UNODC Report, Crypto & Disinformation, Starling Bank, and Hamas Sanctions

This week, John and Elliot discuss a new report from the UN Office of Drugs and Crime on Transnational Organized Crime and the Convergence of Cyber-Enabled Fraud, Underground Banking, and Technological Innovation: A Shifting Threat Landscape, an article on the use of cryptocurrencies in election disinformation, FCA’s recent fining of Starling Bank over its failure to have an adequate financial crime prevention program, the latest US sanctions of Hamas and several other items impacting the financial crime prevention community.

UNODC Report, Crypto & Disinformation, Starling Bank, and Hamas Sanctions - Transcript

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

John Byrne: I'm good, Elliot. We're doing some nice weather here, and I'm very excited about joining you and your daughter for what I would call a bucket list trip to Lambeau to see the Packers on Sunday. I'm excited about that and happy it's October and not December.

Elliot Berman: Yes I've been at Lambeau both months and others and October tends to be a perfect month to be there. So we're looking forward to that too.

John Byrne: That's great. Quite a bit going on. In fact, we are pushing off a couple of issues we were going to talk about for next week because there's just so much happening for some, for obvious reasons, being in election year and all of that, but also internationally a lot going on.

So the first thing in no particular order in terms of priority is the United Nations Office on Drugs and Crime issued a report late last week, Transnational Organized Crime and the Convergence of Cyber Enabled Fraud, Underground Banking, and Technological Innovation in Southeast Asia, the conclusion being a shifting threat landscape.

So because it's Cybersecurity Awareness Month, I thought we would highlight this report, as I mentioned, just issued. And there's a series of elements in the report take a look at it. The report is almost a hundred and fifty pages, but just some highlights from the executive summary. They talk about the convergence of cyber enabled fraud, as we mentioned, that the region's witnessing this convergence, shifting advancements in physical, technological, and digital services. Infrastructure have allowed organized crime networks to expand those operations. They happen in casinos and hotels and that sort of thing.

In addition, what they're calling the professionalization and consolidation of a criminal service economy, and in part, the inflow of capital and expansion of markets. has led to that. So that's also mentioned. Expansion of regional underground banking, the rise of cryptocurrency misuse, and high risk virtual asset service providers is also a highlight.

They talk about, which I think is actually pretty valuable to AML professionals, they remind us about how gambling based money laundering occurs through the three well known steps of placement, layering, and integration, and some other items. But in any event, this report just issued, Transnational Organized Crime and Convergence of Cyber Enabled Fraud from the UN Office on Drugs and Crime.

Elliot Berman: A very interesting report, as you've noted. I thought one of the things that struck me is if you'll recall earlier this year, we did a webinar and it related to the use of crypto in terrorist financing. And at that time our two experts their general conclusions and I want to paraphrase and not put words in their mouths was that they were not seeing a huge uptick in the use of cryptocurrencies by terrorist organizations. However, here UNODC is noting a major pickup in the use of crypto through scams and other things.

So I think it's important for us to keep those two different lenses in perspective. There's a lot of negative activity going on using crypto or involving crypto. And we all need to pay attention to it. I commend at least the executive summary of the long report to everybody's quick review.

John Byrne: Yeah, since we're mentioning crypto, another report that we want to highlight is from our friends at TRM Labs and particularly Ari Redbord, who highlighted this on his LinkedIn page. This is from their Insights, publication, and it's entitled The Crypto Election: Crypto, Disinformation, and Presidential Politics.

And they talk about cryptocurrency becoming a central issue. They mentioned the apparent support from Trump and whether or not the Harris administration, if there's a Harris administration, what they would think about this. But the bottom line is they're talking about election interference and disinformation risks based on the use of crypto. And Ari is quoted in the story this way. He says, all six high profile election interference cases since 2016 have involved the use of cryptocurrency. And this underscores a move by illicit actors, he continues, particularly those with connections to Russia who are looking to new technology to raise and move funds.

And those cases that are highlighted include Russian Internet Research Agency, Project Lakhta from the 2018 U.S. midterm elections, South Front, which was a 2021 disinformation campaign, Task Force Russia from the Russia Ukraine conflict, Doppelganger Campaign from this year, and Russia Today Global Disinformation Network.

TRM Labs has put that out there and talks in detail about the use of cryptocurrency in these disinformation campaigns.

Elliot Berman: Yes if you're thinking about casting your vote in just a few short weeks this was a disturbing, not news but still a disturbing thing to read.

John Byrne: No, clearly not, sadly not disturbing at all. And let me add one more disturbing thing before I ask you to talk about the the Starling Bank fine in a second. But another announcement from the Justice Department and a series of other agencies, white supremacist gang members in San Fernando Valley facing federal charges. 70 people who belong to or are associated with a white supremacist gang in San Fernando Valley were indicted on federal charges late last week, and it's the largest multi agency operation in L.A. ever of a takedown of an extremist group.

The article that I'm referencing is an NBC News article, but obviously you can go to the DOJ website. Some of the comments from law enforcement are that by allegedly engaging in everything from drug trafficking, to firearms offenses, to identity theft, to COVID fraud, and through their alliance with a neo Nazi prison gang, they are clearly a destructive force, US attorney Martin Estrada said. 68 defendants are facing numerous charges, including under the RICO statutes. And LAPD officers, as well as FBI and DEA agents, served nearly 30 arrest warrants. White supremacy obviously still a major challenge for law enforcement in the country. And this is both a note noteworthy case, but also sadly tells you the scope of the problem which exists nationally.

Elliot Berman: Yeah. You mentioned Starling Bank. Starling Bank is what's known in the UK as a challenger bank, they're online banks that have been formed with an eye toward providing financial services in a disruptive way to traditional banks. Starling was fined by the Financial Conduct Authority, FCA in the UK just about 29 million pounds for its financial crime failings related to its financial sanctions screenings and other things. In the US that'd about $37 million dollars. So meaningful fine.

They had their financial crime controls reviewed in 2021 as part of an FCA effort across all of the challenger banks. And at the time, there were identified some serious concerns about its anti money laundering and sanctions framework. The bank agreed, as banks regularly do, to requirements restricting it from opening new accounts, in this case, for high risk customers until they had improved that framework.

FCA found that they failed to comply and opened 54,000 accounts for 49,000 high risk customers between September of 2021 and November of 2023 when they were back in taking a look. Starling discovered in early 2023 that its automated screening system had only been screening customers against a fraction of the total sanctions list.

So they were being ineffective there. Lots to be done here. There were some comments by the FCA in the order about the failure of senior management and the board to provide adequate oversight. And I read commentary by a different commentator, not someone from FCA, about the fact that this is an alarm bell for directors at banks in the UK, and particularly these challenger banks, about the importance of their oversight responsibilities. Can't really say it's something we haven't seen in the US. We see all kinds of challenges, but interesting that this was happening at one of these new style banks and how pervasive it was and really how quickly it happened because it's all happened in the last three, four years.

John Byrne: Also this week is obviously one year since the brutal terrorist attacks by Hamas and the Treasury Department on the 7th of October announced that OFAC had designated three individuals and what they're calling a sham charity that were international financial supporters of Hamas and one Hamas controlled financial institution in Gaza.

According to the description, these actors played a critical role in external fundraising, often under the guise of charitable work that finance the group's terrorist activity. And as a side note, this is why when these things happen, which are provable and factual, they do unfortunately have impact in terms of charities, in some cases through de risking concerns and all of that. But this is a clear example where the OFAC has designated these individuals and that announcement was posted on the 7th on the on the OFAC website.

So I wanted to mention that as well. The important aspect of this is not just the designation, but the fact that there was the use of these quote sham charities, which goes back to my other point, but also the importance of as an FI AML professional, doing your due diligence if you have charity accounts to make sure that they are legit, that you have the right oversight, know your customer, all those things that are important so that you can make sure that legitimate charities get banked but of course be aware of these sham charities.

Elliot Berman: And John, you had one more thing, that we saw on the Charity and Security Network website.

John Byrne: Late last week, the Charity & Security Network and a hundred other organizations that represent civil rights, human rights, press, freedom, and legal organizations sent a letter to Speaker Johnson and the House Ways and Means Committee Chair, Jason Smith, condemning what they call the recent politically motivated attempt to pressure IRS to investigate to revoke tax exempt status of 15 American, Muslim, Arab, Jewish, and progressive groups to punish their criticism of the Israeli government.

The letter is a six page letter, but it calls out the speaker for posting on social media that the Republican Party was putting you on notice that your tax exempt status should be revoked. Immediately. And a couple of items from the letter, they talk about weaponization of federal agencies, and this is a quote, this bad faith referral to the IRS is not based on any legitimate concern of criminal conduct by these organizations instead, it stems from your personal discomfort with their constitutionally protected activities.

We'll leave that for others to decide, but the bottom line is the immediate revocation of tax exempt status, which is not a thing, I will say. The IRS goes through a process there. This continues to be unfortunate. It's relevant to the AML community for reasons we've already talked about. So you can read this letter on the Charity & Security Network website or with many of the other groups that have signed on to the letter, but it was sent on October the 3rd.

Elliot Berman: John this month's webinar is the 24th, and it's about Is Fraud the New AML, and you'll be moderating that, so I know that one's going to be interesting. And I know you've got a couple of other things that you're working on. Do you want to give people a teaser on those?

John Byrne: So we had mentioned this before, but I was able to do a fireside chat with Guy Ficco at the Missouri Bankers Conference, and Missouri bankers have authorized us to post that recording, so we'll be doing that.

And Mark Freedman, who runs Rebel Global Security, has agreed, because it is Cyber Security Awareness Month, to sit down with me in the next week to look at a whole series of cyber issues, what he's calling great power competition, GPC, between the US, China, Russia, that dominate international politics. He says that nation state cyberattacks on privately owned critical infrastructure and foreign espionage steal intellectual property and other things. So we're going to sit down with Mark and talk to him. about that.

I also interviewed Doug Gilmer. Doug recently retired from the Department of Homeland Security. He now runs a private sector firm and Doug was the last role he had at DHS was in the countering of human trafficking. So we talked to him about that and some of the things and challenges that he still thinks exists and some recommendations for AML professionals. Those are a couple. We are efforting some additional Interviews, but those are coming up in the next couple weeks.

Elliot Berman: Sounds great, John. You have a good rest of the week, and I will see you this weekend.

John Byrne: Sounds good. Stay safe. Talk to you soon.

Elliot Berman: You too. Bye. Bye