Treasury Fact Sheet on Corruption, FINTRAC Issues More Fines, and More

This week, the US Treasury issued a Fact Sheet on its action to disrupt corruption, FINTRAC levied fines against another bank for AML/CFT program violations, The US House passed changes to the beneficial ownership registry rules, and several other interesting things surfaced. John and Elliot discuss these and their meaning for the financial crime compliance community.

Treasury Fact Sheet on Corruption, FINTRAC Issues More Fines, and More - TRANSCRIPT

Elliot Berman: Hi, John. How are you this week?

John Byrne: Hi, Elliot. Good. I know we weren't able to connect in person, but just got back from Milwaukee and had a great time. Several meetings and more importantly, two big Marquette blowouts. They blew out Texas and Notre Dame. So this is shaping up to be a fun season.

Elliot Berman: Indeed it is. Looking forward to watching that unfold as the Big East season starts. Tough conference, but I think they're up to it. And their point guard Tyler Kolek was men's basketball player of the week.

John Byrne: Yeah. That's very cool. So a lot of things in no particular order. I mentioned to you before we jumped on this call that this week, USA Today ran a story in the Money Section about something that I was certainly aware of scams regarding gift cards, but I was not aware of the term gift card draining. There's a piece in there this week that talks about that scam, and basically what happens is fraudsters will get physical copies of the cards in the stores, and then they use a reader to scan what's, at this point, an unpurchased card number record it.

And then when a card is actually purchased and activated, they redeem the loaded funds with the stolen number. And some have had devices allow them to replace the silver strip that's scratched off to redeem a card. This is crazy. And in the piece, they talk about the police have been warning. about this around the country, and also the Federal Trade Commission and DOJ have talked about gift card scams in the past, and this is another add on.

I'll just make one other point according again to the report, the Pennsylvania Attorney General's Office issued this to the public regarding how to protect yourself from this scam. Sounds simple, but obviously we should pay attention to this. Make sure the gift card is sealed and the protective cover and the tape covering the pin is intact.

Ensure that the card does not appear to be tampered with, and then keep the store receipt in case the gift card that you purchased is found to have been. And they say you should immediately report it to the company and request a freeze on the card. But just another way unfortunately, in which, fraudsters find to take money away from people. Wanted to mention that.

And then, totally different subject, we mentioned FINTRAC's penalty issuance a couple weeks ago. They just announced, and this was actually something that occurred in October, but they just made this public, that they fined CIBC $1.3 million after discovering that their AML and CTF shortcomings during a compliance exam. So basically, they failed to file STRs for indications of money laundering or terrorist financing, and they also call out the fact that CIBC was, they believe, aware that its client had been arrested and charged with criminal offenses and then yet failed to file an STR. And that they also didn't report a number of electronic funds transfers from outside of Canada that you have to report under Canadian law of $10,000 or more.

So they found a thousand instances of noncompliance. That was from a sample size of 200,000, and so these did not have complete names and addresses. I've got to give credit to Moneylaundering. com who reported on this, and as they make the case in their short piece these two fines, fairly quick period of time, could be a broader indication of FINTRAC's focus on fines and penalties.

So we'll see, but you should obviously go and read the actual order for more of the specifics.

Elliot Berman: And this penalty or the behavior that led to the penalty, fits into the category of a basic, financial crime prevention program, as opposed to something exotic. As with the fine we talked about a couple weeks ago, which was RBC this one at Canadian Imperial Bank of Commerce again, basic program issues, which is a good reminder, before we go hunting unicorns, it's important to be sure that the basic machinery is running well.

John Byrne: Yeah, and I pulled up the actual order, the nature of the violation, I think to spell this out specifically is interesting in part because of the way the laws are crafted in Canada. The violation is this. Failure of a person or entity to report financial transactions that occurred in the course of its activities and in respect to which there are reasonable grounds to suspect that the transactions are related to the commission or the attempted commission of a money laundering or terrorist financing offense, which is based on section 7 of the Proceeds of Crime Act.

Interesting, because here, SARs, you file them if it's an unusual activity, but the reasonable ground to suspect that it's actually related to enact seems to be a higher bar. But we're going to get some folks in from Canada and tell us how that works from a practical basis.

Elliot Berman: Clearly feels like a higher bar with a more deep inquiry required to try to reach that conclusion or determine that you can't reach that conclusion and therefore don't have file.

John Byrne: That's right, yeah.

Elliot Berman: One of the things that we also saw was that the ranking member Maxine Waters from House Financial Services, announced several actions by the House. One that I wanted to mention was the Protect Small Business and Prevent Illicit Financial Activity Act. It is a modification by statute of some of the beneficial ownership timing requirements that FinCEN has put in place.

One is that existing companies would have two years rather than one year, which is what in the regulation to file their initial report. And then newly formed companies who under the regulation would need to initially report in 30 days would have 90 days. Whether this passes the Senate, unclear at this point. But what was interesting to me more than anything else was that it passed the House 420 to 1. Which I would guess it's the closest to unanimous they've done anything in 2023.

John Byrne: I think that's right. Related to the House. As we are recording this testimony is being given by Elizabeth Rosenberg, who's the Assistant Secretary for Terrorist Finance and Financial Crimes at the Treasury. And it's an update on all the actions that the administration has been taking to counter what's happened in the Middle East with Hamas's basically massacre of Israelis and the continued war that's going on there. She lists a whole bunch of actions and we've mentioned a number of these, if not all of these in our previous conversations, but they've blocked tens of millions of dollars linked to Hamas from transiting the US financial system.

They also have gone after virtual asset exchanges, financial facilitators. They list that they've designated over 50 additional individuals, both linked to Hamas and Iran. I think that's important as well, and that the targeting, will continue. She also highlights information sharing that's going on with our foreign counterparts and the actions of the Terrorist Finance and Targeting Center.

So again, we've mentioned a number of these. She brings this all back in one written testimony, but she also mentions and reminds people that Treasury has issued a notice of proposed rulemaking back in October on international convertible virtual asset mixing as a class of transactions of money laundering concerns.

And obviously that they are focused on that no monies will be used in Iran for anything other than humanitarian purposes. So just ask folks, take a look at the testimony. Obviously, there'll be stories about the Q&A that happens in addition to her written testimony. But it's a good report of all the actions that Treasury has taken certainly, since October 7th, but also a lot of this work started long before that because the designations against Hamas was probably started in the 90s, the late 90s and continues.

So I would just recognizing that the House has been very active in this space. So with the bills that you mentioned, plus this, I think keep your eye on House Financial Services in 2024, because there's still a lot on the table that they're going to have to deal with.

Elliot Berman: Yes there is a lot on the table. An additional thing on the table, which Treasury put out this week is a fact sheet entitled. US. Department of the Treasury Actions to Prevent and Disrupt Corruption. And again, you and I have spoken regularly about the link between corruption, and money laundering and other financial crimes.

And they touch on a number of things in this fact sheet. They take us back to the US strategy on countering corruption, which was issued two years ago. And these are efforts that come out of that. They talk about the things that they're doing with the Corporate Transparency Act, much of which we've already talked about in terms of the beneficial ownership reporting and things like that.

They also talk about safeguarding the residential real estate sector. And up till now, the principal way that the US has done that is through the geographic targeting orders. But the fact sheet indicates that the Treasury will be putting out a notice of proposed rulemaking in early 2024 about this topic.

My opinion is that the US has been slow to really bring real estate, both residential and commercial, into our AML/CFT regime. If you go back, FATF put out their most recent guidance in July of 2022, and again, we've been slow to get there. The other one where we've been slow to get to is addressing risks in the investment advisor sector.

And again Treasury, or maybe, I guess it would have been FinCEN, put out a 2015 Notice of Proposed Rulemaking that has never been enacted. And now they're proposing to issue an update to that Notice of Proposed Rulemaking in the first quarter of 2024. I think the reason this is a good thing is the investment advisor sector is, $110 trillion market.

Even if you have 1 percent or even a half a percent of that market size being ill gotten gains, you're talking about a huge amount of illegal funds for which there's no specific requirement to file anything or raise your hand or anything like that. So between real estate and investment advisor sector, those are by far and away the two biggest parts of the economy in the US for which there is no requirements on AML CFT.

John Byrne: Yeah, we tried to include that back in 2001. Unfortunately lobbyists were able to keep that out. The last thing I've mentioned based on this this fact sheet is there's a section in here that's interesting for what it's not saying directly, and that is that they say Treasury is working with FATF, and we've talked about this quite a bit, to enhance international standards on corruption.

And one of the things that they mentioned toward the end of that section is that FATF is evaluating members compliance with the standards relating to designating non financial businesses and professions, such as accountants and lawyers, gatekeepers, related to the financial system. Does that make them more vulnerable to facilitating corruption?

As we know, a big debated issue in the US has been gatekeepers. And so the fact that Treasury mentions that in this fact sheet, I'm sure was deliberate. So that's going to be an interesting debate to follow in 2024 as well.

Elliot Berman: And another area where there have been prior efforts to put something in place and lobbying has successfully held it off.

John Byrne: No question.

Elliot Berman: John, we have our last webinar of the year next week on the Tuesday, the 19th at 1 PM. And it's on where is compliance technology going? So I'd urge people to sign-up for that. You can still register at our website, and I know you're working on our first webinar for 2024.

John Byrne: January is Human Trafficking Awareness Month, and so to continue with our support for efforts in anti-human trafficking. We're going to do a program in January on the 27th, I believe.

Elliot Berman: 25th.

John Byrne: I'm sorry. So right now we have a commitment from Polaris to participate and I'm efforting some additional folks in the private sector to be part of that. I hope is to give updates on not just red flag indicators, but typologies and all the actions that groups like Polaris and many other groups with a lot of help from the financial sector are working hard to continue to address this awful area of criminality.

More to come on that again, trying to close the loop on that before the end of the month, but the bottom line is we'll have that. And then, look for additional podcasts we're trying to get interviews set up with some international folks, some government people, and we may get to some of those before the end of the year, but as always, If you have an idea, topic, theme, or person you'd like us to interview, please reach out.

Elliot Berman: Sounds good, John. So you have a great week, and I will talk to you next week.

John Byrne: Take care, Elliot.

Elliot Berman: You too. Bye bye.