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Are the FinCEN Files the most devastating leaks so far?

The recent news that U.S. FinCEN records have been leaked to journalists from the ICIJ, BBC, and BuzzFeed News surprised me much more than their predecessor revelations, the Panama and Paradise Papers.

The reason for my raised eyebrows was that the Panama and Paradise Papers came to light via two offshore law firms, a fact that should not be too surprising given that such firms are likely considered fair game by those who would “out” them.

While the Panama Papers were pure dynamite, in that they pointed the finger at a number of persons engaged in tax evasion, corruption, and money laundering, the Paradise Papers were full of tittle-tattle about sports, film, TV stars, and politicians engaged in tax avoidance. 

The FinCEN (Financial Crimes Enforcement Network) leaks are different. Why? Because FinCEN is perhaps one of the most powerful bodies involved in regulating financial services and anti-money laundering, anywhere. Its ability to monitor financial transactions has never been widely questioned before – until now. 

The FinCEN Files, as they’re being called, paint a far-from-rosy picture, particularly of the banks. Among the worst culprits are banks based in the UK. I have called the UK into question on many levels over its anti-money laundering strategy. I have pointed the finger at its model for regulating companies, due to the paucity of KYC and due diligence conducted to identify ultimate beneficial owners (UBOs) both at the point of formation and administration – at both Companies House and with underlying formation agents. 

So, the fact that the FinCEN Files depict the UK as being a hub for money laundering comes as little surprise.

The ICIJ (International Consortium of Investigative Journalists) has stated that the UK has 3,000 companies implicated in the leaked files, more than any other country. The files have revealed U.S. suspicious activity reports (SARS), totaling in the vicinity of $2 trillion in transactions.

Banks are required to file SARs with the U.S. government within 30 or 60 days of learning of a questionable transaction. The FinCEN Files contain the names of fraudsters, terrorists, and those suspected of organized crime links. These leaks include references to at least one individual who was brutally murdered for unwittingly becoming involved in a Ponzi scheme.

The banks mentioned in these leaks include household names such as HSBC, Barclays, Standard Chartered, and JP Morgan. The plethora of SARS obtained by the ICIJ is still subject to research, but there appear to be instances where banks have identified adverse issues, reported them via a SAR, but continued to conduct business with the individual or entity that raised their suspicion.

Here’s the problem: for some members of the financial services world, a SAR is seen as a “get out of jail free card.” In the United States alone, FinCEN receives in the region of three million SARS per annum. There is no way that FinCEN or any other agency can be expected to review critically and thoroughly this number of alerts. The banks know this, and some are using it to their advantage.

The type of SAR that banks issue is sometimes referred to as “defensive reporting.” The bank has issued an alert, and then – assuming no federal response – it can carry on. But a system that is creaking under pressure can be manipulated.

The BBC documentary series Panorama ran an exposé off the back of the FinCEN leaks, claiming that Russian oligarchs, in particular, were exploiting London’s financial services systems. It also referenced the use of UK limited liability companies as dummy vehicles, designed to facilitate global money laundering.

The program also called into question the ability of the UK’s Companies House to police its systems and prevent it from being abused by the unscrupulous. For example, the Panorama reporter cold-called a small office in the south of England where thousands of companies were registered. More than 100 were linked to the latest FinCEN Files leaks.

The FinCEN Files have done the UK no favors. In the Panama and Paradise Papers, the UK was similarly tarnished. But to single out the UK would be wrong and unfairly make it a scapegoat. All three of these leaks touch heavily on the USA and other global financial systems. 

We also need to consider whether the media and public interest angles are outweighed by the leaks’ ethical implications, particularly where individuals could well be put at risk depending on the nature of any particular SAR.

At the very least, if the FinCEN leaks follow a similar path to their predecessors, we can expect to be drip-fed further scandal as the weeks slip by. I will reiterate what I have said before: the fear of your organization featuring in one of these exposés should be a strong deterrent. Of course, in the court of public opinion, many minds will already have been made up. 

With thanks to Tony McClements, Senior Investigator at Martin Kenney & Co, for his assistance with this post. He served for 33 years with UK police forces and has specialized in Fraud & Financial Investigation since 1998. He is also a lecturer in these subjects at the University of Central Lancashire (UCLAN).

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1 Comment

  1. This post is misleading in that it implies that defensive filing is an intentional ploy developed by US banks. In reality, banks have no options other than filling SARS defensively because of the extremely low filing thresholds ($5,000 USD if suspect is known). The scope of the SAR is also excessively broad, covering everything from counterfeiting to elder abuse. The current regulatory framework therefore forces US institutions to file huge numbers of reports of little or no investigative value. It naturally follows that a bank will often file a SAR without any planned follow-up action with respect to the account holder, and no expectations of a response from regulators or law enforcement. Banks are simply trying to manage an untenable regulatory framework.


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