One of the key revelations of the FinCEN files is that the world’s biggest banks are facilitating global money-laundering by treating suspicious transaction reports as a “permission slip”. Once the bank has reported the suspicious transaction to the financial intelligence unit, the bank simply continues dealing with the suspicious customer, believing it cannot be held liable for the criminal activity it is enabling.
The FinCEN files are a collection of documents leaked to BuzzFeed News in 2019. Buzzfeed partnered with the ICIJ and 100 news organisations from 88 countries to report the contents of the files in September 2020.
FinCEN is the US Treasury Department’s Financial Crimes Enforcement Network. It’s the US financial intelligence unit (FIU). The files consist of 22,000 leaked documents from FinCEN, including 2,100 suspicious activity reports (SARs). SARs are suspicious activity reports (also known as suspicious transaction reports) – reports filed with FinCEN by banks.
Some of the records were gathered as part of US congressional committee investigations into alleged Russian interference in the 2016 US presidential election, while others were gathered following requests to FinCEN from law enforcement agencies. As such, it represents only a tiny and specific section of FinCEN’s total files.
The files include:
- SARs pointing to more than $2 trillion in suspicious transactions.
- SARs submitted to FinCEN by 90 banks and financial institutions.
- Reports mostly dating from 2011 to 2017.
- Documents reporting more than 10,000 people and organisations spanning more than 170 countries and territories.
- SARs that name banks in 25 EU member states as the destination, transit, or origin of suspicious money.
The biggest number of SARs in the FinCEN files come from Deutsche Bank.
The already documented mirror trading scandal saw Deutsche Bank help launder $10 billion of illicit money. When the scandal broke, Deutsche blamed it on Tim Wiswell, the middle-level desk head in its Moscow office, paid some fines, and continued as usual.
The main new revelations in the FinCEN files about Deutsche Bank include:
- Deutsche managers, including top executives, had direct knowledge for years of serious failings that left the bank vulnerable to money launderers.
- Documents show that two warnings were sent to committees that included Paul Achleitner, Deutsche’s chairperson, and one that was sent to the bank’s supervisory board.
- Bank of America filed a SAR on Deutsche after its employees visited Deutsche’s London office to discuss worries about Russian money laundering and were told to leave. Bank of America said it raised the matter with Achleitner.
- Christian Sewing, now Deutsche Bank CEO, ran the audit division when one of its teams gave the Moscow office a “green” rating, despite evidence that it could not produce a list of its clients or verify who they were.
- More than 100 internal alerts were raised on the companies involved in the Russian mirror trade scandal between 2012 and 2015.
Lessons from the FinCEN files
These files are just a fraction of the suspicious activity reports (SARs) filed globally. They show a global pattern of major banks enabling organised crime and money-laundering networks to infiltrate all aspects of the economy.
The United Nations has estimated that 2.7 per cent of global GDP is laundered annually through the international financial system, based on 2009 data. Today, that amounts to $2.4 trillion. Most of it involves cross-border transfers conducted in US dollars.
Banks are treating SARs as a form of insurance, or a “permission slip”. They allow clearly criminal activity to carry on, believing that so long as they file an SAR they cannot be held responsible.
These are government documents. Financial regulators are aware of the extent of this problem but consistently fail to act. The FinCEN files show regulators come under lobbying and political pressure to ignore it.
Too often the regulatory approach is to strike “deferred prosecution agreements” with the banks, under which the bank commits to reforms and/or monitoring in exchange for ensuring no executive goes to jail.
The examples of Deutsche Bank and HSBC, which have utterly failed to tackle corruption within their institutions, show that the practice of fines by regulators is not forcing change.
Too Big to Fail, and Too Big to Jail, remain major problems more than a decade after the global financial crisis. For example, UK government representatives privately suggested to FinCEN that if HSBC executives were prosecuted and the UK could no longer trade with the US branch, it could threaten global financial stability. The global financial system appears dependent on these illicit funds and the institutions that they flow through.
The EU has a severe money-laundering problem. All of the major money-laundering scandals of recent years have centred on European banks. This leak names banks in 25 EU states as the destination, transit, or origin for suspicious money. It reveals the role of Deutsche Bank, HSBC and other UK banks, and Estonia’s Danske Bank. It shows shell company “factories” are exploiting loopholes in UK companies law.
The EU’s anti-money laundering framework, codified in the Anti Money Laundering Directive (AMLD), is not working. The Commission needs to take swift and decisive infringement action against member states that fail to implement and enforce the AMLD rules. The European Banking Authority (EBA) is not equipped to deal with this challenge, leading members of the European Parliament to call for an EU Financial Intelligence Unit and a new, powerful and well-resourced EU authority for coordinating AML enforcement inside and outside banks.
Top image from ICIJ.