UK Transparency in Art and Corporate Directors, STRs in Canada, and Sanctions Evasion

This week, John and Elliot discuss the regulatory action in the UK to require sellers of art to verify the identity of buyers and their source of funds, the action by Companies House requiring the collection and retention of corporate director identity data, several prosecutions under the Export Control Reform Act, a request from the Canadian Bankers Association to reduce the number of STRs required to be filed, and several other items impacting the financial crime prevention community.

UK Transparency in Art and Corporate Directors, STRs in Canada, and Sanctions Evasion - Transcript

Elliot Berman: Good morning, John. Good to talk to you today.

John Byrne: You too, Elliot. We'd be remiss if we didn't have a couple quick comments about the U. S. elections. We'll let the experts opine on why and how, but here's the thing for our community to think about. And that is the continuation of Russian sanctions, the issue of the Corporate Transparency Act, because as people may remember in the Project 2025 document, it does call for the elimination of CTA.

Those of us that wanted to see regulations finalized for the antiquities community and created for the art community, I think that's a long shot going forward. So I think, we're going to have some challenges for those of us that deal in the proactive side of investigations and compliance regarding the AML CTF sanctions field.

So it'll be something to watch. We obviously don't know yet the chairs of the various committees in the House and Senate, but it's also eminently clear to me that things will be not simply different, but may modify some of the infrastructure changes to the AML system that we were anticipating. So it's something to watch carefully.

I know we're going to talk about this later, but I'll just mention it right now. Our webinar in November is about the activities of FinCEN in 2024. We obviously are still on track to have that webinar. But we'll watch carefully in the next couple of weeks if there's any early indication, that there'll be changes. But I think the sanction space is an area to watch because all of us in the AML community have to be responsible for sanctions reporting, sanctions evasion, licensing, and those sorts of things. So I thought it was important to mention all that. And again, I'll just leave to other quote, so called experts to describe what actually happened this week in the US electoral system.

Elliot Berman: And we will cover whatever happens in the regulatory system, both on the AML side and to the extent that there are broader themes weekly. So keep tuning in and we'll keep updating you.

John Byrne: Since I did mention the art industry, there was an article in Politico that we were gonna mention, so I'll mention it. The title of the article is Britain's Art Loving Elite Fumes at Money Laundering Crackdown. They talk about how the laws in the UK make it, quote, difficult for those that buy and sell art pieces. And so there's a lengthy article in there. As they say, lamenting Britain's new AML art rules at least as of the writing of the article, London's art market is the third largest in the world just behind China, which mostly relies on Hong Kong. But they believe, quote, experts believe that the laundering regulations now will impact that. So an interesting article suggesting that actually stating, not just suggesting, that the art world should not have any obligations to note the source of funds for the purchasing of art and the movement of art and that sort of thing.

So I thought that was an interesting article. Again, it was in Politico and so I wanted to highlight that and then just quickly related to that related more so to importing and exporting. The FBI announced that a New Jersey resident has pled guilty to helping Russia's defense sector evade U. S. export controls. And so that was a conspiracy to commit bank fraud and to defraud the U. S. for this person's role in what they're calling transnational procurement and money laundering network that sought to acquire sensitive dual use electronics for Russian military and intelligence services.

Elliot Berman: And let me comment on that one. That was related to violations of the Export Control Reform Act. And you and I have been talking more over the last number of months about not just the sanction side, but the export control side and the importance of paying attention to both of those.

Going back to the art conversation in the UK. The requirements on art dealers and other sellers is to obtain proof and verification of identity and source of funds of the people who buy art and it applies to anybody who's selling art priced more than 10,000 pounds. So there's a lot of art out there for, that price and higher. That's a big market. And we've certainly talked in the past about the use of art to hide or move illicit funds.

The other thing that's happening in the UK, they're having a transparency moment. The Companies House, which is the agency through which in the UK you create companies, is tightening its rules on the identity of corporate directors. People who want to start them use registered corporate services companies to do that work.

We have corporate service companies in the US too. But those agencies are now going to be required to do background checks, retain records of identity verification documents of corporate directors, which have not been as actively enforced and now they are going to be. So the whole shell company, who's really the beneficial owner, that whole challenge that we face globally, the UK is taking on pretty squarely.

John Byrne: Yeah. Interesting infrastructure there. Going back to a couple of things regarding sanctions evasion and violations of export control rules. A couple of other stories I wanted to mention. One is a Virginia company has senior executives were charged with exporting U. S. technology to Russia. Interesting to see how this happens going forward. But a freight consolidation company, Virginia two of their top executives were charged with illegally exporting U. S. technology worth millions of dollars to Russia. This was done in the Eastern District of Virginia, and these were conspiracy charges In violation of the Export Control Reform Act so the two individuals are named there.

And then related to that was a separate one that we didn't mention earlier in our pre call. The Atlantic Council, and this was this was covered in Illicit Edge the daily newsletter that we've referenced before. The Atlantic Council said, this is the headline, to counter the access of evasion, their terms, the U. S. must tackle third country procurement networks. And so what the Atlantic Council, this is their geoeconomic center.

They've reported on Russia's widespread use of third countries to evade sanctions. We've talked about that before, by the way, evade sanctions, procure military equipment and technology. In March, for example, one of the writers, Atlantic Council, drew attention to the financial connections and methods that Russia and what they're calling the axis of evasion, leverage to move and use funds outside the U. S. financial system.

The article calls for some series of recommendations, including that the U. S. should encourage the group of G7 partners to take similar actions that the U. S. has taken to use their economic statecraft tools to target the procurement networks. Interesting article, as I mentioned, in the Atlantic Council, a well respected organization that deals, with a series of global issues. And this is in their publication on November 5th.

Elliot Berman: Last week, John, we talked about a number of things coming out of the FATF plenary, and one of them that we mentioned as on their future agenda was a public consultation on inclusion, and I know that before we started recording, we were talking about some of the details about that. Do you want to share that with the audience?

John Byrne: Yes, so the document is out now. The public consultation document that FATF does publish from time to time. It's like an advanced notice of proposed rulemaking in the US, if you will. And FATF is considering revisions to several FATF recommendations. They want to do that to better promote financial inclusion.

So some of the revisions in the document include Recommendation 1 in its interpretive note corresponding changes to Recommendation 10 and 15, and related, actually glossary definitions. And according to FATF, this is designed to better promote financial inclusion by increasing the focus on proportionality, simplified measures and the risk based approach, and to give countries, supervisors, and FIs greater confidence and assurance when implementing these simplified measures.

So they're welcoming views on everything, but a couple of specifics. They're considering the replacement of the term, quote, commensurate, unquote, with, quote, proportionate, unquote, in Recommendation 1. And that would be done in order to clarify how these concepts should be applied in the context of a risk based approach that they hope would set clearer expectations with regard to simplified measures and align FATF's language more closely with that financial inclusion stakeholders and frameworks are used to.

Also, they say that they're considering amendments to require supervisors, so agencies and such, to quote, review and take into account the risk mitigation, measures undertaken by financial institutions, to avoid what they're calling over compliance that result from an only partial understanding of the risks and also to consider, again, proportionality in the engagements with them, and they welcome views on the potential impact of these changes.

Comments are due by December the 6th, and the specific way and procedure in which you are to file comments is on their website. And again, this is the public consultation on AML, CFT, and financial inclusion.

Elliot Berman: Another thing we saw was a report that the Canadian Bankers Association is urging Canadian regulators to reduce the number and burden of filing STRs, Suspicious Transaction Reports, and to narrow the focus from, and these are my words, anything suspicious to outlying suspicious activity. They made the point in their public statements that, Canadian financial institutions file 12 and a half times as many STRs as SARs are filed in the United States. So I, being a tiny math nerd I went and looked up the number of SARs filed in the U. S. in 2023. And in the year in review, FinCEN reported that the number was about 4. 6 million.

So doing just the arithmetic, that means that Canadian financial institutions have filed would have filed more than 57 million. The Canadian population, number of banks, number of transactions, everything is smaller than the U. S. So that is a lot of them. This is not the first time that this request or proposal has been kicked around, and whether FINTRAC ultimately changes what should be focused on for filing remains to be seen.

But it's an interesting question that you and I have talked about for many years the balance between the value of reporting and the burden of reporting. And that's not a uniquely US conversation.

John Byrne: So that was it on my end. I'll mention quickly the webinar that I referenced up front, and that'll be on November 19th at 1 o'clock Eastern Time. This is what has FinCEN done in 2024, so it is a review of the activities, and if anything changes between now and then, as I mentioned, we will cover. that situation as well. Obviously, there's been guidance, there's been regulations, there's been communication. So we'll cover all of that with a really stellar panel who includes Rick Small, Dan Stepano, and Megan Hodge, and I will be the host of that program.

So that's coming up. You can register for that on our website.

Elliot Berman: John try to have a good week. I'm gonna see you in person next week. We're both gonna be in Cleveland, so we'll be in the same room when we record, which we aren't usually. And try to have a good week.

John Byrne: It won't be a good week, but we will muscle our way through and keep our heads up and Just remember there's in the U. S. every two years there's additional opportunities for change. So we'll see what happens.

Elliot Berman: Bye bye, John.

John Byrne: See ya.