SEC on Crypto, UK Director Checks, Real Estate GTOs, and FCA Financial Crime Guide

This week, John and Elliot discuss the SEC’s statement on offerings and registrations of securities in the crypto asset markets, the UK requirement for identity verification for corporate directors and controlling owners, FinCEN’s renewal of geographic targeting orders relating to residential real estate, FCA’s updated Financial Crime Guide, and other items impacting the financial crime prevention community.

SEC on Crypto, UK Director Checks, Real Estate GTOs, and FCA Financial Crime Guide - Transcript

Elliot Berman: Hi, John. How are you?

John Byrne: We're recording early this week because I'm gonna be, and I'll see you there. I'm gonna be at an event on Marquette University's campus for the commercial banking school, where they're going to have panelists discuss the tariffs for what they are, what they're not.

How bankers are handling various issues, including mergers and acquisitions in this environment. And what's going on legislatively with this administration. The day we're recording is April 15th, which in the United States Tax Day. I think it's a good opportunity to say that 'cause we've had an extensive, really good relationship with the Internal Revenue Criminal Division over the years.

They've worked as great partners with the private sector. And as we go through some of the challenges, including cutting close to 30,000 employees from the IRS, it's definitely gonna have the impact on spaces such as tax evasion. So it's gonna be interesting to see, but I did wanna mention it is tax day. Nobody loves paying taxes, but the IRS structure is so important to be efficient. So that's just another one of the things that folks are dealing with this week, this year.

Elliot Berman: Yes. And where would you like to start? We've got a big pile of stuff, so

John Byrne: Yeah, there a couple things. I think we had mentioned that the OCC had a security incident. They sent a letter to all all banks Monday of this week, and you can find it on the website there. But back in February, they were notified by Microsoft Global Hunting Oversight and Strategic Triage that there had been unusual interactions between a service account and Microsoft's automation environment and OCC user mailboxes.

On February 12th, the OCC confirmed that activity was unauthorized and immediately activated its incident re response protocol. So this notice is going out to all financial institutions and they are informing each institution also, if it determines if any unauthorized user access occurred and what the implications, if any, there are. So this came from the Acting Comptroller Rodney Hood, but again, we've reported on this before, but the letter to all regulated institutions went out yesterday.

Elliot Berman: I did see in one of the numerous services that you and I, look to for updates that there are several very large banks that are regulated by the OCC who are concerned about future information sharing because of this event. You know how that will all unwind is unclear, but if you don't trust your partner's environment you get skittish about sharing information with your partner.

John Byrne: So true. You also had mentioned a couple things overseas. One, I think on what's going on in the United Kingdom regarding I, I think identity checks for directors,

Elliot Berman: Yes. Companies House, which is the the corporate regulator in the UK. And I think we had talked about this some months ago. They had indicated that they were going to put in place a process where companies were required to provide adequate information to Companies House so that it can do a digital identity verification for company directors and individuals with significant control.

That service is coming online. At the moment their indication is that it will be mandatory this fall but Companies House is urging people to act sooner. So beginning this week, they can verify their identity through gov.uk. There's a process there. But the point is that there are 6 million individuals who are going to need to comply with this in the 12 months after it goes online.

And they're working on a phased approach to manage the burden for companies. But again, as we are seeing a movement away from transparency or certainly less encouragement of transparency at a minimum here in the United States, in other countries that have fulsome regimes, we are seeing a move in the direction of more transparency. And this is just another good example.

John Byrne: Yeah. In addition to that, there was some document issued by the SEC that touches on crypto issues.

Elliot Berman: Yes. The SEC issued a statement related to its current stance in the crypto space about how organizations there when they're required under certain federal statutes to provide certain types of disclosures, trying to clarify something that's very complicated.

So I'm working really hard not to fall into the rabbit hole about this, but it has to do with when a security needs to be registered to be sold, or is going to be sold because there is a specific statutory exemption from registration. There's been, as many of our listeners know, a lot of discussion and a lot of consternation about whether or not crypto currencies and other virtual assets are securities for US law purposes, and this focuses on the other assets, not on the currencies.

So in the event that you have a virtual asset that you are going to sell to investors. This policy statement is important for you to be aware of. This is one of the many steps in the process to clarify the standing of various virtual assets, including the currencies in the US for various regulatory purposes. It's a very wonky piece I guess I would say. But it's out there and people should know the processes moving forward.

John Byrne: Back overseas. The Organized Crime and Corruption Reporting Project published a story on some activity in Spain. Spanish police have arrested six people involved in a 19 million Euro cryptocurrency scam that targeted over 200 victims using AI generated ads with fake celebrity endorsements. The operations according to the story, dismantle of the nationwide fraud network operating with fake identities and shell companies. So that story is up on the website. It was a joint operation by the Spanish National Police and the Civil Guard, and they conducted coordinated raids in Grenada and other locations.

Elliot Berman: Imagine that shell companies. We also saw that the FCA, the principal of financial regulator in the UK, issued their Financial Crime Guide, a Firm's Guide to Countering Financial Crime Risks.

It's a long document, but it's a very interesting document. It covers the areas of financial crime, systems and controls, money laundering and terrorist financing. Fraud, data security, bribery and corruption, sanctions asset freezes and proliferation financing, and insider dealing and market manipulation.

So it covers a broad spectrum of financial crimes and it's broken out in a way that I think you can get a lot out of it. But it is 130 some pages it's not a breezy read. It's more of a resource. But again really valuable and whether you're in the UK or not, I think it's worth a look because many of the things that they talk about are just good double checks on, have we thought about this? Is it baked into our program? Should we be thinking about it if we're not?

John Byrne: Yes. And then that all makes sense back in the States. DOJ announced late last week that two members of a transnational money laundering organization were sentenced for laundering millions of dollars in drug proceeds. This was a Georgia man was sentenced to 78 months in prison for a conspiracy to launder millions of dollars. And his co-conspirator was sentenced also to 90 months in prison for his role in the scheme. One was from Bufort, Georgia, the other was a Chinese national who resided in Chicago.

So this was a, a DOJ case through the Organized Crime Drug Enforcement Task Force OCDETF which is a longstanding task force of DOJ. So that information can be found there.

And then just couple other quick ones. OFAC has announced some new counter-terrorism designations and some counter-narcotics designations that's out there as as well.

And then the Terrorist Financing Targeting Center at Treasury designated some more Al-Shabaab networks in Somalia. So a lot of other things going on as well. And I know you wanna mention couple of the geographic targeting order updates.

Elliot Berman: Yes. We spoke about geographic targeting order maybe three, four weeks ago, which was targeted at MSBs along the southern border in California and in Texas. Certain areas in those two states.

There have been geographic targeting orders in place for quite some time related to residential real estate transactions in 12 different geographic areas around the country. And these are transactions in most cases where the transaction price is greater than $300,000 and the transaction is not funded, by a mortgage loan or other financing tool, but is basically done for cash, although that doesn't necessarily mean currency on the table at closing.

These are really renewed orders. And what they require is title insurance companies as the covered business to report a lot of information including beneficial ownership interestingly enough for covered transactions. The announcement came out yesterday. It goes into effect today, and it goes for 180 days, so it'll expire or be up for renewal in October. And it came out, as these announcements have in the past came out with FAQs as well. So you can find that on FinCEN's website.

John Byrne: Also this week, the GTO on MSBs targeting the Southwest border goes into effect. And remember, that's MSBs file CTRs over $200, not $10,000. Over $200 goes into effect today. And a colleague of ours who's done some podcasts with us and is a really really keeps her finger on the pulse of what's going on in AML, Alison Jimenez in her blog posted on LinkedIn this week, she reminds everybody that the Bitcoin ATM operators need to be registered with FinCEN as MSBs with their kiosks listed as branches.

And she said that this GTO applies to them. That's important. She also talks about the need to verify and record and the information that's required under the GTO. So if you don't follow Allison on LinkedIn you need to, 'cause she does provide a lot of great information.

Elliot Berman: Another thing we saw is that Block, which owns a number of payment services companies, including CashApp will, is being required to pay a $40 million fine to settle accusations that the payments company had significant failures in its AML compliance program. And again, this applies to CashApp.

This is a settlement with the New York Department of Financial Services DFS. While we're seeing a shift in emphasis at the federal level, there are some regulators, DFS probably being the biggest one, who continue to focus on AML program compliance at a similar level as they had in the past.

John Byrne: Justice Department also announced that the US has extradited the Pakistani that was accused of facilitating the cover for the 2008 Mumbai attacks had been extradited to India to face charges. So that also happened this week.

Elliot Berman: That seems like a lot, John.

John Byrne: It is quite a bit. Wall Street Journal, by the way, also had a cover story this week talking about how the change in the Justice Department priorities is basically going to eliminate my words, not theirs eliminate prosecutions for bribery in many cases, and in some cases that will, cause businesses that did follow the rules to lose some competitive advantages when they participate in supply chain and other issues that in the past, in some cases, have resulted in the movement of products because of bribery and other things. The story in Wall Street Journal is in last Monday's edition. You'll be hearing this on Friday, so you can take a look at that. And it's comments from some academics, some former DOJ folks and others. It's worth a read.

Elliot Berman: Indeed. So what else do you have? What do you have coming up?

John Byrne: Coming up? Good question. I've actually just scheduled a podcast in a couple weeks with folks from the Jewelers Vigilance Committee to talk to that industry about how they handle A-M-L-C-T-F sanctions. Just was able to schedule that today. So we'll be talking in a couple of weeks.

We have a couple in the pipeline that will be be posted. And also end of this month we have our April webinar. And this month, it's on cybersecurity issues, which is front and center with many of us. You can still register for that and it will be live. And then later on we will send the recordings around.

Elliot Berman: It'll be live on April 24th at 1:00 PM Eastern Time. And as John mentioned, you can still register for that at our website. So John, you travel safely. I will see you Thursday, if not before. And of course, we'll bring another episode to our audience next week.

John Byrne: Sounds good. Take care. Stay safe.

Elliot Berman: You too. Bye-bye.