FDIC Staffing, Check Fraud, FATF, Fentanyl and Gambling, and Debanking

This week, John and Elliot discuss FDIC’s recission of job offers to 200 new examiners, an alert about check fraud through theft of US mail, an announcement that Belize is the most compliant with FATF’s 40 recommendations, FINTRAC’s operational alertabout Laundering the proceeds of illicit synthetic opioids,  the Senate Banking Committee’s inquiry into debanking, and other items impacting the financial crime prevention community.

FDIC Staffing, Check Fraud, FATF, Fentanyl and Gambling, and Debanking - Transcript

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

John Byrne: Good, Elliot. On a light note Marquette did something they hadn't, they've been doing for the past couple of years, but they weren't doing with previous coaches. Made nice adjustments at halftime of the Butler game and played really well in second half yesterday.

So they continue to have different players play well and all that sort of thing. So that was a nice evening last night.

Elliot Berman: Agreed. And you're right. They made a lot of adjustments, it was really like two different games, the first and second halves.

John Byrne: So just in general everybody that pays attention is using the analogy of a firehose. Which I think is relevant to what's been going on in. ,The Firehose of Executive Orders and various pronouncements, and a lot of them do touch on our space, so I just wanted to highlight a couple of those, and then we'll talk about some of the more normal things that happened in AML late last week and early this week.

So a couple of things. This is not the Saturday Night Massacre, Google it, kids. But the firing of 17 inspector generals over the weekend with no explanation why does impact the ability of agencies to, to root out mistakes, whether deliberate or not. And so we'll see what's happening there. I know there's been a pushback from these IGs because it's actually illegal to do it without notifying Congress but we'll see what happens there.

Also, there's been a pause in funding for the federal government that's also being challenged in the courts. And a couple of things that relate to our world. One is there were 200 new examiners hired for the FDIC that is now on pause. I personally know a particular individual friend of mine who was going to take a job in the government dealing with AML and has decided, no chance, staying in the private sector.

So I think these sorts of things could impact the ability of getting really good, smart people in the public sector to do the work that we know is so important. So I thought that was important to mention. The funding pause, and I know one court has paused that pause, so there'll be a court conversation on Monday, I believe, or Tuesday.

But the stopping of funding of grants throughout the country, which impacts humanitarian causes, day to day activity, that sort of thing. So that's also to say it's chaotic is an understatement. So I wanted to mention those few things. We continue to see what other potential impacts there are.

And then I guess the big thing, and you and I both know people that work for the federal government. An announcement by the White House earlier this week saying to everybody, basically a couple million people in the federal government, whether they be in Washington or around the country, that they can decide to resign and they'll get paid through September.

This is obviously an attempt to definitely lessen the volume of federal employees again, in all agencies. This is very similar to something that Musk did with Twitter, so he's got his fingerprints on this as well. All of this will affect AML, financial crime, terrorist financing, at least in my humble opinion.

So we'll continue to watch all this, but I wanted to start off and mention those few items. Again we're recording midweek, so by Friday, some of these things could change, could get worse. I guess we'll wait and see. Wanted to mention those before we talk about some of the other items.

Why don't you go ahead and tell me what you have on your side?

Elliot Berman: I've got a couple things from outside the US. One is the FCA which is the Financial Conduct Authority in the UK, which is the principal financial services regulator there. Came out with a call for brokers, so these are wholesale brokers in the financial services space to increase the quality of their AML programs.

These are the wholesale brokers who are between the product creators, if you will, and the sellers, which are often banks. The interesting thing is, this is a space that at least in a somewhat similar way, the US has looked at. The RIA regulation that came out last year from FinCEN under AMLA touches similar space, not identical, but it is another indication that this part of financial services is a place where money laundering is a potential problem and and good sound practices are important.

The other thing is you and I have talked many times over the years about FATF and its standards and we don't usually talk about how they score all of the countries, but, we focus on the ones that score very poorly and end up on either the gray list or the black list. But it was announced that Belize has achieved the world's highest compliance with FATF standards. They're now fully compliant in 38 of the 40 recommendations and largely compliant in the remaining two. And this pushes them past Qatar which has 32 that were, they're fully compliant and eight largely compliant.

I think the indication is that this is doable. Belize at their mutual evaluation in 2011, was graylisted by the regional FATF Caribbean Financial Action Task Force. And to have made that turnaround in that period of time takes concerted effort, it takes resources. It takes belief in the value of it, and it's a tiny bit of blue sky, but it's some blue sky in what is a more complex situation here in the US.

John Byrne: Yeah, it's good to have decent news about FATF from time to time, and again, we've talked a lot about it, we've done webinars on it, talked to experts the importance of the standard setting, and the mutual evaluations is something that we can't neglect One thing that I saw was something we've talked about as well many times a PSA, a Public Service Announcement from both the FBI and the Postal Service.

And this is on check fraud. So the the alert came out earlier this week. Mail theft related check fraud is on the rise. The significant volume has occurred. According to the announcement, check theft occurs in several ways. Checks left in residential mailboxes overnight. Postal Service blew collection boxes after the last pickup time.

Burglary of Postal Service facilities. Robbery of employees and bribery and collusion of Postal Service employees. And they give you a series of things of how to protect your mail, how to protect your checks. A valuable public service announcement, like I said, from both the FBI and the US Postal Service.

Elliot Berman: That definitely, in my mind, fits in the category of what's old is new. When there were no online payments, for consumers, pretty much everything was either cash or you wrote a check. And you mailed those checks in to pay your bills in large measure and this kind of activity was happening pretty routinely. The volume of checks running through the US system has dropped precipitously over the last 15 to 20 years. But now the fraud is coming back into vogue.

John Byrne: This is still Human Trafficking Awareness Month.

Going back again to the various executive orders and announcements from the new administration. An organization that is called the International Justice Mission put out a press statement for what they're calling timely review of anti trafficking grants following the State Department funding pause.

Again, reading from the press release, they say that the pause comes at the result of the new Secretary of State Rubio's statement on this. And they say the following human trafficking and violence are more than urgent moral issues. They're threats to US national security.

So combating trafficking and violence also contributes to US regional goals. And they say we're hopeful that the State Department's Office of Foreign Assistance conducts an expedited review of the Trafficking in Persons Office designed to combat trafficking and violence. Because again, the announcement on pause covered everything. And that is something that we look for in the private sector, what is in the trafficking person's report when that's issued.

But since the pause is for all programmatic and financial activities under this existing program and others, this organization are asking for clarity on this. I know there's been some adjustments on what the funding pause includes in the past couple of days, but I think there's still confusion of whether these sorts of projects are covered or not.

So something to be watchful for, maybe by the time you listen to this, there'll be clarity and hopefully projects like this will continue to be funded.

Elliot Berman: Yes. I think that's would be a good outcome. Another thing that I saw on the international side was that FINTRAC, which is the FIU in Canada, issued an operational alert. It's entitled laundering the proceeds of illicit synthetic opioids. And it's part of a project called Project Guardian, which is a public private partnership across North America. It includes the Royal Canadian Mounted Police, the Canadian Border Service, US Homeland Security, Canada Post, and FINTRAC among others.

It indicates that tracking through their suspicious activity reporting network, they have been able to identify fentanyl networks receiving funds and promptly thereafter deploying those funds through online gambling sites as a way to launder the funds.

So an interesting set of topologies. If you go to the FINTRAC website, and just type in operational alert fentanyl, you'll get a chance to take a look at the report. It's extensive, runs to about 19 pages, a lot of good information in there. I strongly recommend that folks take a look at it and see what they can learn from that and whether there's additional activities within their transaction monitoring and other screening efforts that they could adopt from the report.

John Byrne: Going back to the US, in the US senate, Senator Tim Scott from South Carolina is now chairman of the Senate Banking Committee, and he's announced working groups to address certain issues, and one of those working groups, which will be headed by a Senator Tillis, will be to reform federal financial regulatory agencies.

And there's been ongoing debate and certainly the AML space about, adjustments to the AML infrastructure in terms of examination and oversight. So this is an opportunity to continue that. AMLA has some of those recommendations already in place. I will make one comment, though, of the new incoming chair of the FDIC has talked quite a bit about what they are calling debanking arguing that companies that sell weapons or cryptocurrency are being unfairly pushed out or not getting financial access.

And I think the reason why they're calling it debanking, because words continue to have meaning and certainly marketing works in this space, as we well know. Because the term de risking would tell you that the institutions have to make a risk based decision on any particular company, whether to bank them or not.

Going back to my ABA days, banks are not utilities. They're not required to bank anybody. They can't discriminate, of course. So anyway, it's going to be interesting to see how the Senate Banking Committee, and I've seen this in the House side as well, is going to look at the issue that impacts all of us, and that is de-risking. Will there be clarity? Will it be forcing institution to take certain clients? It's gonna be a fascinating time. But the fact that they're going to look at transparency, accountability, and fairness from the regulatory standpoint. I think everybody would agree that's certainly a worthy goal.

So something that I'm sure our listeners will be involved in and we'll continue to follow as we go through 2025.

Elliot Berman: Agreed. John, I know you've done a couple of podcasts that we have in production. You want to talk about those?

John Byrne: By the time you hear our conversation, we'll be posted. And that's one I was able to do with our friend, Les Joseph. on his proposal to create a fraud czar and other things that Les talks about. And then in the next week, an interview I did late last week with Ari Redbord from TRM Labs on their crypto crime report and a number of other issues that Ari was kind enough to discuss.

And let me just say this as we tie this up. Our world is private public sector partnership. I think it's really important that we in the private sector continue to support our law enforcement and regulatory partners, from anything that's considered not just criticism, but unfair criticism.

We can't do our jobs without the FBI and Homeland Security, IRS-CI, and the counterparts in other countries, of course. I think it's really important that we step up and be heard on this because in the financial sector, we can't get our strategies implemented if we don't have that support. So that's something I think is going to be

challenged and tested in 2025, but we're going to be part of that. And I would just say, Elliot, the last thing is our AML Partnership Forum, March 19th to the 21st, that's going to be another opportunity for us to work closely with our partners. That information is available on our website and also on LinkedIn

Elliot Berman: Lastly the February webinar, rather, which is February 27th. Again, 1 p. m. ET for the live stream. John, I know you've got a great panel for the topic, the continuing challenge of global corruption. Gary Kalman, the Director of the US office of Transparency International, and Jonathan Lopez, a former federal prosecutor now in private practice dealing among other things with white collar crime.

You can register for that at our website and it'll be on a valuable conversation for you to listen to.

John Byrne: Sounds good. Elliot, stay safe. We will talk again next week.

Elliot Berman: You too. Bye bye.