GAO Report on Scams, FinCEN Says More on BOI, OCC Speaks on De-risking, and More

This week, the GAO issued a report on payment scams, the OCC responded to a letter from members of Congress about the actions of some state legislatures to limit the authority of national banks, FinCEN issued clarification about the data being captured in the beneficial ownership information registry and more. John and Elliot discuss these items and their meaning for the financial crime compliance community.

GAO Report on Scams, FinCEN Says More on BOI, OCC Speaks on De-risking, and More - Transcript

John Byrne: Morning, Elliot. How are you today?

Elliot Berman: I'm good. How are you, John?

John Byrne: Good. Folks may not realize this, but we're grappling with the loss of a process that we use before a platform to produce this week in AML. And so we're trying to find another one that allows us the same flexibility. Next few weeks we might be doing different types of recordings, but bear with us.

Hopefully we'll be back to normal within a few weeks. But unfortunate won't say online how it occurred, but the company that was providing it simply stopped providing it without any notice. So that was unfortunate, but , we'll proceed.

So a couple things. The general accounting, government accounting office, accountability office. It used to be accounting office when you and I first started doing this. Always produces excellent reports. They do a lot of good work. This particular one that came out earlier this week deals with payment scams. And the report talks about how payment scams, which we're all familiar with, manipulate victims into sending money to scammers.

And the report covers how these scams work and what is the role of financial institutions, banks, and payment apps in preventing, detecting, and recovering from the scam. This report, GAO found that I guess the numbers are pretty amazing. It rose from $3.31 billion in 22 to $4.57 billion in 2023.

And that's according to the FBI's Internet Crime Report on reported complaints. So obviously there's been more than that. So what else was the key takeaways from that? Again, they were looking at what financial institutions are doing. They're generally not required under federal law to reimburse consumers. But I thought this is a good, probably first step in trying to figure out this unbelievable amount of fraud that goes on.

Elliot Berman: They talked about that both FIs and the person to person payment companies, do provide consumer education and staff training. So it's not as if everybody's just closing their eyes.

And again, the purpose of this report was a Q& A style report to people in Congress who requested GAO to go out and do a report. To a certain extent, it's an education piece of the state of now for people in Congress, which I think is a good thing because this is a complicated space. You and I have talked about it a lot.

We just did our webinar last week on romance scams and the recorded version of that will be available on the website very soon if you didn't see it live. And as we see, there's a lot of social engineering and things like that. They also not surprisingly there was a recommendation from folks who were interviewed that it needs to be a multi sector approach. So you can't just come to the banks. You need to go to the social media companies, the telecommunications companies and law enforcement. And all working together is the way to identify and address these fraudulently induced payments.

John Byrne: So also I know the Treasury Secretary Yellen had a major announcement speech the other day. What did you find out about that?

Elliot Berman: She was in Brazil for a roundtable, and as part of it, she announced the launch of the Amazon Region Initiative Against Illicit Finance to try to disrupt nature crimes, especially those that are devastating Amazon, which is a huge issue.

But what were some of the big pieces here? First, the fact that there's recognition that this is a regional problem and it's actually a global problem. So it's not something that we just call Brazil and say, Hey, can you stop all that stuff? We know that these crimes are borderless and that these regional groupings need to be formed up, get commitments from the various countries.

So in this case there was law enforcement, financial intelligence, and other government authorities from Brazil, Colombia, Ecuador Guyana, Peru, Suriname, and the U. S. So you're talking about folks on the ground in the area, and then you're talking about someone with truly global reach like the United States. And the goal here is to help organize the process to follow the money, because in the end we know that no matter what the crime is there is a monetary component.

And then also information sharing and we're going to talk about another information sharing thing in a moment, but the key here is to focus on wildlife trafficking, nature trafficking, things like that but really to figure out ways to shut down these groups.

John Byrne: So in addition to those announcements earlier in July a bipartisan, which is rare, letter from several members of the House to the acting comptroller, Janet Yellen, and also the director of FinCEN, Andrea Gacki the letter urged an announcement or advice regarding several state laws that the signers of the letter believe could risk fracturing the national banking system. The state laws that were enacted could conflict with federal laws, specifically those intended to combat money laundering and Terrorist Financing.

These state laws from several stories besides what's in the letter the Wall Street Journal reported on this, as did several others. Some of these state laws, particularly those in Texas and in Florida, made it illegal for a financial institution to discriminate against customers based on political and religious beliefs, but also against the fossil fuel industry and gun owners.

These are, in some people's views, purely political stunts by these legislatures, but the real problem exists because financial institutions, as this letter makes very clear, obviously have the requirement to file suspicious activity reports when appropriate. They have to exit relationships if they feel they can't manage that risk, the whole issue of de risking, de banking.

And so they say in the letter they cannot allow the state laws to supersede federal norms regarding SAR secrecy, and as they say, potentially endanger national security or economic stability. What's really interesting, Elliot, about this was both the response, but also organizations like my former organization, the American Bankers Association, strongly supporting the OCC's response in this case where they said that they will do everything in their power to ensure that the federal law is not superseded by these state laws. And so I think that's pretty important.

The OCC acting comptroller, I believe it's Hsu, I apologize if I mispronounced that, spoke to the Exchequer Club and in that speech said the following, to varying degrees in the culture wars, identity politics and weaponization of finance are pushing toward greater and greater fragmentation of the U.S. financial system, and increasingly banks are being asked by states to pick a side in service of performative politics rather than deliberative policy.

A very interesting response, which I believe is the correct one. As because we've talked about this many times, if banks were required to disclose the reason for, exiting a relationship or not onboarding that obviously would do severe damage to the SAR process. So this is a very interesting example of how this affects day to day activity. And as I said, American Bankers Association came out in strong support of the comptroller's remarks.

Elliot Berman: And the dual banking system, as we call it in the United States, where you could either have a charter that's issued by the OCC, which is a federal agency, or a charter issued by a state agency has had tension in it for many years. National banks have successfully identified certain authorities that preempt state law. At this point, we haven't reached the discussion of whether this is a preemption issue, but there are things that the national banks have authority to do across state lines that individual state banks may not.

I guess there's sort of politics in everything. But it seems to me having been a bank regulatory person for a very long time that bank regulation is complicated enough without adding, too large a dose of politics and making sure that we have consistency and the ability for the banks to follow the rules and regulators to enforce the rules, but still meet the national public policy needs, particularly when it comes to suspicious activity and things like that, is really important.

I was pleased to see that the ABA came out in full support of the Comptroller's position. It'll be interesting to see how this continues to unfold since I'm sure that neither the Texas legislature nor the Florida legislature immediately jumped to put repeal actions on their dockets. So we'll have to see what happens.

John Byrne: Yeah, there's no chance they do that. Sticking with the Treasury Department and their bureaus. FinCEN also issued earlier this week, a notice for customers, so notice for financial institutions to utilize for customers to explain the beneficial ownership information that's necessary. One of the things that the institutions were concerned about, and obviously there's still some question about, the whole infrastructure, the beneficial ownership, information gathering and access, we know all that, but also, how are you going to explain these requirements to customers?

And while the institutions are still the ones that will be asked the question, I think FinCEN has done a good job here of saying, here's a notice that you could utilize to send to your customers or to have available to your customers. As you go through it, it's a series of Q& As.

Just one example are FinCEN and financial institutions collecting the exact same beneficial ownership information? The answer in the guide is no. They have charts that compare the requirements and they say that FinCEN and the FIs do not collect the exact same type. For example, financial institutions are required to collect social security numbers of beneficial owners, but social security numbers are not required to be reported to FinCEN.

And some other information there as well. So this was just released earlier this week. Again, FinCEN has done a great amount of work in the beneficial ownership area because they have to, and also the information continues to be, craved by both the filers, the reporters, and all of that. So this just came out, and they're telling institutions if they want to, they can utilize this to either send or make available to their customers.

Elliot Berman: Another good piece. They've issued a substantial Q&A, and have updated it a number of times, and we mentioned some of those updates. This is another good piece. It's complicated, but I think it's been made more complicated in some of the groups that have opposed it and I agree with you, FinCEN is doing a lot of good work to try to demystify it and make it clear what you have to do, and that there are limits in terms of what will happen with the data.

John Byrne: And just one more real quick on my end. I just saw this announced earlier this week that Interpol has announced that more than 200 people have been arrested and some $1.6 billion worth of illegal drugs and precursors chemicals were seized as part of a two month operation against narcotics trafficking, across Europe, North America, and Africa.

The operation, as I said, led to the arrest of 206 people and the seizure of 65 stolen cars, some 30,000 commercial grade detonators, and a whole host of other things there. So this is part of an operation, they say, that began back in 2013 funded by the British Home Office and involved 31 countries in addition to other international organizations.

Elliot Berman: Another good example of the fact that it's critical to recognize that all this stuff is borderless. And bringing many countries together to make these things happen is effective. And taking that international focus, I want to talk briefly about something I saw. Seven banks in the UK have been working on a pilot program with the National Crime Agency, which is law enforcement in the UK on an information sharing process.

And these include some of the larger banks Barclays, NatWest, and Lloyd's are among the banks. They started in May and it's a voluntary data sharing process that they entered into by contract. Britain has ramped up its efforts to tackle economic crime which has been exposed since Russia's 2022 invasion of Ukraine when the number of kleptocrats and other criminals who were using the UK got more exposed as a result of the sanctions and other things.

And the purpose of this information sharing is, and I'm quoting here to bring together the collective efforts of law enforcement, government, government regulators and the private sector to combat crime. And what they're doing is they're sharing data that is related to potential financial crime. It's not just dumping all their data into a government system and letting the government hunt for the problems, but it's sharing among the banks and the government agency what I'll call a highly likely sets of circumstances.

And it's more immediate. And again, because it's being shared across the banks as well as the agency, it's different than a SAR or an STR. And this is not the only such program that's going on globally. Singapore launched a digital customer data sharing platform known as COSMIC, with six banks in April that one's different though, it's led by the local bank regulator rather than law enforcement.

So I'm not sure that there's a lot of appetite for this in the United States, but I think we're going to see these nation by nation platforms spinning up. And I think with the EU now having created a region level FIU that we may see some experimentation there too.

Data security is important. Data privacy is important. All of this has to be balanced, but keeping the banks in silos and the information in silos has not been adequately effective. These are interesting, I'll call them experiments in this space. So more to come for sure.

John Byrne: Elliot, you just reminded me of something I wasn't planning to cover, but I did see in the Washington Post this morning, and this is a apparently UN member states have been working on a global convention to combat cybercrime. It was actually introduced by Russia with the support of China and Iran. It gives you some sense there.

But according to this posting in the Post, and again, this is an ad, I'll tell you who's put it out in a second. And they said the treaty has expanded to become a broad criminal instrument that gives authorities far reaching surveillance and investigatory powers that have weakened safeguards to prevent overreach, and they're very concerned about thousands of journalists that are in exile or those seeking a safe haven that they might be harassed by government.

And this is from the Committee to Protect Journalists the James Foley Legacy Foundation, which I'm involved with, International Women's Media Foundation, the International Press Institute, and the World Association of News Publishers.

So to your view on cybercrime, there are also impactful adjacency sometimes, and I don't know enough about what I've just referenced here. I'll do more, maybe we can catch up on it next week, but there are always other sides to trying to be proactive, and I think this is an interesting one, and obviously very important to these organizations that have done a lot of work to protect journalists around the globe for many years.

Elliot Berman: As we both learned in law school, almost everything is a balancing test.

John Byrne: That's right. So what's happening and what's our August webinar?

Elliot Berman: August webinar is on managing high risk customers and it will go live at 1 PM Eastern time on August 22nd. Our colleague Chuck Taylor will be moderating and he has a great panel. You can register for the webinar at our website, amlrightsource.com.

John Byrne: Sounds good. Elliot, stay safe and together we'll try to figure out platforms going forward.

Elliot Berman: That's true. We're getting way more into the tech than we ever meant to.

John Byrne: Exactly right.

Elliot Berman: All right, take it easy.