FINCEN Files: $2TRN suspicious transactions


$2 trillion suspicious transactions involving possible money laundering or criminal activity allegedly exposed involving the world’s major banks from 1999 to 2017 who filed over 2,100 suspicious activity reports (SARs) with FINCEN (US Department of Treasury’s Financial Crimes Enforcement Network and US domestic money laundering gatekeeper). Worse still, there is clear evidence that points to global banks profiting from illicit money flows even after having been penalised previously by US authorities for illicit money control failures. Which strongly indicates that there is currently little to deter major global financial institutions from taking serious action to prevent major flows of dirty money. The fallout could not be greater. In the European Union, 2020 was meant to be a flagship moment in the bloc’s efforts to curb money laundering, in the form of its 5th Anti-Money Laundering Directive (5AMLD) and 6th Anti-Money Laundering Directive (6AMLD). Instead, numerous EU Member States have complained that they are simply not willing to countenance the extra scrutiny that the new 5AMLD will provide, launched with great fanfare at the start of 2020. That these number the likes of Estonia, Malta, Latvia, Cyprus, Netherlands, Hungary, Czechia should come as no surprise.

Estonia is embroiled in the Danske Bank $230bn scandal – in a Baltic money laundering saga which has dragged in most of the Nordic banks and is likely to continue to interest the US authorities as they look to invoke the Magnitsky Act for apparent violations of US sanctions, with so many designated Russian oligarchs implicated. SEB, Swedbank from Sweden as well as Nordea have all been implicated. Deutsche Bank’s role in this affair and other major money laundering sagas in recent years means that it is also unlikely to escape further scrutiny and censure from the US. Deutsche Bank was fined $150m by New York’s Department Financial Services in July 2020 for processing some $150bn of suspicious payments through it New York office, in a penalty which included two other unrelated violations. Yet this fine was in part imposed for Deutsche Bank’s failure to take appropriate action to stop illicit flows to its New York accounts from Danske Bank’s Estonia branch.

As for the Netherlands, its ING was fined a record EU penalty of $900m in September 2018 for money laundering offences over a number of years. This included facilitating illegal payments for Russian Vimpelcom (itself fined $795m in 2016 by US authorities) which included bribes to win business in Uzbekistan. ING had also been fined $619m in 2012 by US authorities for apparent violations of US sanctions in facilitating billions of dollars of payments via the US banking system to US-sanctioned Iranian and Cuban clients.

As for Malta and Cyprus – Malta’s now-disgraced former Prime Minister, Joseph Muscat was awarded OCCRP’s “Corrupt Actor of the Year – 2019” after failing to bring down increasing criminality amidst corruption and shocking rule of law in the tiny Mediterranean island and EU Member State. With Malta’s Pilatus Bank closed by the ECB in November 2018 amidst multiple allegations of corrupt transactions and even US sanctions issues (although its former Chairman, Ali Sadr, was exonerated in the US in July 2020), Malta is hardly a poster child. Cyprus, another Med island and EU Member State, has just announced it will close down its “Golden Passport” programme amidst allegations of allowing convicted criminals and money launderers EU passports – with resignations at the highest level of Cypriot government.

As for Latvia, its former Prime Minister Valdis Dombrovskis has endured a torrid time following the FINCEN Files revelations, as under his tenure of Latvia tens of billions of dollars of dirty money were alleged to have flowed through his jurisdiction. ABLV Bank and Trasta Komercbanka of Latvia both had to close down at around this time due to money laundering scandals. 2020 was supposed to be the landmark anti-money laundering “moment” for the EU. Instead, with Dombrovskis, in typical nonsensical EU fashion, chosen – with little clear success in combating illicit finance – as anti-money laundering “Tsar”. Coming from a country like Latvia with its abject record on illicit finance. There has been little to no apparent progress on this front in the EU in 2020, with the likes of the ICIJ and OCCRP routinely exposing the lack of illicit finance controls throughout the EU bloc. Ironically, he replaced the former and last UK EU Commissioner, who held the financial services portfolio and stood down in the aftermath of the UK’s Brexit referendum.

Some major global banks were cited in the FINCEN Files investigation. JP Morgan, HSBC, Standard Chartered, BNY Mellon, Deutsche Bank, Wells Fargo, Barclays, Banesco, Société Générale, Habib Bank, Western Union, Citibank profited from dirty money even after US fined them re illicit money flow failures. This is more than a tad worrying given the fact that US authorities represent comfortably the most aggressive money laundering and illicit finance enforcement group in the world.

In a staggering finding, a study by Fenergo found that although the US only accounted for 44% of all global AML, KYC and sanctions fines from 2008-18, US penalties came to an astonishing 91% of the total value of all fines, at $23.52bn. In the light of the FINCEN Files investigation, where an alleged $2 trillion of suspicious transactions flowed through the global economy from 1999-2017, the massive penalties levied by the US were only a fraction of those potentially enforceable during that time.

This is not entirely unsurprising, with recent FATF (the OECD’s Financial Action Task Force – global money laundering body) Mutual Evaluations such as its April publication of findings on the UAE – was most critical. Here it revealed and all-too-typical lack of capacity or, worse still, willingness to take appropriate deterrent action to stem illicit finance flows. In multiple investigations of recent years, Europe has been at the forefront of concerns regarding illicit money flows.

At the end of September 2020, shortly after the publication of the FINCEN Files, Linda A. Lacewell, the superintendent of the New York State Department of Financial Services, concurred with the findings of the FINCEN Files, admitting that insiders in the financial services industry had already known for some time that trillions of dollars of illicit money was flowing through the global banking system.

We already knew, for example, at the height of the Global Financial Crisis in 2018, that some $352bn of criminal proceeds was effectively laundered by the world’s financial institutions and even evidence that some banks were saved in that way. This came from a frank admission from the-then United Nations Head of the UN Office on Drugs and Crime, Antonio Maria Costa, in 2019. With a lack of liquidity a major issue, this illicit money was allowed to flow through the global financial system at a moment of extreme global financial crisis.

“…In many instances, the money from drugs was the only liquid investment capital. In the second half of 2018, liquidity was the banking system’s main problem and hence liquid capital became an important factor.”

“…Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities… There were signs that some banks were rescued that way.”

In an interview with Politico in April 2018, former Head of Europol, Rob Wainwright from the UK, gave a stark reminder of the limited success rate of capturing criminal money flows in Europe, citing a 99% success rate for the top 400 professional money launderers in Europe.

“…Professional money launderers – and we have identified 400 at the top, top level in Europe – are running billions of illegal drug and other criminal profits through the banking system with a 99 percent success rate…”

Furthermore, Wainwright strongly indicated that the preponderance of regulation had cost banks $20bn a year with a scant return of 1% seizure of criminal assets every year in Europe.

“…One of my favourite frustrations is on financial crime – the anti-money laundering regime. We have created a whole ton of regulations … the banks are spending £20 billion a year to run the compliance regime … and we are seizing 1 percent of criminal assets every year in Europe…”

Many critics of the current efforts to stem the tide of illicit finance have pointed to criminalising the Boards or senior management of major banks and financial services firms with a global presence. But convictions in this particular arena – where complex, multi-jurisdictional and cross-border transactions – often rapidly conducted electronically and often geographically or operationally far removed from Boards and senior management – are by definition fleeting and hard to come by.

Typically, courts will want to see evidence of “controlling minds” – to coin a common law euphemistic legal standard reference point – before moving to allow convictions. The bar can be lowered under certain circumstances, but attempting to criminalise the activities of senior management is never a particularly successful tactic, as evidentiary and burden of proof issues always predominate.

Furthermore, criminalising the activities of highly specialised, often highly qualified senior banking managers is fraught with potential difficulty – as there is only a finite group of experts who are capable – and legally able – to run major financial firms. So there is an inherent danger in potentially losing a small group of experts who may choose to look to use their talents elsewhere if banking becomes too risky due to heavy-handed, poorly thought through criminalisation of their activities.

The answer? Target the criminals – and refrain from treating bankers like the world’s policemen. The role of a banker is pretty far removed from that of law enforcement. By all means invite transactional experts to conduct ongoing reports and scrutiny to increase transparency. But to hang the entire anti-money laundering regime on the reporting of suspicious activity reports when these can so often be delayed and provide scant grounds for successful convictions is beyond fanciful. Law enforcement know and understand the workings of criminal minds. As the top money launderers and criminals are known to law enforcement, they should be empowered to take a lead on prosecutions and convictionsand target the money launderers and criminals first and foremost.