Forced Labor in the Supply Chain, IRS - CI Annual Report, Lots from Treasury, and More on Fraud

This week, John and Elliot discuss the recent report on Forced Labor in the Global Supply Chain, the 2024 Annual Reportfrom IRS:CI, several actions taken by the US Treasury, OFAC, and FinCEN, an interesting blog about how to tackle the growing impact of fraud, and other items impacting the financial crime prevention community.

Forced Labor in the Supply Chain, IRS - CI Annual Report, Lots from Treasury, and More on Fraud - Transcript

Elliot Berman: Hi John, how are you today?

John Byrne: I'm good Elliot, how are things?

Elliot Berman: Good, it was great to see you and Sue over the weekend, had a really nice evening.

John Byrne: That's right, and we should say for the record that your son owns a very fun bar in Milwaukee called the Tin Widow, so if anybody's ever in Milwaukee and has some time, it's a great place, especially during the holidays, so I just want to I want to mention that as well.

Whole sorts of things gone on in the week. Let's start with a recent announcement from the Treasury Department, which is really important for all of us that care deeply about what's happening in Ukraine. The Department has announced a disbursement of a $20 billion loan to benefit Ukraine, and particularly, it's going to be repaid with proceeds earned from Russian sovereign assets that have been held by the U. S. for various sanctions related issues.

I think that's very important, especially now, since there's some political challenges regarding the support of Ukraine. This was just announced this week, so I wanted to make that clear. And again, also, it is coming from monies from oligarchs and others that have attempted to evade sanctions in many ways. So that was one.

Treasury's done a bunch of things. So just very quickly, they also sanctioned a cybersecurity company that was involved in the compromise of firewall products and attempted ransomware attacks. And so that's also on Treasury's and the OFAC websites. And so some of these cyber actors emanate from China. And that continues to be the most persistent threat to U. S. national security, was mentioned in the 2024 Annual Threat Assessment from the office of the Director of National Intelligence. So those are a couple of Treasury related topics again, on sanctions, on the disbursement of funds, as we mentioned we said many times, people should sign up for the Treasury emails.

There's always some really good information if you're in the AML, CFT, the sanctions space.

Elliot Berman: FinCEN issued a notice of appeal in the CTA case that we talked about extensively last week. And they also put out a reminder to people that voluntary reporting is not restricted under the injunction. I think you mentioned that you went out and did the registration for your LLC this past week and and as you and I have talked, it's a pretty straightforward process.

John Byrne: 15 minutes tops. Yeah, exactly. And that's as you read through some of the instructions. So it's definitely not the burden that some claim it is to simply file. We can talk about other aspects of that, so we're going to be watching that very closely. So related to that is something that we've been highlighting for a while now, and that's some of the let's just say debate regarding the scope of BSA and AML and that sort of thing. So there was a, what they called an interim staff report from the Committee on Judiciary in the House in the U. S.

The title of the report will, I think, tell you all you need to know about the scope of the report. Financial Surveillance in the US: How the Federal Government Weaponized the BSA to Spy on Americans. It's a 47 page report. This talks in detail about the use of data from BSA with SARS and CTRs and that sort of thing.

My point would be read the report, understand that this is a particular perspective. They talk about the reporting on suspected domestic terrorists. From several financial institutions. I think this is, again, as we've said with the hold up of the CTA, this is only the beginning. This is going to be a theme, I think, throughout the next Congress.

Now let me just end my point on this. Besides reading it, understand, we've all said that we can improve the AML infrastructure. There's no question about that. This, however, to me is an area of real concern if we're going to start eliminating reporting and other recordkeeping requirements without any sort of backup. I'll just leave it at that. I will just say my own view is some of the quotes are not contextualized but read it and, I think understand this is, I said, only the beginning.

Elliot Berman: John, the name of the select subcommittee, is Select Committee on the Weaponization of the Federal Government. My hope for 2025, I know it's a dim hope, but my hope for 2025 is that we will banish the word weaponized from the conversation broadly. Regardless of where you stand on the political spectrum, that people will stop using that phrase. And will actually have open and clear conversations about what bothers them and why it bothers them. We see that word and that concept used across the political spectrum, and I think it's becoming its own, if you'll pardon me, epidemic.

John Byrne: I think that's more than fair.

Let's transition to a more positive but important strategic point. Our good friend Les Joseph who we've interviewed and has been part of webinars in the past. He's retired from Wells Fargo after a long career there, but also the Department of Justice that he was at before, wrote in a blog piece in the past couple of weeks, his view on a better approach to dealing with fraud. We all know that fraud is obviously a massive issue in the US and elsewhere.

In this piece that you can find on the website, BioCatch spelled as it sounds, Les talks about his view that there should be a fraud czar. Very interesting points that he makes here. Has been well versed in what the government has done in the past. He gives credit to a lot of what FinCEN is doing with the private sector led initiatives that they're doing, and IRS CI, but he talks about a national anti fraud strategy.

So take a look at this. I'm going to talk to Les about sitting down for a lengthy conversation to go more in depth in this. But given his background and his involvement in anti financial crime throughout his entire career, this is a both an important point, but also maybe something that perhaps policymakers will pay attention to and maybe make some adjustments.

So again it's on the website BioCatch written by Les Joseph. As I said, the title of his piece is, We Need a General in the War Against Fraud.

Elliot Berman: One of the really interesting things for me about Les's piece is that he goes back into other financial crises and legal crises in recent US history and also looks at how fraud is being dealt with in the UK, for insights into what's worked and maybe what hasn't necessarily worked in these, major task forces or creation of czar type positions. So I think it's good for that group that's younger than you and me it's worthy history just to understand that we've used a number of different strategies over the years in the U. S. to deal with things like illicit drugs, the S& L crisis, and other things. I thought a thoughtful piece, as you've already noted, and well worth the read.

John Byrne: I agree. Earlier this week was International Anti Corruption Day, and there's a lot of good information from organizations that deal in that space, from the Basel Group that we've talked to before, Transparency International. Specifically the Treasury on International Anti Corruption Day through OFAC, they sanctioned 28 individuals and businesses that were involved in a global gold smuggling and money laundering network based in Zimbabwe.

The global network has facilitated illicit activities according to the press statement by bribing officials, deploying trusted supporters to mask ownership, and weaving what they're calling a global web of businesses to hide the illicit activities.

The acting undersecretary Bradley Smith said, across the globe, when corrupt actors like this individual, whose last name was Patini, chose to exploit openings in governance structures to benefit themselves and their cronies, communities suffer and public trust is undermined. That's another thing that we've certainly talked about, and experts have sat down with us in various conversations, that the effect that corruption has on communities and economies can't be overstated.

Elliot Berman: An important announcement. Also this week the Dynamics Sustainability Lab at Syracuse University issued a report as part of the Global Supply Chain Transparency Project. And the report is entitled Forced Labor in Global Supply Chains. It's comprehensive and it's 70 pages long but it's worth a look. It talks about the goals and strategies of the overall project. It talks about forced labor in the 21st century. And efforts by Customs and Border Protection and Homeland Security and the International Labor Organization, all of whom are, with many others, are working to detect and eliminate modern day slavery, including forced labor.

And for those organizations that are doing third party risk management efforts, determining whether your counterparties whether there be vendors or clients, or whomever you're contracting with are using forced labor in any of their operations is becoming more important third party risk management issue.

And a report like this can be helpful just to frame the ideas and the concerns, and there are some red flags pointed out, there's a lot of statistics, of course, and it's a global report. So it's very helpful, wherever you're doing business there's information that'll help you.

John Byrne: Going back to the cyber issue, the FBI cyber division has announced that an individual they call a China based hacker has been indicted for exploiting zero day vulnerability to infect more than 80,000 firewall devices worldwide, including a device used by a U. S. agency. This individual worked for Sichuan Silence, a private company that provided services for the Chinese Governments, Ministry of Public Security, and other organizations.

A lot going on in the cyberspace. I know what we've I've neglected to raise, and this is something we wanted to talk about as well. And that is, our good friends at IRS CI have published their 2024 annual report. This is something that's always useful and valuable for AML practitioners to see what our partners in IRS are working on.

This report includes some excellent graphs and charts, that sort of thing. It's also updates on some of the activities. Just a quick look right here. A snapshot a nice graphic that they have in the report is there's been $2.12 billion in tax fraud identified, S7 billion of other identified financial crimes.

IRS CI has executed 1,154 warrants, 1,794 referred for prosecution, and the conviction rate of 90%. So there's a lot of other information in that report, dealing with tax evasion, money laundering, and fighting fentanyl, and dealing with cyber. Our partner, Guy Ficco, who's the IRS CI chief, is continuing the great work that agency has done with the other chiefs that we've had the pleasure of working with.

There's sections in here on seizures, how this affects Things internationally. A 62 3 page report just came out earlier this week. So I would suggest those of us in this community take a look at that.

Elliot Berman: John, I know that we've got a webinar on the 19th of this month about current trends for compliance programs And I've got a great panel. I'm looking forward to doing that.

And I know that you're working on our January webinar, which will be January 23rd of 2025 on human trafficking. And I know that we're continuing to develop the details, but just want to remind folks that they'll be able to sign up for the January webinar as soon as the one next week is finished.

As we come to the end of the year and people are taking their last days of PTO, I want to be sure that they remember to reconnect with our webinar series and other available resources on our website. Anything else from you, John?

John Byrne: No, for that webinar in January, we have a commitment from Polaris to participate, and we're efforting someone from the AML community as well as the government. And we'll be able to finalize those additional panelists hopefully in the next week or so. Because it's Anti Human Trafficking Awareness Month, we want to provide as much both practical and strategic direction as we can. So we're going to get the best from that world to provide that. So we're working on exactly what the themes will be, but you can be sure that you will come away with some practical advice for all of us in the AML community.

Elliot Berman: Okay, John you have a good week and I'll talk to you next week.

John Byrne: Sounds good, Elliot. Take care.

Elliot Berman: You too. Bye bye.