The Sordid Details

Okay, let’s set the stage. It all reportedly started when Buzzfeed, and ICJ disclosing the confidential reports files to the Financial Crimes Enforcement Network (FinCEN) by compliance professionals within the US between 2000 and 2017. By way of explanation, FinCEN is a branch within the US Treasury Department which is tasked with investigating and combating money laundering, terrorist financing and proliferation financing and any other types of financial crimes. 

Keeping in mind that the U.S. is a global financial centre, trillions of dollars and millions of transactions occur within this space. Not surprisingly, some of those transactions were flagged within banks and other financial institutions as potentially linked to financial crimes. These reports are called suspicious activity reports (SARs). When these reports are submitted, they alert that something nefarious may be occurring and the supporting explanation surrounding the activity.

And what level of criminality occurring it was. The ICJ and others were able to link money launderers, terrorists and other organized crime links such as drug pins, oligarchs with imposed sanctions to those SARs. The total amount of money linked to those STRs is approximately 2 trillion. And that 2 trillion is only a small fraction of the overall SARs received by investigative journalists. The real number may just be too staggering to consider. 

“What we sometimes called ‘the dark economy’ these rivers coursing through the US economy- that dark economy is so big that in a very real sense, the dark economy is the legitimate economy.” -Journalist from Buzzfeed News

What FinCEN leaks has exposed is that compliance officers are reporting and fulfilling their legal and regulatory obligations. Whether they should have been closing down these accounts is debatable. But what it has also revealed is the government authorities seem to be doing little if nothing about it. What is fascinating is the journalists were able to investigate just a small amount of the financial data from these reports to link them to those nefarious individuals and entities.

Takeaways

Pot calling the Kettle

UK seems to be the biggest culprits with massive amounts of money in the millions and implicating 3,000 companies. Other European countries and the US present very similar findings. It is interesting that Caribbean countries such as Barbados, Jamaica and Bahamas are seen as such high-risk jurisdictions in comparison to these ‘developed’ nations but the FinCEN provides glaring and undeniable proof that the actual benefactors of financial crime in happening within countries not so charged.

More support needed for regulators

The highlighted issue is that for the massive amounts of data the regulators are getting and given the paltry resources they have been allocated- they are woefully under-resourced. It’s like trying to empty the ocean with a bucket. Governments the world over have to be willing to fight financial crime with what is needed to win over it- finances- to get the job done.

Banks- are they doing enough to fight Financial Crime?

Let’s put this caveat- as damning as these new reports seem to be for many banks such a Deutche Bank, Barclays, HSBC and JP Morgan and the like- banks only see a small part of the overall transaction that is occurring. Money laundering happens in complex stages and compliance officers and other banking professionals only see one part. One could argue that the whole point of SARs is that they are based on suspicion and as such, bank must look at the suspected risk versus the loss of business. Unfortunately, it seems money is trumping protecting the financial system is larger degrees than a reasonable person would expect.

The information is out for all sundry and the verdict is damning. Banks are reporting but carrying on with providing their services to suspected criminals. Authorities don’t have the resources to bring any real amount of these underlying criminals to justice. We may have been thinking we had made great strides in the fight against financial crime in the last few decades, but this scandal has revealed the truth.

We haven’t even scratched the surface. 

Criminals are laughing at our efforts…all the way to the bank.