FATF Plenary, Influence and Sanctions, Financial Inclusion, and FINTRAC on Lawyers

This week, John and Elliot discuss the outcomes of the October FATF Plenary, a recent investigative report about former government officials giving advice on sanctions compliance, the US Treasury’s National Strategy on Financial Inclusion, FINTRAC’s recent bulletin on the risks of Canadian lawyers not having to comply with AML rules, and several other items impacting the financial crime prevention community.

FATF Plenary, Influence and Sanctions, Financial Inclusion, and FINTRAC on Lawyers- Transcript

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

John Byrne: Good, Elliot. In the United States here, it's less than a week before Election Day, and I would just remind people that it's important that people vote. We never have a high enough number of folks voting percentage wise, and that's always important to our community. What happens next week will impact the fights against corruption, financial crime, and sanctions. That's something that you can check on your own, but I want to start off with one quick item that's related to this.

Just a couple of days ago, the Office of the Director of National Intelligence, FBI and the Cybersecurity and Infrastructure Security Agency, CISA, released this short statement, that they assessed that Russian actors manufactured and amplified a recent video that falsely depicted an individual ripping up ballots in Pennsylvania. Judging from the information available to them and prior activities of Russian influence actors, including videos and other disinformation activities, and local election officials have already debunked the video's content. That's part of Moscow's broader effort to raise unfounded questions about the integrity of the US elections and stoke divisions among Americans that was detailed in prior ODNI election updates. So just be careful, folks, what you read, what you hear. It's really important that you get the facts right. So I wanted to mention that as we head into the last week in the American elections.

Elliot Berman: It's a fraught experience here, but if we all get out and vote that will make it better. In terms of an experience and in terms of preserving our democracy. John, I know that last week we mentioned that the FATF October plenary was in flight while we were recording, and that we would talk about the outcomes. What did you see that caught your eye?

John Byrne: Yeah, a reminder that the president is President Madrazo. She's from Mexico. This is the first of her two year term. They had over 200 jurisdictions represented, both FATF members and observers. A number of things that they did, they agreed to release for public consultation, proposed revisions to the standard related to FATF's focus on financial inclusion. They also approved new guidance on national risk assessments to support countries to better understand the illicit finance risks that they face.

So I think those are important. They also discuss standards related to changes in cross-border payment systems and additional work to identify the latest terrorist financing and proliferation financing risks, which is very relevant to us here in the States because of the priorities that we've talked a lot about.

And then they also agreed to create a project to review its processes to ensure that countries don't misuse the FATF requirements to restrict the activities of NPOs. Again, de risking, we've talked about that before. They also did a few other things that I know you want to highlight.

Elliot Berman: At every plenary they go through the most recent reports that have come in. They also review the list of jurisdictions requiring increased monitoring. And as they often do, this time around four countries were added. So that's Algeria, Angola, Ivory Coast, and Lebanon, and one country was removed, and that's Senegal. Removal and being placed on are both the result of visitations and conclusions about the status of the country's AML CFT program when measured against the FATF guidelines.

Nothing changed with the suspension of Russia from its membership in FATF. And nothing changed on the blacklist. So it's still North Korea, Iran, and Myanmar. The public consultation on inclusion will be a very interesting. I'm looking forward to seeing the outcome.

John Byrne: I agree. And then they also mentioned building on the Women in FATF initiative that they discussed additional proposals to strengthen diversity and inclusiveness throughout the global network. I want to take a quick side view here on sanctions. There's a major story in last week's Washington Post on the 24th, so toward the end of the week after we recorded last week. And it's about what they call a new Washington influence industry that's making millions of dollars from advisory work on sanctions.

Now, everybody deserves some direction and some expertise on how to navigate sanctions. That's clear. But I think what the story tells me that there's a number of former US officials, Congress folks, senators, as well as people that have been in the various agencies that are representing some would suggest problematic countries.

I'll let others make that decision, and it's on both sides of the aisle. This is not just one party. These are people that have represented their political parties, or again, in various agencies. Lengthy story. One of the things that jumped out at me, former FBI director, Louis Free h, he represents a Venezuelan banker, Israeli billionaire, and a foreign private equity firm. You can look all this up. This is all in the article.

Former head of OFAC Rick Newcomb is also mentioned in the piece, and they also mentioned several other Treasury officials not by name. Some of us could make educated guesses on who those folks are. So what I would suggest is there's certainly nothing illegal or untoward about representing clients to try to navigate sanctions because sanctions are difficult to figure out. That's clear.

But I would just urge folks to read the entire piece. And this is based on a lot of research and a lot of investigations. And I'll leave you with this. Somebody that we've had at conferences, been on panels, Brian O'Toole. Brian's a former senior advisor at OFAC. He said this, this is from the article.

He questioned the wisdom of a system that appears to give an advantage to, quote, the richest guys who are the best equipped to pay for the right services. And then he says this. Maybe they deserve legal representation, but I don't know if they deserve the legal representation of the former director of the FBI. O'Toole is now a senior fellow at the Atlantic Council. He said, from an ethical standpoint. It's not something I would do.

Interesting article. I ask all of us that are in the AML, sanctions, CTF space, take a look at it. Sanctions are just so important from a national security standpoint. There's been certainly a lot of debate about the value of sanctions and how they get evaded and that sort of thing. This is just another piece of the puzzle.

Elliot Berman: Yeah. You've encapsulated the essence of the article very well, and it is a worthy read, so I support your recommendation. Definitely something that needs to be read and thought about.

John Byrne: In addition to this, another action from the Treasury Department was the release of a national strategy on financial inclusion. And Janet Yellen spoke to the American Bankers Association at their annual convention to talk about this. I'll just reference one thing and then turn it to you, Elliot. Besides talking about the actual strategy, she also mentioned to the bankers an update on illicit finance and sanctions, and she said to the bankers that they appreciate their engagement and feedback, including on the latest program rule that we've talked about.

She adds that they also depend on financial institutions For SAR reports that obviously enable US authorities for achieving successful prosecutions and seizures. And that's why they've been convening FIs and law enforcement officials in key regions to exchange information on things like illicit finance, but specifically on the opioid epidemic.

So she mentioned that and the importance of sanctions, but also obviously talked about the strategy. What were your takeaways from the national strategy?

Elliot Berman: This is coming from main Treasury. So this is looking at financial inclusion from an economic perspective. That doesn't mean it ignores the de risking things that you and I have talked about. But this is looking at, how do we include in the economy in an effective way and in a way to help people build financial stability and long term wealth so that they have financial stability throughout their lives not just their working life. That's the focus.

They come up with five objectives and I'll just read them. So the first objective is to promote access to transaction accounts that meet consumer needs. The second is to increase access to safe and affordable credit. The next one is to expand equitable access to savings and investments. Improve the inclusivity of financial products and services provided or backed by the government. And then foster trust in the financial system by protecting consumers from illegal and predatory practices.

Many of the elements of these five objectives, we already have pieces of in our financial, regulatory system and consumer protection system, both at the federal level and at the state level. But bringing them all together in one report. Stake out a clear statement about this is, I expect, going to cascade through the regulatory agencies trade groups, the folks who run government backed financial products and services as they look at what the strategy is and how what they do fits into the strategy and may need to be tweaked or significantly changed, to implement the strategy. As we're seeing with other national level strategies that are coming out of mostly out of Treasury.

John Byrne: Yeah, so that's available, obviously, on the Treasury website, and we'd urge folks to take a look at that. Sticking with the Treasury, Elliot, you also mentioned that the Bureau that we talk about all the time, FinCEN, they just recently assessed a $900,000 civil money penalty. This is against a casino. What was the issues there?

Elliot Berman: Yes It's Lake Elsinore Hotel and Casino. It's actually a card club in California. If you look at the implementing regulations for the BSA, you'll see that card clubs are one of the covered types of financial institutions that have to have a program. This entity had no program for a number of years. Eventually they appointed a BSA officer. They had a program document that said there needed to be training, but they hadn't created any training. Their employees were not aware of the need for training.

They filed no SARS for a long period of time, not because they didn't find any suspicious activity, but they didn't have a mechanism in place to identify it. They didn't follow the record keeping. It's not a system failure. It's a lack of a system. And the California gambling control board, I believe is the name of the agency also has governing authority and they are still investigating. So I don't know that we've seen all that's going to happen here.

Considering they're starting from a blank piece of paper, this will be a serious lift. This is gonna be a lot of work for these folks to try to put a real program in place. Somebody must have known there was a requirement and yet they acknowledge that they had failed to create a program. That's about as clear as you can be that you weren't following the rules.

John Byrne: They acknowledge that. That's, I'll just leave that. I'll just leave that there. Just quickly, the last point here that you've highlighted, there's a blog that's called recent developments about the New York State Department of Financial Services. It's not affiliated with it, but you and I both caught this on I think I saw this on LinkedIn. But just a quick mention here that they're reporting in the blog that at Bloomberg DC FinTech Week, this week, the superintendent of the New York Department of Financial Services, Adrienne Harris, said absolutely when she was asked if there'd be big cases coming down for crypto firms, stable coin firms, or even market makers in the space. And ended by thinking we have to really make sure this is a quote we're using the full suite of tools at our disposal, and there's definitely a place for enforcement.

The big issues with crypto is that there's certainly potential for fraud and where we see the biggest areas of vulnerability are often around illicit finance. So the AML/BSA framework and cybersecurity, but also market manipulation, those sorts of things. So this is again, from a blog about a presentation and a Q&A with the superintendent of the New York State Department of Financial Services.

Elliot Berman: Yes. And for those in our audience who are not familiar with DFS it's a very robust agency because of the large number of significant, financial service providers in the state of New York. They have a much more fulsome department than many state banking commissioners or financial service commissioners. So interesting to hear that.

One other thing is FinTRAC, which is the Canadian FIU, issued a statement warning the public, that lawyers may be assisting in major money laundering schemes.

They talk about the fact that in Canada, lawyers are mostly self regulated. And so their AML responsibilities are self imposed and therefore not necessarily reviewed effectively. And that because they get involved in many things that we talked about when we talked about gatekeepers, they are a, these are my words, a soft spot in the AML CFT regime in Canada, and I would say in the US as well, since so far US lawyers are not really regulated either. So just something interesting. I think that gatekeeper issues in a lot of different ways will continue to pop up. We've seen a little forward progress in the US with the real estate rule but we haven't seen a full court press on gatekeepers in the US by any means.

You're gonna moderate our webinar.

John Byrne: November 19th, it's what has FinCEN done in 2024. We're gonna have Rick Small, Dan Stapano, and Megan Hodge. I think it'll definitely be not simply an update, but their insight into some of these proposed regs, final regs, and we'll give you both practical advice and some strategies going forward for 2025.

Elliot Berman: Sounds great. John, you be safe and I will see you next week.

John Byrne: Sounds good. Everybody vote.

Elliot Berman: I already did. Bye bye.