This week, John and Elliot discuss Transparency International’s Opacity in Real Estate Ownership Index, FinCEN’s alert on bulk cash smuggling by Mexican cartels, IRS-CI’s release of 2024 BSA metrics, and its CI-FIRST initiative, Congressional hearings by a House Financial Services subcommittee, and other items impacting the financial crime prevention community.
Transparency in Real Estate, Bulk Cash, Congressional Hearings, and CI-FIRST - Transcript
Elliot Berman: Hi John. How are you today?
John Byrne: Good Elliot. A lot going on. I think maybe just dive right into it, both internationally , as well as domestically. So a couple things. I know we chatted about this briefly before we recorded, but our friends at Transparency International created something called the Opacity in Real Estate Ownership Index, which ranks 24 jurisdictions on their ability to protect property markets from illicit funds.
So this just came out. And the index, the acronym is Oreo, OREO. I know you have a banking connection to that, and I'll throw it to you in a second, but basically this takes a look at, like I said, 24 different jurisdictions. And what I thought was fascinating about it is it lists them in order and that South Africa had the best of what goes into these goes into these metrics.
They look at the availability and adequacy of real estate data. They measure the coverage and scope of AML frameworks that apply to the real estate sector. And they said there's definitely gaps in global property markets, vulnerable to corrupt money flows through those jurisdictions. And no country received a perfect 10. But as I mentioned, South Africa was listed first. The US was fairly low on the index.
Elliot Berman: Third from the bottom.
John Byrne: Third from the bottom. Okay. That is for a variety of reasons, as I think everybody here knows. But do you, you had mentioned to me offline that OREO that's an acronym already used in the banking industry.
Elliot Berman: Yes. Stands for other real estate owned. It generally shows up on both the call report that a bank has to file in the US and and it'll show up on their balance sheet. And it's real estate that the bank owns, but it's not operating real estate. So it would be repossessed real estate from bad loans and things like that. And it's a metric that, is one of a complex group of metrics that are an indication of a bank's health.
John Byrne: And the executive summary lists, again, the rationale for the metrics. As I mentioned the best overall performer was South Africa, and then Singapore and France. As you mentioned, the US was third from the bottom.
Just randomly here, Australia was the worst in terms of these metrics. And middle of the pack is Norway, Spain. Canada's toward the bottom. It's another great example of what these various groups can do in terms of anti-corruption metrics. So I thought it was important that we referenced that. And it's available on TI's website.
Elliot Berman: Yes. Two other things. So they talk about the two pillars that you mentioned, data and AML framework. And focusing on the US, we were above the middle of the pack in terms of the real estate data but we were dead last on anti-money laundering framework.
I think this is valuable, and I would expect we'll see it if not annually, periodically. They also did this in conjunction with the Anti-Corruption Data Collective which is another organization to be aware of.
John Byrne: Another report that was issued is from NASDAQ Verafin, and we're gonna do a podcast with one of the authors of the report sometime in the next week. This is the 2024 global financial crime report. This is focusing on Europe. According to the report, an estimated $750 billion in illicit funds flowed through Europe's financial system in 2023, while fraud losses amounted to more than a $100 billion.
And in addition to those metrics they have recommendations about the need for collaboration and regulatory change and use of technology. So again, we are gonna deep dive into this in the next week or so with the authors of the report . This is again from NASDAQ Verifin, a focus on European related global crime.
Elliot Berman: Something I saw circling back to Transparency International that we didn't talk about before we started, and that is Transparency International is urging Switzerland to avoid weakening its planned beneficial ownership register. They're tinkering with a term of presumption of correctness, which is really about whether the data should be double checked and vetted.
And Transparency International points out that Switzerland has a history of watering down reforms under pressure from the banking lobby. And that in the past has led to loopholes and this review of the language by Swiss authorities is another possible instance of that.
And so Transparency International is urging Switzerland not to make a change in the way the statute has been put in place. Beneficial ownership registries are just tough for people to get their hands around it seems.
John Byrne: Alright. So sticking with that there's a number of other things that the Treasury has done, which we'll mention, but sticking with beneficial ownership, there was a hearing earlier this week in the House of Representatives on a number of number of topics under the broad category of following the money and how to combat fraud. And so the witnesses talked about a series of. Issues in that space.
I particularly was interested the they had a representative from the Association of Retired Persons AARP and she said that they take 500 calls a day from their members when they believe that fraud or scams have been committed against these individuals, which is phenomenal. And so AARP has done a lot in the counter the fraud space.
But several of the members and also the chair of that subcommittee talked about and put in draft legislation to repeal the Corporate Transparency Act. That would be one. And secondly, to make it clear that the Treasury had said in a policy statement earlier this year that it would apply only to foreign owned businesses. There would be legislation that would codify that.
So interestingly, the focus, 'cause as we talked about opacity in, transparency International and what you just mentioned in terms of beneficial ownership registry, the US seems to be backtracking, I think is the only way to describe this in terms of what they're saying regarding the CTA but also by changing that enforcement.
And then I'll turn it over to you in a second, but the other part of this that's interesting is on the Democratic side in the Senate and the House they sent a letter to the Secretary of Treasury questioning why CTA enforcement is going to change based on that policy announcement. Seventeen C ongressional Democrats and several members of the Senate sent this. And the questions listed in the letter include, have you conducted any analysis of the number of terrorists, human traffickers, drug cartel leaders, foreign adversaries or other malign actors and facilitators who will be able to abuse the US financial system to hide their illicit activities absent enforcement of the CTA.
Right now there's been no response to that, but this is telling you there's a push and pull going on in the US Congress regarding the CTA, and we talked about this a couple weeks ago. Is this going to impact the way FATF evaluates the US? Stay tuned to that.
Elliot Berman: Yeah, as we talked about then it's unlikely that it will take the US all the way to the gray list, but it clearly will be called out in whatever report gets issued.
John Byrne: Yeah. It's actually going on right as we speak, the evaluation has started.
Elliot Berman: The field work is being done now. A lot of interesting stuff in that hearing. I think it's always fascinating to me to see how members of Congress on both sides of the aisle will make a point just by what they name things. The bill that would repeal the CTA is called Repealing Big Brother Overreach Act.
John Byrne: There's also a proposal to raise the threshold for currency transaction reporting from $10,000 to $30,000 and also to index the CTR threshold to inflation. We've also seen reporting in other publications that some banking organizations are pushing for raising the threshold to a $100,000 which is both interesting and certainly something law enforcement would not support.
And just to connect with law enforcement, the IRS criminal division released their fiscal year 24 BSA metrics and announced something called CI-FIRST. So these statistics look at the past three fiscal years and a couple of interesting points from there. They said that these cases where they used a BSA filing resulted in a 97.3% conviction rate. And they also used the data to identify $21.1 billion in fraud tied to tax and financial crime, and seized $8.2 billion in assets tied to criminal activity.
And this is both from suspicious activity reports, SARs, and from currency transaction reports. That data and that report are available. I think the other thing I'll just highlight because we're talking about thresholds the data also indicates that 67.4% of cases open by IRS:CI had a subject with one or more CTRs below $40,000 and 50% less than $22,000. Definitely be interesting to see the, again, the push and pull about potential threshold increases.
Elliot Berman: CI-FIRST is an acronym for feedback in response to strategic threats, and this is an initiative that will establish ongoing engagement with financial institutions to ensure that they receive quantifiable results from IRS on how the agency uses suspicious activity reports in its investigation. So something the industry has talked about for many years and there's been efforts, but this is another effort in the process of really creating those actionable feedback loops for the reporting that's done so that it can be refined and people can understand, why am I doing this?
John Byrne: FinCEN also issued a number of reports and alerts. One is on bulk cash smuggling and repatriation by Mexican based transnational criminal organizations. I know you wanted to highlight that Elliot. They did that one and they also did one on a sanctioning criminal operations and money launderers for the notorious Sinaloa cartel. So those are a couple of things that came out from FinCEN and OFAC in the past week.
Elliot Berman: The bulk cash smuggling alert is interesting to me for a couple reasons. And maybe these dots don't connect, but I think it's interesting that they're all happening at the same time. As you and I will recall, 'cause we've been doing this a long time, the CTR was originally created for the purpose of creating a paper trail for cash transactions, which don't generate a paper trail otherwise. At the same time, there was a hearing as we talked about a few moments ago that included a proposal to raise the CTR threshold of $30,000 and then have it inflation indexed.
And there are other numbers being thrown around. But that's the one in the proposal for the moment. And at the same time, FinCEN is issuing an alert about bulk cash smuggling which in the past CTRs have been helpful in identifying and in some cases interdicting. So it seems to me that some kind of through line would be helpful here.
I realize we're talking about different parts of the government. But the idea that at a time when we are worried about bulk cash smuggling again, or at least talking about it again, to also be talking about raising the threshold on reports seems misaligned.
John Byrne: And also in addition said they sanctioned the Sinaloa cartel. And there's also an advisory on the financing of ISIS. So all this information and all these releases are available on the FinCEN website, Treasury website, and the OFAC website as well.
Elliot Berman: John, anything else you wanted to talk about?
John Byrne: Yeah, one more item. Everybody's aware, especially those of us in the legal profession of the direct targeting of law firms in the US by the current administration. And the question is some law firms have responded in court, others have made adjustments. Leave to the listeners that decide on those those responses.
But the American Bar Association, who I had not heard from on this for a bit. Now, again, they could have been very involved. We just didn't see anything. But back on the 26th of March sent a statement on behalf of themselves and various Bar Associations around the country. And I'll just read a couple of quick excerpts from this. And they said that they endorsed the sentiments expressed by the Chief Justice and the Supreme Court in the 2024 year end report that within the past year, we've seen the need for state and federal bar associations to come to the defense of a federal district judge whose decisions in a high profile case prompted an elected official to call for her impeachment. Attempts to in intimidate judges for their rulings and cases are inappropriate and should be vigorously opposed, unquote.
We cannot accept government actions that seek to twist the scale of justice. And they said there's clear choices facing the profession. We can choose to remain silent and allow these acts to continue, or we can stand for the rule of law and the values we hold dear. And it ends with if lawyers do not speak, who will speak for our judges, who will protect our bedrock of justice? If we do not speak now, when will we speak? Now's the time. That is why we stand together with the ABA in support of the rule of law. And all the various state and local associations have signed onto that. This is available on the American Bar Association website from their press release on March 26th.
Elliot Berman: An important statement, on a very important concept. The United States has, not perfectly, but certainly consistently over time attempted to be a nation where the rule of law really made a difference. And we're seeing that eroded and even the Chief Justice spoke, which is extremely rare in recent Supreme Court history,. So something to pay attention to.
John you are doing a webinar on the 24th of this month on cybersecurity.
John Byrne: Yep. We're doing cybersecurity. We have a couple of great experts. They're gonna talk to us about that. One of them will talk about the how to create a cyber fraud fusion center and the challenges there, and the other will, we'll talk about the broad aspect of cyber security and cyber attacks.
I also just wanna highlight that we've posted an interview I did a couple weeks ago with a brother and sister who are both AML experts Alison Jimenez and Steve Kemmerling, and really enjoyed talking to both of them, and I think you'll find that conversation interesting as well.
And then, as I said, we're efforting an interview on the European global financial crime report as well as always open to hear from other folks that you like us to talk to. Experts in the space or issues you want us to cover. So if there's anything out there that you wanna make sure we highlight, please reach out to myself or Elliot.
Elliot Berman: Sounds good, John. And if you want to attend the live stream of the April 24th webinar, you can register for that at our website. So John you have a good rest of the week and I will talk to you next week.
John Byrne: Bye. Take care.
Elliot Berman: You too. Bye bye.