21st September 2020
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The FinCEN Files reveal further evidence of global failures over illicit finance
I couldn’t help but feel a sense of déjà vu when the ICIJ released the long-awaited “FinCEN Files” – so quickly has global failure to tackle money laundering become normalised.
But what the files reveal is the vast scale of organisational, jurisdictional and governmental failures to tackle not just the underlying criminality associated with much offshore business, but also the tacit complicity of so many in helping to shift dirty money around the globe.
On one level, the excellent work by the International Consortium of Investigative Journalism (ICIJ), the global collective which co-ordinated research into 2,657 banking files banking leaked to Buzzfeed News, will not surprise UK readers. After previous document leaks such as the Panama Papers and last summer’s report into Russian state interference in the UK, the top-level findings are unfortunately familiar:
- The failure of international banks to tackle a huge volume of suspicious financial activity passing through their accounts or systems.
- Failure of individual states or jurisdictions to investigate and prosecute underlying criminality associate with some suspicious financial activity.
- The destabilising effect of money laundering on global democracies and political regimes.
- Huge volumes of Russian money being transferred through London by those with links to power in Moscow.
- The proximity of some Russian’s moving money through London to UK political power.
But on another level, what the ICIJ/Buzzfeed files further reveal is the extent to which major organisations and institutions with a responsibility to tackle money laundering and financial crime, understand the threat. And, in some cases, do so little in response.
The FinCEN Files deal with approximately $2 trillion worth of transactions – a vast sum, but a fraction of global banking values. At the heart of the files are more than two thousand ‘suspicious activity reports’ (SARs) compiled by banks and sent to the US Treasury authorities between 2000 and 2017. These SARs also represent just a fraction of the 12 million SARs filed with the US Treasury between 2011 and 2017.
Banks must compile a SAR if they suspect that one of their clients may be involved in criminal activity. It is important to remember that the SARs do not invariably reveal criminality – they do what they say on the tin: flag-up suspicious financial activity, some of which may turn out to be justifiable and legal.
However, it is clear from the scale of the suspicious activity involved in the FinCEN Files that global banks are acutely aware of threats posed by the movement of illegal monies. And, in some cases, banks are aware that the people, companies and accounts moving the money from one part of the world to another are most likely involved in criminality.
For example, some of the SARs are marked with phrases such as suspected ‘pyramid schemes’ or transactions with ‘no apparent economic, business or lawful purpose’. The FinCEN files, for example, reveal that HSBC – one of the world’s largest banks – continued to move millions of dollars of stolen money through its accounts even after US investigators informed the bank that the money emerged from a scam.
HSBC was previously fined $1.9bn by the US for failures linked to money laundering by Mexican drugs gangs. But it’s not just HSBC which has questions to answer following the publication of the FinCEN files. JP Morgan and Barclays, to name just two other banks, are also challenged to explain why they moved monies allegedly linked to major criminals or people seeking to avoid sanctions.
JP Morgan, for example, moved $1bn linked to a fugitive financier behind the infamous “1MDB” scandal in Malaysia which has had a considerable impact on the country’s economy and politics.
It is important to note that banks such as JP Morgan did respond to the ICIJ’s inquiries about their oversight of suspicious financial activity. JP Morgan told the ICIJ it has taken a “leadership role” in pursuing “intelligence-led” investigations into suspicious economic activity.
But as the BBC report on the FinCEN files states [link here], it is not enough for banks or financial institutions to report suspicious financial activity (as they do when they send a SAR to the US Treasury team). If they know of, or strongly suspect, illegality then banks (for example) are supposed to stop moving the money.
Paul Pelletier, a former US Justice Department official, told the ICIJ: “By utterly failing to prevent large-scale corrupt transactions, financial institutions have abandoned their roles as front-line defenses against money laundering.”
He said banks feel “they operate in a system that is largely toothless.”
Yet responsibility must surely go far beyond financial institutions, too? Yes, banks must freeze suspicious accounts until the ultimate beneficial owners can prove the legality of the cash or business involved. But by the same token effective policing of money laundering means that states and regulators take action against provable criminality wherever they can.
Here, too many states are failing miserably. As the Financial Times newspaper reported recently, the UK’s financial regulator, the Financial Conduct Authority, has failed to criminally prosecute a single case of money laundering so far this year – preferring instead to seek resolutions through civil courts.
Yet money laundering is estimated to cost the UK approximately £100bn annually – more than the UK spends on all education services combined. That money would go a long way towards paying the bill for the current Covid-19 crisis.
So the major question that simply must be asked following the latest massive data leak is simple:
When are states such as the UK going to wake up to the threats posed by money laundering and illicit finance – and put in place an effective framework (regulatory and legally) to tackle it?
Note: I would like to write more on the FinCEN files, and no doubt will in due course. But in the first instance, I think it is important to focus on the superb work undertaken by the ICIJ, Buzzfeed News and the likes of the BBC.
I recommend, in the first instance, that readers go through as much of the original source material as possible. It makes for shocking, but necessary, reading. You can find original coverage here:
ICIJ (link)
Buzzfeed News (link)
BBC (link)
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