The FinCEN Files – A Leaked Snapshot of Money Laundering Failings

The leak of the FinCEN Files was an indictment of the oversight ability of financial services, yet it is still unclear exactly how blame ought to be apportioned.

Syed Rahman, Legal Director at Rahman Ravelli, offers Finance Monthly an analysis of the implications that the FinCEN Files hold for financial services and regulators.  

To use an old phrase, you shouldn’t wash your dirty laundry in public. But with the FinCEN Files it seems as if the banks have had many of their dirtiest secrets made very public. And, appropriately enough, they relate to their failure to tackle money laundering.

The FinCEN Files are 2,657 leaked documents; 2,121 of which are Suspicious Activity Reports (SARs) from some of the world’s largest banks and financial institutions. They identify more than $2 trillion in transactions between 1999 and 2017 that were flagged by financial institutions’ internal compliance officers – via SARs – as relating to possible money laundering or other crime.

Significantly, the documents beg the question why the banks did little or nothing to follow up their concerns. They are a blow to the credibility of both financial institutions and those that regulate them. The quality of SARs as well as the timing of them shows a meeting of the minimum requirements rather than any real intent when it comes to tackling money laundering. Quite how far any retrospective analysis of this conduct goes remains to be seen. But any identifiable failings could prompt civil or criminal proceedings.

Estimates put the leaked SARs as being a mere 0.02% of the total filed to FinCEN (the US Financial Crimes Enforcement Network). Yet while they may be a small percentage of the full picture, they raise big concerns about the lack of thorough checks being made by banks and the implications of this.

These concerns have made the news for a variety of reasons and in a wide range of reports. But while the headlines about facts, figures and prominent personalities are all worth absorbing, our main focus in all of this needs to be on the inadequacy of the system – or the operation of the system – that has allowed money laundering on such a huge scale. The FinCEN files would seem to indicate that we are at a tipping point when it comes to the banks and money laundering: either governments put more resources into the agencies who are supposed to investigate SARs or they work with the financial institutions, regulatory agencies and law enforcement bodies to repair or even replace what appears to be a system with serious fault lines running through it.

Estimates put the leaked SARs as being a mere 0.02% of the total filed to FinCEN.

There has been recent tightening in the UK and US of legislation in relation to laundering. In the UK alone, we have seen implementation of money laundering directives, creation of the National Economic Crime Centre, the arrival of unexplained wealth orders and account freezing orders and government commitments in its Economic Crime Plan. Yet it appears that more needs to be done. The fact that more than 3,000 UK companies appear in the FinCEN files cannot be ignored. This is more than any other state, and confirms the UK’s unwanted title of most favoured location for money launderers.

At this stage, it is perhaps too early to say with certainty precisely how the blame should be shared out. The fallibility of the system, the shortcomings of the banks and law enforcement’s lack of action or resources appear to be the prime suspects. Closer scrutiny of the individual SARs in question – if and when they become available – may help identify exactly where responsibility for this lies.

Yet wherever the finger is pointed, those who face criticism may well be able to point to mitigating circumstances. In terms of resources, there is no doubt that the SARs regime is placing huge strain on the National Crime Agency’s UK Financial Intelligence Unit (UKFIU), whose job it is to process them. April 2017 to March 2018 saw UKFIU receive more than 450,000 SARs. And while banks and other financial institutions may be criticised, they can point to the fact that by filing the SARs they have complied with their statutory requirements. If, in the wake of these leaks, these requirements are not deemed adequate or effective then another approach – even a whole new way of tackling the problem – may need to be devised. But at the very least a lot of thought needs to be given to the allocating of more resources to the existing approach.

The Law Commission has recommended certain improvements to the UK SARs regime; most notably including a call for them to be made more useful to law enforcement. The Commission said too many reports are of poor quality, as they are mainly made primarily as a defence to any potential allegation of money laundering against the financial institution. It also said that the current system is complex, resource intensive and lacks any accompanying guidance.

The leaking of thousands of documents has, if anything, validated the Commission’s views. The main issue now is what is done to improve or replace a system that suits nobody other than those it is supposed to be working against.

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