That was my point earlier. This among other indexes that various groups maintain and publish, transparency is really the global trend in those countries that tend to score well in these indexes. And the US was, before the CTA, was viewed as lagging behind, and the injunction, which will delay or potentially end implementation of the Corporate Transparency Act isn't going to make that any better

John Byrne: Couple other quick things we've mentioned IRS before. This week they have a couple of different documents out. One is warning of holiday scams and, encouraging the protection of sensitive information. And there's also a announcement reminding people that this is National Tax Security Awareness Week. And they urge folks to watch out for bad tax advice on social media.

So there's also some good examples of that in there. There's an organization called the Coalition Against Scam and Scheme Threats. And so they had a summit and they came out with some both red flags and some ideas there. So IRS is reminding people we are in the holiday season to be extremely careful.

Treasury issued a bunch of other announcements, some on sanctions former government of Uzbekistan officials for human rights abuses that was issued. There also was a couple of other Treasury ones. Again the typical OFAC sort of responses. So that's all out there.

So just stay in touch and stay connected with the Treasury Department and the announcements that they issue basically on a daily basis.

Elliot Berman: The new head of the National Cyber Security Center in the UK gave a speech this week, and the gist of his speech, fellow named Richard Horne, is that UK is significantly underestimating the severity of the online threat it faces from hostile states and criminal gangs.

He talks about state actors. Both Russia and China being aggressive and highly sophisticated. Talks about some of the efforts that they've made in the UK, but the fact that the number of severe incidents, including ransomware incidents, has spiked significantly and continues to go up, and that renewed focus and resolve, as well as the need for continued increase in resources, is something that he was calling out. And this is something we've heard in the US, and we've heard in other global organizations as well. But interesting that this person's first public statement was look out, it's going to be ugly.

That's my phrase, not his, obviously. Something to pay attention to. Cybersecurity along with money laundering and fraud are very intertwined. People talk about how to integrate dealing with these issues so that we're seeing the broader playing field in our programs, whether they're on the AML side or on the cybersecurity side.

Again, something to keep an eye on, and particularly those of you in the UK.

John Byrne: Staying with International themes, a couple things. Earlier this week, there was a joint statement by the US department of State and the Department of Treasury on the US government's response to an announcement by the Israeli cabinet extending the indemnification for correspondent banking between Israel and the West Bank.

And the US in the announcement said that they welcome the one year extension of this indemnification because it underpins correspondent banking relationships with Palestinian counterparts and they point out that economic stability in the West Bank is essential for security, both for Israel and for the Palestinians.

And related to that, an organization that we've interviewed and worked with, the Human Security Collective, issued a report this week. It's actually a very interesting analysis, and the title will tell you what it is in the title, right? The Unintended Consequences of Financial Sanction Regimes on Humanitarian Organizations so What are the Gaps that Need to be Filled?

They did a mapping study. conducted by, again, the Human Security Collective, for the Netherlands Ministry of Foreign Affairs. So this is a 26 page report. Again, it's a mapping study. The main focus was EU sanctions, but they also talk about UN issues the UN Resolution 2664.

But the bottom line is an interesting look at an area that our friends in the humanitarian world have been working really hard on because, we have these obligations, we meaning the AML CFT community, but obviously there are sometimes unintended impacts. Just to look at the methodology of the mapping, they interviewed EU policymakers.

The questionnaire that they sent to relevant NGOs. They had studies of sanctions and humanitarian action experts as part of a stakeholder group. And then they had dialogues on the impact of these sanction regimes on what they're calling, not just humanitarian, but peace building organizations.

So an interesting report. I'm going to try to effort to see if we can't get those folks to sit down for a lengthier discussion of this. Just came out, but those of you that are involved in sanctions or involved in the de risking, de banking space should take a look at this report that's on the Human Security Collective's website.

Elliot Berman: And one you and I didn't talk about before we recorded, but I wanted to mention over the years we've talked about the fraud in the COVID 19 space. A federal grand jury in the Western District of Tennessee recently returned a 53 count indictment charging two North Mississippi women with multiple schemes defrauding the government of COVID 19 relief funds.

These folks were in the tax preparing business and they filed fraudulent tax returns on behalf of their clients, claiming tax credits in several of the programs. At least these are the allegations. And those clients received in some cases, the six figure tax refunds, which they turned over to the tax preparers after keeping some small compensation for themselves.

The total of the fraudulent claims is $65 million dollars, so is this is a a real thing. It is just an indictment, so it's merely an allegation. But it will be very interesting to see where this one goes, and our partners at IRS CI were heavily involved in the investigation.

John Byrne: One other thing I want to mention, over the weekend, there was an article in Axios. And it talks about what now is being called de banking, as opposed to de risking, but, I guess we'll have to recognize that there's those terms and financial access as well. But it's a story about how technology founders believe that they're being persecuted by not getting access to certain financial institutions and banking programs and that sort of thing.

They're calling it similar to Operation Chokepoint, which was done during the Obama administration. I think our community is well aware of what that was and what it wasn't. But this is basically folks in the crypto related industry that feel that the banks are denying access, what they're calling, to broad classes of people.

Like I said before, with the Supreme Court case and everything else that we mentioned, we're going to see more of this as well. I'd say take a look at that article. Take it with a grain of salt. We are going to see more legislation, I'm convinced, in this next Congress addressing some of what I would call the real and imagined issues with de risking. It's going to be fascinating.

Elliot Berman: Yes. John let me talk a moment about this month's webinar. On December 19th at 1 p. m. Eastern time we're going to talk with some excellent experts about trends in AML compliance programs. And you can still register for that at our website, amlrightsource.com. And John, I know we're just in the process of forming it up, but tell us just a little bit about what we're going to be doing in January.

John Byrne: We are gonna do something to address, as we've done in the past, Human Trafficking Awareness Month. Polaris has already agreed to speak, and we are efforting the other panelists, and we will, as we've done before, give you some practical advice, some strategic advice in the anti human trafficking space, and so I'm excited about that, and we're, again, working on that right now.

Elliot Berman: We'll give you more details in the coming weeks. John, I may see you this weekend when you're here in Milwaukee.

John Byrne: Sounds good. Talk to you soon. Take care.

Elliot Berman: You too. Bye bye.