This week, John and Elliot discuss some of the pardons issued by the new administration, actions taken by several state financial service regulators, the EU’s Digital Operational Resilience Act, sanctions and export control penalties levied against a US automated equipment company, and other items impacting the financial crime prevention community.
Pardons, State Regulatory Action, Cybersecurity, and Sanctions - Transcript
Elliot Berman: Hi John, how are you today?
John Byrne: Hey Elliot doing well. It's cold here in Northern Virginia, but it's, was much more colder when I was out with you guys in Milwaukee. And I just noticed some colleagues of mine that live down in the beach in South Carolina had snow last night. So that's an interesting dynamic with the climate.
Elliot Berman: Yes I agree with that. We're getting just a little dusting of snow here, so it's unusual for us in the winter to have the same weather as Hilton Head.
John Byrne: Yeah, that's right. Exactly. So we're in a new world. Understatement of the year. And I thought it was important we start off before we talk about some of the day to day activities from the various agencies and enforcement actions that we reference a few things that have occurred since Monday at noon that are relevant to our community.
The first is something that maybe people had forgotten about the major investigation and conviction of Silk Road from a number of years ago. Silk Road founder, Ross Ulbricht, who's been in jail for a whole series of online failure to oversee or stop online drug purchases, money laundering. It was a landmark US prosecution that occurred. He was arrested back in 2013 and sentenced in 2015. Accused among other things, of more than $200 million in illicit trade using Bitcoin that moved drugs, money laundering charges as well.
The president, has given him an unconditional and complete or full and unconditional pardon. And so this is highly unusual to say the least. And let's just say as a side issue, experts smarter than you and me could do a lot of conversation about the pardon power of any president. So that's a different issue and certainly deserves a lot more conversation. I've seen in a Reuters story that they think that this is another example of a significant reverse course on what has been a crackdown by regulators on the cryptocurrency sector. So that's something to think about here.
But again, the arrest of Ulbrich and the prosecution, it brought to an end what prosecutors have described as a global black market bazaar, that for two years was used by more than 100,000 people, as I said, to buy and sell 214 million dollars worth of illegal drugs and other illicit services. A complete pardon. And so he will be if he hasn't already be released from prison. So I wanted to mention that.
And then separately, because it's relevant in terms of national security elements of domestic terrorism. The other item that I wanted to mention is another thing that President Trump did was pardoned close to, I think the number, I could be wrong by a bit a 1,500 of what they're calling the J6 convicts. Now, this originally was going to be ones that had not committed violent acts. That changed. So a number of these individuals that are being pardoned were captured brandishing and using firearms, stun guns flagpoles, hatchets, you name it.
And even the incoming Vice President Vance had said over the weekend that if you committed violence on that day, obviously you shouldn't be pardoned. That didn't drive this decision. So those pardons have occurred. It's going to be more than an interesting number of years, but I wanted to mention those two items up front.
Elliot Berman: Yes, I think we're going to see some things we haven't probably seen before. It's an open question how that'll trickle through to day to day regulation, which you and I will talk about every week as we see what's going on. That is a good segue, to one of the things we wanted to talk about today, and that was a settlement agreement and consent order that was entered into by 48 of the US states with the company Block.
I think the focus of why we wanted to talk about it is that it was state action. And so we're seeing, and we've seen a little bit of an uptick over the last number of months, where state regulators are taking action in spaces where they have regulatory authority. So companies like Block in the US need, in addition to any federal authority, they need state level authority to be a money transmitter.
And so they register in every state, get a license, and the states have various control and regulatory mechanisms. This case had to do with the failure to have adequate AML controls and other controls in one of Block's products. The Cash App, right? Yes, the Cash App product. Not digging into the details, I think the message for our audience is that this was state action.
On that same theme the Department of Financial Services, DFS, in New York late last week issued a memo to all of the virtual currency business entities that it licenses under a specific regulation, regarding what they call sentiment based virtual currencies, which in the popular jargon are meme coins.
And the point of the memo was if you're licensed with us, you have a regulatory regime you have to follow in terms of risks in the products and things like that. And you need to pay attention to the fact that some of these unregulated or non registered products should not be flowing through your organization.
So again, The key point here is state action, where state regulations apply, many of which are designed to protect the consumer, reduce the risk of fraud and things like that. So two instances that we happen to see coming into today's recording of State action.
John Byrne: Another state related activity has to do and also a federally supervised institution, Pulaski Savings Bank of Chicago. It's a only total deposits of 42.7 million dollars, was closed by the Illinois Department of Financial and Professional Regulation due to, quote, suspected fraud, unquote. So there's some information out there. It's a very small institution, but again, because of suspected fraud they they were closed late last week. And more information can be found on that FedFis website. And anything else you want to add to that?
Elliot Berman: No. FedFis is a private organization that looks at banks financial stability and also does as we noted reporting on Fed actions. The FDIC website also will have the information as happens with most bank closures or failures the deposits have been assumed by Millennium Bank. And depositors of the former Pulaski Savings Bank have access to their deposits. And things move on. The FDIC will be responsible for resolving the failure by selling assets and resolving other things. And this, as you mentioned, this was a state chartered bank. So this was joint with the Illinois bank regulator and the FDIC.
John Byrne: Yeah. I forgot to mention with some of the other changes that have occurred just this week. Last week, or maybe two weeks ago, the Biden administration had taken Cuba off the sanctions list. They're back on, no surprise. Marco Rubio is the Secretary of State. This is something that the incoming administration said they were going to do.
And then they have named drug cartel members as foreign terrorist organizations, which is obviously a legal term under US laws and regulations. I'm not completely sure what that does in terms of scope and ability to sanction that sort of thing and I think that's something that's going to be worked on but it was sort of one of the major executive orders that were signed on Monday.
There were a bunch of them, and that was one of them. So the cartel members. and cartels themselves will be designated as foreign terrorist organizations. So I'll leave that again to experts. What does that mean from a practical standpoint?
Elliot Berman: Yeah, we'll have to see. Another thing you and I saw and talked about briefly before we started recording is that the EU which had put in place something called DORA, which, was passed several years ago, but it came into effect at the end of last week. So DORA is the Digital Operational Resilience Framework, basically a cybersecurity regime that impacts 22,000 entities across the EU's countries many of them are in the financial services space. And it's a comprehensive effort to ensure that , all the covered entities are maintaining adequate cybersecurity measures to prevent data theft, consumer fraud, and things like that.
It's very comprehensive. It's got all kinds of reporting obligations. The report's not going to the EU, but going to the member states regulators, depending on where the covered entity is located. I think this is something that we're seeing more and more of at the governmental level, whether it's a group of nations like the EU or individual countries. It's something that the US has been moving toward and has parts of, but we'll see whether the EU being a major trading block influences the importance of this on a global basis.
John Byrne: Yeah, interesting. I thought Dora was an explorer on PBS, but now we know it's much more important than that.
Elliot Berman: If you put D O R A in a search engine, Dora the Explorer comes up first.
John Byrne: Exactly. Late last week OFAC in conjunction with the, Department of Commerce, Bureau of Industry and Security, BIS, issued a over million dollar violation for a manufactured machine tools for violating Ukraine Russia related sanctions. There was 21 apparent violations that occurred between 2019 and March of 22. According to the press release, Haas Automation, indirectly supplied one what they call computer numerical code machine, 13 orders of spare parts, and seven authorization codes for machines owned by blocked Russian entities.
So more information can be found on the BIS.gov website, as well as an OFAC's website about this violation. And I will just say this, as we said late last year, it's going to be very interesting and telling how sanctions are utilized during the next four years. Will there be a change in priorities, change in focus? Something for all the OFAC and sanctions experts out there that I'm sure will be watching carefully.
Elliot Berman: Indeed. That is what we will do. So by the time people hear this episode, our January webinar on human trafficking will have live streamed. And by the end of next week the recording will be posted on our website. So if you were not able to enjoy the live stream, we recommend that you take a look at the recording. John, I know you're working on a webinar for February.
John Byrne: The topic is corruption. We haven't identified yet, cause we'll be talking to the panelists this week and early next, the scope of that. Corruption is such a broad term, one of the eight priorities. As we always do, we want to give our listeners and our audience some both practical and strategic advice. So we're going to have a former DOJ lawyer, Jonathan Lopez, and then Gary Kalman, who's from Transparency International, who has joined us, as has Jonathan in the past. And so look for that in February.
As always, feel free to send us your thoughts and recommendations. What would you like to see us talk about? Certainly there's so much under the rubric of corruption. There's the Menendez case. There was bribery charges against an Oakland mayor. Certainly a lot of other activity. The Eric Adams situation in New York. We want to give you some, both some direction, highlight some issues, and give some strategic and practical advice for those of you that have to pay attention to this area, which I would argue we all do if we're part of the AML community.
Elliot Berman: And that'll live stream on February 27th at 1 p. m. Eastern Time. And by the time you hear this episode of This Week in AML, you'll be able to register for that webinar on our website. John, anything else you want to talk about before we go?
John Byrne: If you go to LinkedIn we just posted today the AML Partnership Forum, which will be held here in Washington, D. C. on March 19th to the 21st at the Mayflower Hotel. This will be our 4th edition of this program that allows the exchange of information, the exchange of ideas and strategies between the private and public sector. There'll be no press involved. This is an opportunity, as they say, under Chatham House rules, to improve each other's direction regarding financial crime prevention and related topics. So take a look at that. And if you have particular questions about the Forum, feel free to reach out to Elliot and I. This is a 501c3 not for profit organization that was created by a number of us, four years ago, and we're very proud of it. And we'd really like to see you there in Washington in March.
Elliot Berman: Well, John hopefully the snow in Hilton Head is not heading your way and you'll have a good rest of the week and a good weekend. And I'll talk to you next week.
John Byrne: Take care, Elliot. Stay safe.
Elliot Berman: You too. Bye bye.