Reputational Risk, Fraud, ML and Home Prices, and Tracking Domestic Terrorism

This week, John and Elliot discuss the OCC’s announcement that national banks will no longer be examined for reputational risk, an FTC report on the growth of payment fraud, a report from the University of Trier in Germany showing that money laundering directly causes an increase in housing prices, the decision to stop funding a national database tracking domestic terrorism, hate crimes and school shootings, and other items impacting the financial crime prevention community.

Reputational Risk, Fraud, ML and Home Prices, and Tracking Domestic Terrorism - Transcript

Elliot Berman: Hi John. How are you today?

John Byrne: Good, Elliot. Since everybody followed very closely our support for Marquette throughout the basketball season, we should tell them that they went out with a whimper in the first round. Had a tough second part of their season, but hey, baseball starts in a couple of days and basketball will be back up in November, so you just move on.

Elliot Berman: That's true. And there's still hockey and the NBA if you can't get enough sports.

John Byrne: Yeah. Those of you that pay attention to soccer, that's all year round, isn't it? I have no idea.

Elliot Berman: Just putting in a plug for one of the other, teams that I keep an eye on. The University of Wisconsin Women's Hockey Team won the NCAA Division I championship the other day.

John Byrne: There you go.

Elliot Berman: Yeah. So there was something to at least smile about.

John Byrne: There you go. So a lot going on, man. We did record last week while we were in Washington for the fourth annual AML Partnership Forum. I will just tell folks we felt from a participation and content standpoint, very successful.

A little frustrating because some of our law enforcement partners, not because they did not want to participate, but were told they could not participate. I won't single them out, but I'll just say that's unfortunate because the goal of the conference was always to share information and to learn from each other.

But having said all of that, there were a number of very, both interesting and compelling conversations and discussions. Just a couple that jump out at me we heard from experts about the current state of crypto crime and some of the issues there, which is obviously something that's gonna continue to challenge our community.

Our good friend Dennis Lormel, was able to give us updates on a series of things, including the various terrorist threats, both foreign and domestic, which I will reference in a minute. Many other things too. But the other one was we were able to have a great conversation with Gary Kalman from Transparency International, who did our last month's webinar, and Gary and I talked about in more detail the state of anti-corruption related policies both here in the States and of course internationally. So I think the group picked up a lot there.

I will tell you that I think that it's still very heartening to see our law enforcement partners who care so much about dealing with financial crime prevention, but it's going to be a very challenging 2025 and beyond. So we'll have to not only continue to support them, but recognize that information sharing might not be as available as it once was.

Elliot Berman: It was a great three days and I think all of the presenters, the experts that shared their insights were amazing. People sat and listened and asked great questions. Very proud to have been involved and hopeful that we'll have the kind of cooperation from law enforcement that will justify doing one in 2026.

John Byrne: Yes, we hope that does happen. So I mentioned domestic terrorism as something that Dennis Lormel covered in his update on terrorist activity, both foreign and domestic. Interesting corollary to that is what is not happening here in the states. What we recorded today, there's a story in the Washington Post that the current administration has stopped funding a national database tracking domestic terrorism.

It tracks that plus hate crimes and school shootings, and that's a round of amazing cuts to funds that were desperately needed. The database is run out of the University of Maryland and was supported in part with funding from DHS that has disappeared. According to the statement, the scope of work performed under this award no longer effectuates department priorities. Which is very sad on a number of levels.

Connected to that was also this week. Was a hearing on the Senate side, I think there's one on the House side as we're recording this on the 2025 Annual Threat Assessment from the intelligence community. Again, no reference at all to domestic terrorism. It's a roughly 30 page document, it does cover issues like transnational criminal organizations, talks about cyber, and intelligent actors that are targeting infrastructure. It does focus individually on several countries, Russia, China, Iran, and North Korea. As I said, there is absolutely no reference to what's happening domestically, which by any definition from experts does include terrorist activity.

We should also mention, that hearing on the Senate side, and like I said we, there's one going on as we're recording. Part of that hearing focused not on the threat assessment report, but what everybody's reading about and I'm sure when this post Friday will still be a story. And that of course is the use of the Signal platform to exchange information related to the attacks on the Houthi rebels in Yemen.

As everybody knows, inadvertently, or for whatever reason, Jeffrey Goldberg, a well-known and respected editor of The Atlantic was included in that group chat. And he's been able to today show what we knew to be true when he was asked about it yesterday. That there were clear war plans in that discussion.

Right now, nobody has lost their job, but as we're doing a cybersecurity related webinar in April, this is relevant folks, and so we'll continue to monitor that. It's not an AML issue, but it certainly is a cybersecurity issue. So I thought we would mention that as well because we're all aware that this is going on this week as we're recording and trying to give you updates on what's happening both in the US and internationally.

Elliot Berman: A couple of things coming out of other US governmental agencies. The Federal Trade Commission, the FTC, issued a report about fraud recently, and they noted in the report that US consumers lost the most money last year by way of bank transfers and payments, a little over $2 billion. Second most was through the value of losses due to crypto.

They go on to talk about a number of other things, but you and I have talked a lot about the significant increase in fraud, and that was something that was talked about at the Forum last week. And they make the point that the overall value of fraud losses jumped 25% last year. Total frauds were over $10 billion in terms of losses.

So it's really significant. It continues to happen. Practitioners and law enforcement continue to try to work together and look for ways to identify frauds and interdict them. Some of it is good hygiene on the part of all of us. John, I assume you're getting as many of the texts that are really just come ons to a fraud as I get. And no matter what you do with your settings, they keep coming. Everybody needs to pay attention.

In addition to that, the OCC, the Comptroller of the Currency, the regulator for national banks has announced something that we have talked about already, but they made it official. And that is that they're no longer examining banks for reputational risk. And the acting comptroller was quoted as saying the OCC has not and does not make business decisions for banks.

And I have been at this a long time, and I think something that's gotten lost in the shouting is the reason that reputational risk is important. The bank regulatory structure in the United States is about protecting the integrity of the system, which also means the trust by customers in the system and the stability of the individual banks. And when reputation risk is too high, it can have a direct impact on customer trust of the institution, and that can cause a bank run and a failure.

And bank failures have an impact on the communities they operate in and on their customers. So I think in the context of the debanking conversation and everything else, the reason why reputational risk is important and in my opinion, should still be examined for, has gotten lost.

John Byrne: That's completely true. In another area that is no longer being pursued, the Department of Justice, under the previous administration had secured the right to sell a $300 million Russian owned super yacht that came from the Klepto Capture Task Force at the Justice Department, which has now been disbanded as we know. Civil forfeiture very important enforcement tool and goes after oligarchs that can't be prosecuted due to jurisdictional challenges. So that's very interesting. It shows international collaboration when those sorts of things occur, but that we wanted to highlight that has just been announced in the past few days. But again, that task force no longer exists.

There's also an article in this week's Guardian and the guardian.com is where you'd find that. And that's a number of experts talk about the likely continued fallout from DOJ's decision to back off prosecutions and forfeiture regarding foreign public corruption. So an interesting story with a number of people, including a podcast regular that we've interviewed a number of times is Stef Cassella, who is mentioned in that piece as well. So again, another area where we're no longer focused on, at least in the short term. And obviously that represents both a loss of revenue to the US but also previous ability to punish oligarchs and other criminals by taking away their property.

Elliot Berman: A follow up to something we talked about two weeks ago when , the Treasury Department and FinCEN issued geographic targeting orders aimed at MSBs along the California and Texas borders. This week they've put out FAQs related to the targeting order giving some explanation about what's expected by the organizations that are subject to the targeting order. It's interesting, it's something for folks who are impacted or are working with people who are impacted to be aware of.

It talks to some of the issues that you and I talked about in terms of actually implementing a rule like this in a very short window. I think the order goes into effect April 14th, and it stays in effect through September 9th . So that's worth a look if that you're impacted.

I mentioned to you, John, that I saw an interesting article about a study in Europe. The University of Trier in Germany, looked at suspicious activity reports filed with the German FIU over a long period of time under the EU rule that requires real estate professionals and notaries to file information about residential and other real estate transactions which is much broader than the rule in the United States, which is only transactions for cash. And what they found was fascinating. A 10% rise in suspicious transaction reports from the group corresponded with housing prices in the target areas, increasing by just under 2%.

We often have a lot of theoretical conversations about the impacts of these things, but they were able to find an actual direct connection. And this was for a period from 2020 through 2024, and it involved almost 24,000 suspicious activity reports. A pretty good pile of data to work with. And their conclusion was this showed the economic consequences of money laundering. So when people will say money laundering is a victimless crime. I think actually here's some proof that indicates that's not really the case.

John Byrne: No that's an excellent point. Finally, I just want to mention that FinCEN has issued the Interim Final Rule regarding the Corporate Transparency Act. So as we talked about in the past couple of weeks, this is going to eliminate the coverage for US companies and US persons. It's effective immediately. A quote from the Treasury Secretary is, it's important to reign in burdensome regulations to the benefit of hardworking American taxpayers and small businesses.

I will just tell you that we're already hearing from some banks that customers are refusing to provide beneficial ownership information to banks as banks open accounts, which is not what this rule is designed to do. So this is going to be interesting to see how people navigate that. And also, as we talked about when FATF completes its evaluation of the US I'm not gonna suggest they would get on the gray list because that would have to be a big dramatic shift. But we would not be compliant with the recommendations dealing with beneficial ownership information. And there would have to be some downgrading of our rankings in terms of FATF. So we'll see how that turns out.

Elliot Berman: And it's not clear that this amendment to the regulation leaves the regulation in alignment with the statute. Although there is at least one proposal kicking around the halls of Congress to just flat out repeal the CTA. We'll see where all that goes. It'll give us something to talk about in the coming weeks.

John Byrne: Yeah, we'll see if people actually think laws have meaning. So we'll find that out going forward. So that will be an interesting both conversation and review, because the other thing that we did learn last week from some of our financial institution partners at the Forum is they're gonna continue to work on blocking and tackling and other important issues that are not going to let up on anti-corruption or any of these other issues that are important to report and deter. Their goal is to continue to be the same as it's been. It's going to be very fascinating to see the regulatory oversight going forward.

Elliot Berman: Indeed. Between now when we're recording and when this posts our risks related to virtual assets webinar will have occurred. Late next week, if you watch our website, the recording of that will post. And on April 24th, as John mentioned we are doing our April webinar and that's on cybersecurity and its impact on financial crime. And by the time you hear this, you can register for that at our website, amlrightsource.com.

John, anything else before we log off?

John Byrne: Nope. Just everybody stay focused 'cause things are changing daily and it's important to stay current.

Elliot Berman: Yes, and we'll continue to bring these efforts to help you stay current on a weekly basis going forward. John, you have a great rest of the week and I'll talk to you next week.

John Byrne: Take care.

Elliot Berman: You too. Bye-bye.