U.S. Treasury Seeking AML, Sanctions Reform Under Biden
Janet Yellen – the former chair of the United States Federal Reserve – has officially taken her new post as the 78th secretary of the Treasury under the Biden Administration. Yellen, who broke ground as the first female to hold the role of chair of the Federal Reserve, has already gained the respect of many across the banking sector, receiving glowing endorsements from many major financial executives in recent weeks. David Schwartz, president and CEO of the Florida International Bankers Association has stated that Yellen is “an experienced, even-handed, pragmatic person who understands the big picture. She did a fantastic job at the Fed, and that experience will be extremely helpful to her now”, while Rob Nichols, president and CEO of the American Bankers Association notes that she “brings a wealth of experience in economics, regulation, and crisis management from her time at the Federal Reserve that will benefit the Treasury Department at this challenging time for the nation.”4
Despite her formidable résumé, Yellen has a difficult path ahead in serving a nation still reeling from the ongoing coronavirus pandemic and facing contentious relations with major players in the global economy. Besides having to sway the U.S. Congress to pass newly-elected President Biden’s $1.9 trillion COVID-19 stimulus bill, she has also been tasked with revamping the U.S. Bank Secrecy Act’s anti-money laundering (AML) priorities in general. What will be particularly refreshing under the newly-appointed Treasury secretary however will be a renewed interest in examining the effects of climate change on the U.S. economy – a stance far different from that of her predecessor, Steven Mnuchin. Yellen, testifying at her Senate confirmation hearing earlier this month, stated that she supports a high carbon tax and will look to appoint senior-level personnel for roles specifically dealing with climate change. On the surface, one might not recognize any direct relationship between climate change theory and the banking sector. However, Yellen has gone on record to state her belief that climate change is an existential threat to many aspects of society in the 21st century, and noted that “both the impact of climate change itself and policies to address it could have major impacts, creating stranded assets, generating large changes in asset prices, credit risks, and so forth that could affect the financial system.”2
With respect to AML reform under the BSA, Yellen has lauded the efforts of Congress to pass the heralded National Defense Authorization Act (NDAA). Under the NDAA, the Corporate Transparency Act will require American companies to report their ultimate beneficial ownership information into a database that will be maintained by the Treasury’s Financial Crimes Enforcement Network (FinCEN) after incorporation. An enhanced BSA whistleblower program will also be enacted under the Act that will provide financial compensation to individuals reporting information on BSA violations that lead to prosecutions/monetary penalties exceeding a $1 million threshold, bringing the current program closer in line with the Securities and Exchange Commission’s (SEC) respective initiative. Altogether, Yellen and many others believe this law will ease the burden on banks with regard to reporting their customers’ beneficial owners, while also stepping up national efforts to thwart money laundering and terrorist financing activities.
Surely compliance officers and executives of large and small banks across the United States are rejoicing over the fact that the amount of work, time, and subsequent costs associated with this process will likely be reduced exponentially over the coming years. Yellen has expressed the urge to implement the AML provision of the NDAA as quickly as possible so that efforts can turn to building the aforementioned database without cutting any corners. Reports have also indicated that the Treasury Department will spend the greater part of 2021 studying the rules regarding suspicious activity reports (SARs) filed by banks and financial institutions as part of the AML provisions contained in the BSA.4 The goal of reducing the total number of SARs filed by financial institutions on an annual basis is a top priority for the Treasury moving forward, while also improving the relevance of the information found in said reports and enhancing data-sharing practices to actively assist law enforcement in bringing about prosecutions over identified illicit activity.
With regards to foreign relations and international sanctions, the Treasury under Yellen (acting under the Office of Foreign Assets Control) is expected to pursue the tightening of sanctions against Russia in the immediate future, while also considering the reversal of some of President Trump’s sanctions against Iran. While Yellen has also stated that the U.S. should hold China accountable for its technology theft and human rights abuses, it remains to be seen if any action will be taken against the world power under Biden. Many are also awaiting the revelation of American foreign policy initiatives in Cuba and Venezuela, especially when considering the plethora of actions taken by the Trump administration to restrict economic assistance to these countries over the past four years.
Weekly Roundup
British Defense Firm Reports on UK Fraud “Epidemic”
The Royal United Services Institute (RUSI) – a prominent British defense and securities think tank – recently released a groundbreaking report on the impact of widespread fraud on national security in the United Kingdom. Various forms of financial fraud, ranging from credit card fraud, identity theft and cyber-fraud among others have steadily increased across the European Union in recent years, due in large part to the growing use of technology in the daily life of the average citizen. While RUSI notes that this problem is not at all limited to the UK, the group notes that regional affluence coupled with “a highly globalised financial sector and a ready pool of professional service providers, who wittingly or unwittingly enable fraud to be perpetrated at speed and scale” have allowed this activity to proliferate at an exponential rate. For perspective, fraud schemes are estimated to collectively cost UK entities as much as £190 billion annually (roughly 10% of UK Gross Domestic Product). Of this total, a 2017 estimate put the cost of fraud to businesses operating within the private sector to approximately £140 billion, while public sector fraud (such as benefit, tax credit and student loan fraud) is estimated to cost between £30-£50 billion per year.1 Making matters all the more troubling is the fact that the RUSI report was able to tie terrorist organizations and organized crime groups to fraudulent activities for purposing of fundraising for their destabilizing efforts, which is a direct threat to UK national security as a whole.
The report seeks to shed light on this growing problem, one that lacks a single unified governmental strategy to bring about legitimate change/reduce the prevalence of this activity moving forward. As matters currently stand, the response to the fraud epidemic is “fragmented across different government departments and law enforcement and criminal justice agencies”, with the lack of prioritization of the problem making the country a “low-risk/high-reward jurisdiction for fraudsters.”6 Altogether the group has lobbied for the UK government to officially classify fraud as a national security dilemma to improve the resources/information sharing and overall prioritization of the issue while also calling for improved intelligence direction from the country’s primary national defense agency, the National Security Council (NSC). Time will tell if the UK government chooses to implement any changes in oversight to better mitigate this activity, but it is evident that the need for a shift in governance is needed – and fast.
$810 Hong Kong Money Laundering Scandal Exposed in Hong Kong
Seven current and former members of multiple undisclosed banks in Hong Kong have been arrested for their alleged involvement in laundering as much as HK$6.3 billion ($810 million USD) over a four year span. Recent reports have indicated that five men and two women, whose identities remain concealed at this point in time, were arrested as part of a major crackdown in the Asian financial sector on international money laundering activity. Bloomberg writes that regional investigations revealed that the “suspects helped 16 people employed by an international syndicate to launder money through 14 company accounts at local banks.”5 While additional details about the definitive scope of the scandal have yet to be revealed, the superintendent of Hong Kong’s commercial crime bureau notes that this is the largest case of financial crime busted in the region in recent years. The individuals in question can face up to a 14-year prison sentence and a fine of up to $5 million if found guilty of having significant involvement in these crimes.
Former Vatican Head Jailed on Embezzlement, Money Laundering
Angelo Caloia, the former president of the Vatican bank, was convicted last week on charges of embezzlement and money laundering and sentenced to nearly nine years in prison, the long-winding culmination of a trial that began in 2018. An Italian father-and-son lawyer pair by the names of Gabriele and Lamberto Liuzzo were also charged in a case that alleged that the three individuals (the latter of which were acting as consultants for the bank) collectively schemed to embezzle tens of millions of euros while handling the sale of notable Italian real estate managed by the state-owned firm between 2001 and 2008.3 The elder Liuzzo received a sentence equal to that of Liuzzo, officially 8 years and 11 months, while his son received a five year and two month term.
Caloia – who headed the Institute of Works of Religion from 1989 to 2009 – becomes the highest-ranking Vatican official to be convicted of a financial crime, again casting a spotlight on the rampant financial misconduct that has plagued the Holy See’s sovereign city-state. Each of the men will reportedly be forced to pay large-scale fines and will face an indefinite ban from public office upon their ultimate release.
Citations
- Corera, Gordon. “Fraud Epidemic ‘Is Now National Security Threat’.” BBC News, BBC, 25 Jan. 2021.
- Ellerbeck, Alexandra. “Analysis | The Energy 202: Advocates Want Biden to Use Trade Deals to Combat Climate Change.” The Washington Post, WP Company, 20 Jan. 2021.
- “Former Head of Vatican Bank Sentenced to Jail for Embezzlement.” The Guardian, Guardian News and Media, 21 Jan. 2021.
- Nicodemus, Aaron. “Treasury under Yellen to Prioritize Climate Change, Sanctions, AML Reform.” Compliance Week, 26 Jan. 2021.
- Wee, Denise, and Alfred Liu. “Hong Kong Nabs Bank Staff in $810 Million Money Laundering Case.” Bloomberg.com, Bloomberg, 20 Jan. 2021.
- Wood, Helena, et al. The Silent Threat: The Impact of Fraud on UK National Security. The Royal United Services Institute (RUSI), 26 Jan. 2021.