Boom: The FinCEN Files Are Here

The anti-money laundering compliance crowd should pull out your tablets and create several free hours on your schedule today. The same investigative reporters who delivered the Panama Papers in 2016 just dropped another mammoth exposé, this time looking at 20 years’ worth of failed AML compliance at five large banks.

Known as the FinCEN Files, the project is a collection of more than a dozen articles and videos from the International Consortium of Investigative Journalists (ICIJ). Even better, those articles are based on a leak of more than 2,100 suspicious activity reports obtained by Buzzfeed news, that banks had filed to the Financial Crimes Enforcement Network in the 2010s. 

Hence the name of the project, and the hashtag now circulating on social media: the #FinCENFiles.

The highlight of the FinCEN Files are this: the documents identify more than $2 trillion in suspicious transactions that flowed through major banks from 1999 to 2017. Five banks in particular — JP Morgan, Standard Chartered, Bank of New York, HSBC, and Deutsche Bank — were the banks at the heart of those suspicious payments. JP Morgan, for example, managed $514 billion of that $2 trillion sum. Deutsche Bank managed $1.3 trillion. 

If those five banks ring a bell in the compliance officer part of your brain, that’s because all five have also operated under U.S. enforcement actions at one point or another: deferred-prosecutions agreements, compliance monitors, penalties paid to FinCEN or other regulators, and so forth. Even while operating under those agreements for better behavior, the banks were violating AML compliance rules. 

Source: ICIJ

So clearly, despite all our billions invested in better AML compliance, and all the government attention paid to anti-money laundering rules, we’re not succeeding. And despite whatever shock that $2 trillion in suspicious transactions might generate, remember: that $2 trillion is based upon the 2,100 FinCEN suspicious activity reports leaked to Buzzfeed. The actual number of SARs filed from 2011 to 2017 was 12 million — so the total amount of illicit cash sloshing around the world’s banking system is far greater still. 

Big Implications From FinCEN Files

We can’t capture here in one post all the failed policies, enforcement, and AML compliance programs that the FinCEN Files document — and document them it does, in vivid and painstaking detail. I encourage every compliance officer to take time and read the articles published by the ICIJ. Meanwhile, here are several big impressions that struck me as I read the files. 

Compliance officers are disempowered. Time and again, the FinCEN Files recount instances of compliance staffers trying to identify the connections among people, shell companies, and specific financial transactions racing through their banks. Far too often those compliance staffers failed, because they were laboring in isolated operating centers, with inadequate technology, and insufficient authority and respect from their banks’ sales functions. Numerous compliance officers say they were fired or harassed for raising alarms (something I’ve heard from AML compliance officers directly). Overall, the FinCEN Files leave you with a sense of futility. 

Connecting people to shell companies is the weak spot. In many instances, AML professionals know the actual persons who are oligarchs, kleptocrats, terrorists, or corrupt politicians. (The FinCEN Files even include profiles of the most notorious examples.) The challenge is in connecting those people to the shell companies holding accounts at the banks. For example, a shell company will be owned by several more shell companies, which are owned by yet more shells, and so forth.

So determining the true beneficial owner or controller of an account — which is the basic objective of AML compliance — becomes impossible. 

Filing suspicious activity reports takes far too long. One dynamic that the FinCEN Files document is the painfully late filing of SARs. Typically, compliance staffers won’t even hear about suspicious activity until they read about it somewhere else; perhaps in the media or in a law enforcement bulletin. Then they sift through their files, find some transactions that fit the suspicious pattern, and file an SAR — but the actual corrupt transaction already happened years earlier, and the dollars in question are long gone. So we need mechanisms to file SARs even more promptly, to intercept those transactions before completion.

Law enforcement has a weak enforcement appetite and ineffective tools. The FinCEN Files document multiple instances of banks still processing suspicious transactions while operating under prosecution agreements from prior compliance failures. For example, HSBC operated under a deferred-prosecution agreement from 2012 to 2017. During that time, the bank still processed payments for known Russian oligarchs and a Ponzi schemer, among others — and in December 2017, the Justice Department closed the DPA and dismissed HSBC’s criminal charges for prior misconduct.

If the Justice Department is soft-pedalling criminal charges because the Trump Administration doesn’t believe in enforcing against corporate crime, we need new Justice Department leaders. If the department is soft-pedalling criminal charges because an indictment could ruin a bank and leave thousands unemployed, then we need new types of punishment to deter banking executives.

Look for FinCEN to “update” its AML compliance standards. Two days before the FinCEN Files dropped, FinCEN itself called for public comment on a wide range of possible AML compliance reforms. One can’t help but wonder at the timing of that announcement: whether FinCEN is trying to portray itself as constantly seeking to improve AML compliance, which would let FinCEN leaders say the FinCEN Files only capture a dated, more antiquated state of AML compliance in prior years. 

How might Democrats overhaul bank secrecy rules and AML compliance in 2021? If the Democrats win control of Washington in the November elections — which is a decidedly big “if,” but right now, that outcome is also more likely than not — these FinCEN Files are the sort of raw material that could drive major legislative overhaul of the Bank Secrecy Act and its attendant AML compliance rules. 

For example, imagine a Biden Administration placing its own appointees at FinCEN and the Treasury Department, who then work with a Senate Banking Committee headed by Sen. Elizabeth Warren and a House Financial Services Committee run by Rep. Maxine Waters. 

What would they do? I don’t know. But they’d be able to point to material from the FinCEN Files endlessly, and say that clearly we need to do something. 

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