GAO on CTRs, OCC on Risk, More US Sanctions, and Wolfsberg Group on Payments

This week, John and Elliot discuss a GAO report on CTRs, the OCC’s semi-annual report on risk, actions by the US Treasury to disrupt global narcotics traffickers and North Korean digital asset hacker network, UN action creating a humanitarian carve out to Resolution 2664, and other items impacting the financial crime prevention community.

GAO on CTRs, OCC on Risk, More US Sanctions, and Wolfsberg Group on Payments - Transcript

Elliot Berman: Yeah. Hey, John, how are you this week?

John Byrne: I'm good, Elliot. Last time we're going to record a new conversation and we'll talk about that toward the end as we get ready for the holidays. I thought I'd start off with something that I find humorous, and that's a recent statement on the drones in New Jersey, although I think there's been reports of drones elsewhere because there are quite a bit of them throughout the United States. But this is a joint statement by Department of Homeland Security and FBI on the sightings in New Jersey and quoting from the press release, we have no evidence at this time that the drone sightings pose a national security or public safety threat or have a foreign nexus. And they talk about how they're working closely with the New Jersey state police to deploy personnel and technology to investigate this.

So I think some of the rather dramatic discussions of what these drones could be, maybe people need to just take a breath. And as we've said before, Orson Welles would be very proud of all the stories about the drones in New Jersey and elsewhere.

Elliot Berman: Indeed he would. So what would you like to talk about first? There's a number of interesting things on our list.

John Byrne: There's one that's an age old story, but a new report that came out of the AMLA law of 2020 and that GAO has just released a report. The title of the GAO report titles are always exactly what they're what they're meant to be, Currency Transaction Reports: Improvements Could Reduce Filer Burden, While Still Providing Useful Information To Law Enforcement. Again, this was required by AMLA. According to excerpts, or highlights of the report, FIs filed roughly 167 million CTRs between 2014 and 2023. They are required, again, under the law that passed a couple years ago to review the requirements.

What they came up with, and people should obviously read the report, they came up with a number of recommendations that they also submitted to law enforcement and other government agencies. They talked about potentially increasing the thresholds, an age old debate that's happened. That there are what they call difficult and infrequently used fields in the report in CTRs. They also suggest that law enforcement, I'm paraphrasing here, but that they don't utilize the majority of the reports, although there's been a response from law enforcement that would push that back back a bit. But what I thought was interesting about the report is one of the things that I've maintained ever since we've tried to improve CTRs is they say too, if you can improve the exemption process, that could reduce potentially unnecessary filings.

And I so agree with that. I think if you simply raise the thresholds, which again, 30 years ago, I would have said, do that. I don't believe that's as necessary today. And I think that's an important distinction, but then they have other things as well. Lengthy report, good report.

But I'll end on this. IRS CI, took a look at the report and they said a couple things that I thought worth mentioning. They said that the GAO report could better reflect the multiple ways that law enforcement does access CTRs, such as through agencies internal systems. Now GAO pushed back on that and said they in fact do recognize that. And they also said that IRS CI disagreed with the report's suggestion that raising the reporting threshold could be done without compromising the value of CTRs to law enforcement. So the agency said maintaining the current threshold based on its analysis of usage and raising it would have a serious negative impact on the agency's mission capability.

In any event, I think this adds to a very important debate about the AML infrastructure. So this is a report worth taking a look at, but also please also look at the agency responses to these reports, which GAO always includes in their final summations.

Elliot Berman: I agree with you. It is an interesting report. It's something you and I have talked about and been involved in for a very long time. I think one of the things that's changed over the lifetime of the CTR is that the completion of them has moved in most organizations, certainly most banks in the U. S., from a very manual process to a very automated process.

And again I did not get a chance to read the entire report and to read some of the appendices about, How many banks were interviewed and that kind of thing. But I think the burden issue is still there, but there's a lot less human involvement in it than there was 20 years ago, 30 years ago, 40 years ago.

And I'm not quite sure how to factor that into, the context of the report, but I do agree with you. There is more filtering effectively that could be done through additional changes to the exemption process.

John Byrne: Let me mention one other thing and then turn it to you for some of the issues that you're following as well.

The OCC issued their semiannual risk perspective. This is for fall of 2024. The highlighted items include a series of things on issues like operational risk, they talk about evolving cyber threats by malicious actors, significant disruptions across sectors, making clear that there should be sound third party risk management and operational resilience.

From a compliance risk standpoint, they talk about in terms of the Bank Secrecy Act, they say banks should perform timely investigations of fraud and unauthorized transaction disputes and resolve them in accordance with applicable laws. But they also say that data governance gaps, as well as customer or transaction exclusions in BSA and AML transaction monitoring may result in increased noncompliance with requirements to report potentially suspicious activity.

Again, this is a semi annual report. It's always useful to look at and understand where at least one of our regulators sees key risks in the federal banking system.

Elliot Berman: Yes. I was not surprised to see that a banking regulator, the OCC would have, of course, credit risk on the list. And, my experience in working with bank clients and working in a bank has been that no matter how much other risks get talked about for banks that do any kind of lending at all, which is most banks. They keep their eyes on credit risk more than anything else. And the next one is probably balance sheet risk, which is referenced here related to the rising deposit rates and market liquidity issues.

But it's a good report. And as you point out, they put it out semi annually, so you can see their trend lines read through the report, which is really valuable.

John Byrne: So what do you got on your end?

Elliot Berman: Couple of different things. First The Wolfsberg Group, which we've talked about, and I know you've interviewed Alan Ketley and he's participated in our webinars they came out with a report about adding some guidelines about, Payment Transparency. And they've now released Payment Transparency Roles and Responsibility Guidance. And this is related to and I'm quoting here from their piece serves as a reference guide that can be used by all payment service providers, regulators, and standard setters.

They talk about the importance of the interaction of this with FATF Recommendation 16, which mainly focuses on wire transfers, but is in the process of being broadened out to be payment transparency more broadly. Worth the read. It's very operational. For those of us who are more on the program management side, it's probably something to share with our operations partners, within our institutions. But it's an important piece because payments transparency is critical in our ability to figure out how money is moving around the globe, and therefore which of the money is clean and which of the money isn't.

The other thing that I thought was interesting is AUSTRAC the financial crime regulator in Australia, has been focusing a fair amount of its energy on the gaming sector. And they announced actions against a company called Entain, which is in that sector. Apparently the fact pattern around this action is that the gaming company had performed due diligence on customers and had flagged a group of customers as high risk because the source of funds was undetermined.

But they still allowed this group of clients to place over $150 million in bets. And not surprisingly, Entain says they're taking AUSTRAC's inquiry very seriously. Not a surprise. Again, why is this important to our listeners? There are times, I think, when we focus on a lot of different industries and don't talk a lot about gaming, but as we know in the US the availability of gaming has changed a lot in the last years.

It used to be that there were a handful of places that you could gamble and they were all hard sites. That number expanded significantly as different states legalized gambling, and the indigenous peoples groups had separate authority to create gambling sites. And now online gambling through apps on your phone legally in the United States on professional sports and all sorts of other things is I think drawing a lot more people into gambling and the more transactions you have, the harder it is to sift through the good ones versus the bad ones.

John Byrne: It makes a ton of sense. This particular week, there's been a number of Treasury sanctions so I'll just give you the titles of each, take a look at those. Actions against global narcotics traffickers. A disruption of the North Korean digital assets money laundering network. Sanction of key facilitators behind again, North Korea and their illicit financial activity and military support to Russia. So a whole series of announcements by Treasury and OFAC.

And that leads me to the final point I wanted to raise today, the earlier this week I had, I was able to interview the policy director at the Charity Security Network Ashley Subramanian Montgomery, and that'll appear early next year, but one of the things that she highlighted, and you should follow Ashley if you don't already on LinkedIn and certainly the website, Charity Security Network, last week the UN Security Council adopted a resolution and that particular resolution was without time limits a humanitarian carve out to Resolution 2664.

This deals with Al Qaeda, UN sanctions regime. Just reading from Ashley's announcement, she said here that while policy wins are rare, the real celebration is over 100 million people who are at risk of losing humanitarian aid and access without that action because it was due to expire on December the 9th. It had not been renewed and now it's been renewed and there's no time frame. So that's a positive.

She said that this would include people in many areas where aid can be lifesaving, including Afghanistan, Lebanon. Somalia, Syria, and Yemen. As I mentioned, I had a really nice conversation with Ashley that we'll play early next year, but the UN Security Council having a unanimous adoption of this certainly shows a focus that in some cases, sanctions laws and regulations can have unintended impacts, certainly on areas where there are needs are medical supplies and utilities and water and food and that sort of thing. So this is a positive from that perspective.

Elliot Berman: Very much a positive. So you mentioned that this is our last new podcast for 2024. We will be posting archive editions next week and the week after, and then you and I'll be back with a new episode on January 10th.

John Byrne: Yeah. And by the way, in the next two episodes, we're not going to be replaying old conversations about Marquette wins in the past. So you don't have to worry about that.

Elliot Berman: Although by the 10th, we'll be talking pretty seriously about Marquette basketball because the Big East season starts tonight. So there'll be something to talk about. And I know that you're putting together a really interesting panel of folks for our January 23rd webinar on human trafficking. And by the time people hear this, our December webinar on Trends in Compliance Programs for AML will have live streamed, but before the end of the year, you'll be able to hear the recorded version on our website.

John Byrne: And proud to say that one of the panelists is my daughter, Rachele, who works for PNC Bank, so ask you all to take a listen when the recordings go out. Once you hear this on Friday, it'll already have happened, but the recordings will go.

Elliot Berman: All right, John, travel safely, and I will talk to you soon.

John Byrne: Take care. Happy New Year. Have a great holiday season. And again, to everybody else, stay safe out there. We really appreciate everybody listening, giving us feedback, giving us suggestions in terms of topics, people to interview, and we hope you'll continue to do that in 2025. Thank you so much.

Elliot Berman: Bye bye, John.