The EU, Sanctions, the UN, FinCEN, and More

This week, the EU published the text of its new AML Regulation and Directive, FinCEN issued guidance on the beneficial ownership registry access rule, and Puerto Rico adopted new rules for IFEs and IBEs. John and Elliot discuss these and other items and their meaning for the financial crime compliance community. 

The EU, Sanctions, the UN, FinCEN, and More - TRANSCRIPT

Elliot Berman: John, how are you today?

John Byrne: Hi, Elliot. Down here in San Juan, Puerto Rico for the 20th annual Puerto Rican Bankers AML Conference which starts tomorrow, a two day conference. So always enjoy seeing some old friends and some folks here from the regulatory community. That's coming up and it's not too bad weatherwise.

Elliot Berman: No, I would expect San Juan to be nicer than Northern Virginia and nicer than Wisconsin, although here it's supposed to be in the mid 50s today, which for late February is unusual.

John Byrne: That's short sleeved shirt weather, man, in Milwaukee.

Elliot Berman: That's true. That's true. The kids on the campuses will be in shorts.

John Byrne: So since I'm down here, I thought the first thing I would mention is one of the challenges that Puerto Rico has faced in terms of the broad AML compliance community has been the what they call IBEs and IFEs. And these are international financial centers and international banking centers.

And you may remember that in the 2022 Money Laundering Risk Assessment Puerto Rico was called out for having risk challenges to say the least. And there's been an active movement by members of their House and Senate, and also the commissioner of financial institutions here to try to improve the oversight of IFEs and IBEs.

This law was just signed by the governor last week and I would urge people to take a look at that and summaries of it when they get a chance. But the bottom line is that this was designed not just because of AML oversight, but to help with economic development of Puerto Rico and to make sure that these entities that are based here, that investments are in Puerto Rico versus overseas.

Just a couple of quick items here. The obligations for IFEs and IBEs have been changed fairly dramatically. They actually get as specific as you have to have a minimum of eight employees. Two of which have to be from compliance, which is interesting. They also have to have, besides that, and that's for the IFEs, for the IBEs, you have to have eight employees as well, and both have to have annual training paid for by the employer in compliance with the laws of Puerto Rico and, of course, the US in general, related to money laundering, finance and terrorism and other laws and measures relevant to the industry.

And then they go as far as saying that each of these entities have to have at least one independent director. And that's defined as someone who has no economic interest, banking, or other relationship with the IFE or IBE. So this is pretty interesting.

A quick aside, a few of us met with the banking commissioner here in Puerto Rico yesterday and shared some of our thoughts on how they can do additional outreach about this new law. And so one of the outcomes of that's going to be, we're hoping to do a podcast with the commissioner, perhaps one in Spanish and one in English in the next few months.

This law goes into effect in 90 days, so it's coming up, but this is a pretty dramatic change. And again because of the focus on risk, additional requirements is that the CEO has to actually certify the IFEs or IBEs compliance with Bank Secrecy Act and OFAC compliance. Also, they list AMLA in there as well, which is interesting, so we'll see how that works.

Their licensing requirements and licensing renewal requirements have been strengthened. So again lot going on here, but I thought it was important just to mention this. And again, it's for those of you that are following what's going on here, it's the International Financial Center Regulatory Act and also the International Banking Center Regulatory Law.

So Both of those were put together and again signed into law just last week.

Elliot Berman: Yes and as we know that has influence across the entire Caribbean basin.

John Byrne: Oh, you know what? I forgot to mention. So I mentioned the 2022 National Money Laundering Risk Assessment that did contain references to risk in Puerto Rico. The 2024 one, which you and I've talked about a few weeks ago, does not have any mention in there of Puerto Rico. The regulators here feel somewhat comforted about that. They don't mention why it's not listed in the money laundering risk assessment, but it's not called out.

So they're hoping that there's been at least tacit approval of the movement of this law and some of these changes and also the building up of the the banking commissioner's office. They've added new examiners and new staff that all that has lent the authors of the risk assessment to decide not to include it. So there's no reference to why it's not there. So I want to stress that. But I think it's a positive that, unlike the 2022 document, it is not listed in the 2024 one.

Elliot Berman: Significant action in a relatively short time on a big, complicated topic.

John Byrne: Exactly. Yeah, exactly.

Elliot Berman: So I know that you also saw something reported in the Washington Post, although, I think it's been in some other places. Do you want to talk about that?

John Byrne: Yeah. So a couple of things related to sanctions.

One is, this is separate from what you've just asked me about, and that is the Biden administration, because of the, what I think is, and many believe this to be the case, the clear assassination of Navalny last week in a Siberian prison, that there will be on Friday when this posts a brand new series of sanctions against Russia, so that's something that also should be referenced.

I think that's part one of the sanctions issue. The second is, earlier this week, or over the weekend, there was an article that talks about how Treasury is facing pressure after a report came out that X, formerly Twitter, may have flouted sanctions. An interesting report that came out by I'm not sure the name of the group, oh, it's the Tech Transparency Project. And they say that, and that group looks at major tech companies, they found more than a dozen U. S. sanctioned entities appear to have accounts on X with paid verification status, including Hezbollah leaders as well as Iranian and Russian state media. So I think more to come on that, but that was an interesting report that was in the Post, but didn't get a ton of play beyond that. So we're we're going to see if there's any updates going forward.

Elliot Berman: Yes, that was something of a big deal. And then there was something coming out of the UN that you want to talk about too.

John Byrne: Going back to our general coverage of de risking, and issues that relate to that, especially as it applies to the humanitarian groups. The UN through the Security Council, voted to approve what they call a humanitarian carve out. Which is a standing humanitarian exemption to the asset freeze measures that's imposed by the UN sanctions regime. So that resolution for one abstention was India. So 14 to none against.

It's 15 member organ said that the provision of the processing of payment of funds, other financial assets or economic resources. There's going to include the timely delivery of humanitarian assistance, so that obviously support basic human needs. So here's a carve out, and it'll apply to Al Qaeda's sanctioned regime for a period of two years, and certainly others as well.

So for more information on that, go to the United Nations website. Again, this carve out actually posted late December, but it's been getting some play recently. We've seen that with OFAC, by the way, they've done licensing and other things to try to help humanitarian groups get information, get money funding for medical supplies, water, all those sorts of things. And so this is another step in that effort.

Elliot Berman: Our friends at FinCEN put out a new release this week as well. This is a Small Entity Compliance Guide for Beneficial Ownership Information Access and Safeguard Requirements. It's a guide that really focuses on the access rule. And while it's designed for small entities I think A. to give them some explanation and B. to give them some comfort about the use of their beneficial ownership information as it's put into the registry, as they comply with their obligations to do so. I think it's also a nice simple overview and roadmap for financial services companies about how they're going to interact with the registries and things they're going to have to do. There's a reaffirmation that the CDD rule has to be rewritten as contemplated in the Corporate Transparency Act.

I'm not going to read tons of it because you all can read it for yourself, but it breaks things up into how information is going to be used, who's authorized to use it and how they access it. There's also a reference to the security and confidentiality requirements. One interesting thing is an explicit statement about the geographic restrictions.

They also talk about the information procedures and they tie the level of confidentiality and data management to the requirements in Gramm-Leach-Bliley, which are the rules that apply to protecting customer's non public personal information. And so Gramm-Leach-Bliley has been around a long time. That's something banks have good systems and processes already in place. So that'll be a good tie together.

There's a bunch of other things. There's a customer consent discussion and things like that. Again, as I said targeted at small entities, but I think valuable for our colleagues in the community and worth a read.

The other thing that you and I had spotted that, again, big and complicated, but just wanna mention. The European Union's new AML Regulation and Directive has been published. It's not final yet, but this is the negotiated language.

A couple of high points just to mention the covered entities are expanded significantly to include most of the crypto sector, including all crypto asset service providers, to conduct due diligence on their customers and report suspicious activity. Others that are brought into the due diligence and reporting regime are traders of luxury goods such as precious metals, precious stones, jewelers, goldsmiths, traders of luxury cars, airplanes, yachts, as well as cultural goods like artwork.

So there's a lot here in terms of the broadening of coverage that aligns with things that we're seeing happening in the US and other places in many respects following FATF. There's a lot about cross border activity. There's a lot in here about the national FIUs in the EU. There's a mandate for country level risk assessments and then an EU level risk assessment. There's a lot going on about this right now but it's worth a read. You can access it on the EU website.

John Byrne: And sticking with international, as we are recording this, FATF's plenary is currently underway, and by the time you listen to this there'll be a press conference on Friday the 23rd from the president of FATF, to announce the outcomes of the plenary.

Right now, the plan is for delegates to discuss the impact of rapid development of cross border payment technologies, guidance to help countries with what they call the risk based implementation of Recommendation 25, which is beneficial ownership and transparency of legal arrangements, and obviously they'll also update on various jurisdictions through mutual evaluations and other things to see how these countries, are handling the challenges that have been identified.

Just very quickly. We've been approached to do a podcast with some FATF folks after the plenary. We're efforting that now, we're going to speak to them in early March, but basically what they want to talk about is the recent report that FATF issued on citizenship and residency for investment programs, which I thought was interesting.

And so they've reached out to us here at AML Voices and and they want to talk about the variety of risk factors in the report and what that means from a practical standpoint. So more to come on that, and obviously they're all working hard in Paris on this FATF plenary. So we will talk to them in the next week or so and set up a time for a conversation.

Elliot Berman: By the time this posts, our February webinar will be complete. If you didn't hear it live, you'll be able to access the recording on our website by the end of next week and then our March webinar is coming up and John you want to talk a little bit about that?

John Byrne: Since you're running it, yes, the March webinar is crypto related, it's countering terrorist financing and its use of virtual assets. So definitely crypto related. And one of our previous interviewees that we just happened to recently, Ari, I'm sorry, Ari did it again, Ari Redbord, the global head of policy and government affairs at TRM Labs.

Also Jessica Davis who is a Canadian and global expert on a whole series of things and she's with Insight Threat Intelligence. And so you're going to be moderating this but real excited about this particular topic and theme and so really happy we're getting top notch presenters for this.

Elliot Berman: Yes and this will be March 28th and by the time you hear this podcast you'll be able to register for it on our website.

So John, you have a really good time at the Puerto Rican Bankers AML Conference and travel safely on your way home.

John Byrne: So next week, I'll give you some outputs from the conference, but also Elliot and I will talk about the outcomes of the FATF plenary. So everybody have a great rest of your week and we will see you next week.

Elliot Berman: You too. Bye, John.