US Treasury, CFIUS, New Guidelines in the EU, and International Fraud Awareness Week

This week, John and Elliot discuss actions by the US Treasury against Hamas and fentanyl traffickers, new regulationsfrom CFIUS to enhance enforcement of limitations on foreign investment in the US to protect national security, new guidelines from the European Banking Authority to streamline and standardize AML rules, observance of International Fraud Awareness Week, and several other items impacting the financial crime prevention community.

US Treasury, CFIUS, New Guidelines in the EU, and International Fraud Awareness Week - Transcript

Elliot Berman: Hi, John. How are you today?

John Byrne: Oh, good, Elliot. We just finished a successful webinar with Dan Stepano, Megan Hodge, and Rick Small on FinCEN activities in 2024 that hopefully was well received. And we'll send the recordings and other snippets around going forward. So happy we were able to do that, but more importantly, happy we got those three folks together. Always helpful. We always learn a lot from each of them.

Elliot Berman: Yes the target for the recorded version of that being available on our website is Tuesday the 26th.

John Byrne: Yeah, your pre-Thanksgiving webinar.

Elliot Berman: Play it in the kitchen while you're baking pie.

John Byrne: There you go. Alright, so a bunch of stuff. I know we're gonna jump around a bit and something we just talked about before we recorded our good friend Les Joseph, former Wells Fargo ahead of the FIU, long time DOJ lawyer, has written a guest blog on the website BioCatch, an organization that you can read about what they are and their products and all that.

It's called Building a Modern Information Sharing Model to Fight Financial Crime. It's a short piece, but very succinct. He talks about the information sharing challenges in 314(a), 314(b), and also his recommendations going forward. And he actually points to what they're doing in the UK that I know we've talked about before.

The Joint Money Laundering Intelligence Task Force created a partnership between law enforcement and the financial sector so that they can exchange and analyze information. And he said if they can do it there, we can certainly do it in the States. As he says, the impediments that are currently exist with SAR requirements and 314(a) and (b) can be overcome. But as he said, it's just a matter of time. of political will.

Good piece by Les. I know there's some other projects out there addressing 314(a), which I thought we would see by now, but they have not been released, but this is an interesting take, but also an important take from somebody who utilized information from other institutions, but also worked closely with the government.

Elliot Berman: Another thing that we saw was Treasury issued some final regulations under the Committee on Foreign Investment in the United States. So that's CFIUS. That group is made up of a number of key governmental agencies and the Treasury is the chair of that group.

And what they've done is issued some additional regulations to sharpen and enhance their procedures and enforcement authorities to protect national security. And as the name of the group would tell you it's about limiting investment in the United States by foreign actors who are viewed as a threat to national security or where the specific investment would be a potential threat to national security.

Important stuff and I urge people to take a quick look at that. You can find the rule at the group's website, which is www.cfius. gov. If you put it into a search engine, you'll find it as well. Or if you get the Treasury Department news alerts, you can find it there.

John Byrne: Treasury's done a couple of other things, too. Today they announced the targeting of fentanyl traffickers from Mexico, so nine Mexican nationals involved in fentanyl, heroin, and other deadly drug trafficking and money laundering. So that designation obviously done through OFAC.

They also targeted some key Hamas leaders and financiers, in a separate announcement on the same day. This is again through OFAC, six senior Hamas officials, including the terror group's representative abroad, And as the acting undersecretary Bradley Smith says, Hamas continues to rely on key officials, who seemingly maintain legitimate public facing roles within the group, yet facilitate their terrorist activities and coordinate the transfer of money and goods into Gaza. So that's also something.

And then the last thing I'll mention regarding the Treasury and OFAC. An interesting, because it hasn't been done in a couple of years, our good friend Sarah Beth mentioned it last time, I think was 2020. This is an enforcement action against one individual. Like I said, it has not happened in a bit.

This is a $1.1 million penalty and this individual violated the Iranian transactions and sanctions regulations. It's a five page announcement, but they go into the specifics of how this person did this by using real estate, MSBs that had been working with other currency exchangers trying to fund a hotel project.

And then they talk about how they calculate the penalties, which we've talked about before, but it's always worth mentioning. What are the aggravating factors? Didn't fully cooperate with the investigation. The scheme invested at least a half a million dollars in Iran and provided liquidity to two blocked government owned Iranian financial institutions and at all times had actual knowledge of the violative conduct in which they were engaged.

It's a good training tool because it describes in detail how this occurred, but also what goes into the factors if there's a penalty discovered by OFAC. How do they manage that? And that's always useful. It's always a good thing for training and also in it they do give you links back to their framework for OFAC compliance commitments and that sort of thing.

So again, this was also released today and it's a $1.1 million penalty.

Elliot Berman: The European Banking Authority has issued some new guidelines. And as we've talked about before on previous episodes there's a lot of activity going on in the EU to harmonize the anti money laundering and anti fraud regimes across the member states.

And so this is a new set of guidelines that support that effort. And the focus here in part is to make sure that a company for example, that operates in multiple countries in the EU is operating under the same set of rules regardless of which location you're focusing on. A lot of detail here, but recommend that for those of you who do work or have clients or operations in the EU, that you take a look at this.

There are sections that relate to, as I mentioned companies operating in multiple places. There is a section on crypto asset service providers and payment service providers again with this harmonization process. Another meaningful step in that multi-year process of bringing all of the EU stuff into the new regime.

John Byrne: You also saw a Federal Reserve penalty against a small bank in Kansas, I believe.

Elliot Berman: Yes, Small Business Bank in a small town in Kansas that's actually the name of it, Small Business Bank. A pretty small bank, as of their June 30 financials, a $94 million asset bank, which in today's market is itty bitty. They're a member of the Fed. So this is really a cease and desist order from the Kansas City Federal Reserve Bank. This was a total system failure poor transaction monitoring, poor onboarding, poor CIP, poor risk assessment or understanding of their high risk clients and as you and I were talking briefly about it, for a bank this size, the lift to respond to an order like this is monumental. A bank this size, they maybe have three people whose part of their job is, running an AML or financial crime prevention program.

What I take away from this is we've seen some very significant penalties and orders for very large institutions, but medium sized and even the smallest institutions need to continue to do the basic blocking and tackling on an effective basis because A, it's important to the integrity of the financial system, and B, the regulators are in fact paying attention.

John Byrne: Totally makes sense. Also, this week is International Fraud Awareness Week, and we know, we've talked many times about how extensive fraud is. The IRS put out a short Press release on this, but also listed a number of red flags and tax scams and various tax scams include things we've talked about before, charity impersonators, disaster fraud, COVID 19, obviously issues there, seniors get targeted, so elder abuse. Social media, bad tax advice and scams and W-2 form frauds, all sorts of things.

So they wanted to highlight that and gave you some recommendations on where you can report these these frauds to IRS. But obviously in some cases, some of these frauds, you will report on a suspicious activity report. But the bottom line is it's just another indication of the massive problem of fraud within the US and internationally. And related to that, after we recorded last week, FinCEN issued an alert on fraud schemes that they say involve deep fake media targeting financial institutions. So the use of generative artificial intelligence.

And so the alert talks about and lists typologies that are associated with these schemes. Again, red flags. FinCEN has observed an increase in SAR reporting by FIs that describe the suspected use of deepfake media. Particularly what they call fraudulent identity documents that are designed to circumvent identity verification and authentication.

So that is one of the major issues that ended up resulting in FinCEN making sure that one of the priorities is cybercrime and fraud in the AML CFT national priorities.

Elliot Berman: Yes. And as you mentioned, and as we've talked about many times, fraud is a borderless crime. While the target of the fraud may be here in the US or in another country it's not all that often that the fraudster is actually in the same geography. Governments are spending more and more of their sharing effort in sharing topologies and working together on multi-country task forces because of the international nature of what's going on.

John Byrne: I don't have it in front of me so I apologize, but we did also mention this during the webinar. There was a major investigative piece by the Washington Post, I believe it was Sunday and You can just look up Nigerian money laundering Virginia mansion. So it was talking about How these properties were being purchased by laundered funds, but the key part besides that, because obviously that happens in many parts of the country and the world using real estate to hide and move illicit funds, but it again talks about the need for stringent real estate related regulations, and while we do have a rule, it's not covering everything.

So a good piece. Lengthy investigation. Some of the folks that you know in the AML community quoted in the article. So again, that was a front page piece by the Washington Post. I'm sure you can simply Google Virginia Mansion, WAPO, Nigerian money laundering. And it's worth your time.

Elliot Berman: A long and complicated story of how the person and the money moved.

John Byrne: Exactly.

Elliot Berman: So a couple things in crypto related space. One is the operator of Helix darknet, cryptocurrency mixer, in a money laundering conspiracy case by the Justice Department was sentenced by the judge, and was ordered to forfeit over $400 million in assets.

This was a person in Ohio who operated the mixer Helix and processed transactions involving over $300 million worth of crypto from 2014 to 2017. This was done in part in cooperation with the General Ministry of Belize and the Belize Police Department. Because some of the activity was happening offshore. So that was pretty big one.

And then the other thing is a computer expert who was arrested back in February of 2022. He stole Bitcoin worth billions of dollars at current prices and then spent years laundering some of the hacked cryptocurrency with the help of his wife. He was sentenced to five years and his wife got a year and a half. It was a complicated scheme involving moving the the stolen Bitcoin around from platform to platform to hide its sourcing, and then slowly converting it to fiat and in some cases, actually smuggling the fiat currency from one country to another.

This person Ilya Lichtenstein according to the article did express remorse during the sentencing, saying that he's sorry that he used his computer talents for ill rather than for good. When he gets out of jail in a couple years, because he got credit for the time he's been in jail. Maybe someone will write about it if he does something really nice.

John Byrne: Maybe.

Elliot Berman: Maybe. What else you got, John?

John Byrne: That's it on my end. I'm efforting right after Thanksgiving to have a conversation with a former government official that's working in the art money laundering space. So we're going to have that conversation in a couple of weeks. And I am reaching out to others.

Our game plan is to try to have a piece, maybe even a written piece about everything that has happened in 2024. And then to get us all prepared for 2025, which is going to be an interesting time to say the least.

Elliot Berman: Yes. Our last webinar of 2024 will be December 19th, and it's going to be on trends and best practices in AML compliance programs. I've got a great panel lined up and so you can register for that now at our website. And John we would be remiss now that it's November, if we didn't do 30 seconds on Marquette basketball.

So what's up for you with Marquette basketball?

John Byrne: I was at the Maryland game, which we eked out. It was a fun event on Maryland's campus. Maryland's a good team. So that was a nice win. And actually my wife and I were going to the Bahamas, cause life is so tough I know, and Marquette's playing Georgia on Saturday. So we are treating ourselves to that because 45 years ago, that's where we had our honeymoon. So we're celebrating both that and another Marquette game in they're, last time I checked a couple of the different rankings, 15th in one, 13th in the CBS 25 in one. So they're doing well, which is great.

Elliot Berman: Yep. They're an interesting team this year and it'll be fun for you and I to watch them and and hopefully our audience will tolerate 30 or 45 seconds a week about what's happening with the team. So you and Sue have a great and safe trip and a good Thanksgiving, and I will talk to you when you get back.

John Byrne: Happy Thanksgiving to you and to everybody else. Be safe out there, everybody.

Elliot Berman: You too, John. Bye bye.