ACAMS: Biden Administration Faces Challenges On AML And Cybercrime

The incoming Biden Administration has got its work cut out for it on a number of fronts. Job No. 1 is tackling a public-health crisis the likes of which have not been seen in a century. Meanwhile, the U.S. economic recovery has been uneven despite apparent agreement or near-agreement on a new round of stimulus. And now we’ve learned of cyberattacks at a number of federal agencies, allegedly by hackers tied to Russia.

We’re in a brave new world of war waged digitally by nations against the United States and other countries, where geopolitics could involve crippling adversaries’ governments through computer hacks — and stealing money to fund illicit activities.

Dr. Justine Walker, head of global sanctions and risk at The Association of Certified Anti-Money Laundering Specialists (ACAMS), told Karen Webster recently that the incoming administration might mull sanctions against Russia and other epicenters of hacking and financial crimes. But she added that uncovering what’s truly going on — following the money, as the old saying goes — and then levying out appropriate punishment to bad actors is a complex task.

As reported earlier this year, the U.S. Justice Department raised alarms that cryptocurrencies are taking shape among national-security threats the United States faces, as rogue nations increasingly embrace crypto. Cryptocurrencies can and are being used to fund cyberattacks and evade U.S. and international sanctions.

And elsewhere, as previously detailed in this space, the U.S. Securities and Exchange Commission warned in October that cyberattacks on corporations had been increasing. Financial institutions expect to spend 15 percent more in 2020 to protect their networks, according to studies.

Meanwhile, the pandemic has offered a new conduit for financial crimes. The Financial Crimes Enforcement Network (FinCEN) has said that as of Sept. 30, it had seen 91,000 suspicious-activity reports related to COVID-19.

“We’ve seen cyberattacks growing increasingly over the years,” Walker said. She added that regardless of which nation might be suspected of a given attack — say, Russia or North Korea — at a high level, “the question often is: ‘Are they operating under state instructions or are they operating as a criminal network?’”

Proving without a doubt that a cyberattack is indeed the work of a specific nation’s government means that, in Walker’s estimation, “there would be quite a robust response, particularly from a Biden administration.”

Dealing With Russia

Drilling down into how and where sanctions might be targeted, Walker said Biden is likely to take a harder line on Russia than has been seen during the Trump administration. That effort might include a broad range of sanctions, and perhaps a multilateral, transatlantic effort to coordinate punishment.

The West could levy sanctions against a number of Russian banks, but making them stick could be another matter entirely, as truncating banks’ ability to do business has ripple effects.

“The challenge [in] doing this is the interconnected nature of those banks — particularly within Europe — and what that means for the European markets,” Walker told Webster. A well-coordinated response would be necessary, she said.

Possible Sanctions Against China And Mideast Countries

Reports have said Biden might lodge other sanctions against China in January. The United States might impose sanctions on roughly a dozen Chinese officials over controversy tied to Hong Kong elections — freezing assets tied to individual accounts, for example.

Those policy moves might come even sooner if instated by the Trump administration. The U.S. State Department has already warned international financial firms doing business with those individuals that they, too, could face sanctions in the wake of human-rights concerns.

Walker said there are dozens of entities that have been identified, and those global corporations have tens of thousands of sub-entities sitting underneath them. “The impact on the financial markets could be considerable,” she said.

The Middle East also bears watching — especially Iran, and whether the Biden administration will rejoin a 2015 nuclear nonproliferation deal that the Trump administration exited, deciding to impose sanctions on Tehran instead. It remains to be seen if Biden lifts the sanctions now in place or not.

“There are so many variables in [the Iran dispute] that you can never be certain,” Walker said. “I think [there] will be a new type of deal, but it will be in some way placed under that architecture” of the original 2015 agreement.

But she noted that the U.S. sanctions framework against Iran has evolved over the years to weave in different elements and concerns, from alleged terrorism and reputed human-rights abuses. “It’s very difficult to unpack a sanctions framework and just take one element out of it,” Walker said.

And at the same time, Biden will also have to monitor and contend with human-rights issues and continued risks of destabilization in at least two other countries — Syria and Cuba, she said.

The Crypto Factor

Amid all of these geopolitical risks lies the issue of cryptos — a broad category that includes everything from bitcoin to any number of other digital offerings.

As they become more prevalent, cryptocurrencies (as distinct from digital fiat, which are being and will be issued by central banks) offer criminals a way to launder money and fund illicit activities, including terrorism.

Walker predicts that as coordinated efforts take shape between governments across the globe, “with sanctions correlation, the focus on crypto will increase.”

There are indeed positives that come with efforts to bring currencies online, chiefly tied to blockchain and the transparency that comes with direct payments and distributed ledgers. But as it stands now, there are myriad touchpoints in the crypto landscape, crypto exchanges that are still lightly regulated and payment systems being set up to skirt sanctions.

“You lose visibility within the first mile, let alone worrying about the last-mile distribution,” Walker said.

Institutions are boosting their investments in crypto, but with that increased investment comes significant risks. Walker said the differences between cryptos as a group and, say, digital fiat aren’t well understood — even among governments and sanctions authorities.

That means that any regulatory actions might lump payment mechanisms such as those on offer from PayPal and others with the crypto industry at large. Walker said one of the challenges Biden will face will be unpacking the risks that are set in these different types of payments.

It’s Hard To Fight Financial Crimes

And when it comes to financial crimes, the detection and prevention systems that are in place aren’t as sophisticated and robust as some observers might think. Unfortunately, these systems are only as good as the information fed into them. Walker said sanctions and fines are ultimately based on information provided by banks’ customers — which isn’t necessarily accurate or even updated.

The battle against financial crimes must be joined against sophisticated networks of criminals who have been plying their trades for years, and where red flags are not readily apparent.

Walker said a given financial institution often only sees one element of the financial ecosystem, whether it be a payment chain or an individual customer’s activity. And when transactions move cross-border, the situation becomes even more complex in terms of the rules governing what information a financial institution (FI) can access in one country vs. a different one.

“We have a lot more investment in the financial sector to target this criminal activity than we do [from] government,” Walker said.

But that’s a situation that might change come Jan. 20 under a new U.S. presidential administration.