A huge investigation effort into the FinCEN Files has turned those secret records into valuable information that allows us to see the lack of controls by some banks to prevent money laundering, corruption and tax evasion maneuvers

A first analysis of this important disclosure of documents raises the question of how banks’ legitimate motives, in order to attract or retain customers, may interfere with their obligation at the time of applying the relevant controls to prevent the flow of dirty money.

Banks must conduct a due diligence process called“know your customer” (known as “KYC”). This process is intended to prevent potential money laundering maneuvers. It consists in identifying the prospective customer by verifying their identity and the business they conduct, as well as the source of the money to be transferred. Although this does not always happen…

The FinCEN Files include more than 2,100 suspicious activity reports, or SARs, filed by almost 90 financial institutions with the U.S. Department of Treasury’s Financial Crimes Enforcement Network.

The review of the information processed by the International Consortium of Investigative Journalists (ICIJ) along with news portal BuzzFeed News, suggests that banks routinely processed transactions without properly inquiring into the ultimate source or destination of the money, often involving shell companies incorporated in secrecy jurisdictions and implying transactions with potential links to money laundering and corruption.

This investigative project explored more than $2 trillion worth of transactions between 1999 and 2017. Ninety-eight percent of the SARs reviewed in the FinCEN Files were filed from 2011 to 2017.

According to BuzzFeed News, some of the records were gathered as part of U.S. congressional investigations into Russian interference in the 2016 presidential election; others were gathered following requests to FinCEN from law enforcement agencies.

The investigation concluded that banks regularly processed transactions for companies registered in tax heavens and probably did it without knowing the identity of the account’s ultimate beneficial owner (UBO). Some banks or branches in certain countries —such as Switzerland— cited local bank secrecy laws in their jurisdictions to deny that information.

In more than 620 reports, banks flagged the use of “high risk” jurisdictions at least once. Account holders often provided addresses in the U.K., the U.S., Cyprus, Hong Kong, the United Arab Emirates, Russia and Switzerland.  At least 20% of the reports contained a customer with an address in one of the world’s top offshore financial heavens, the British Virgin Islands (BVI).

Other relevant information is that Deutsche Bank’s 982 filings represented 62% of total suspicious transactions identified through the leak.  The FinCEN Files also contain large numbers of files from Bank of New York Mellon, Standard Chartered, JP Morgan Chase, Barclays and HSBC.

The investigation made it possible to identify a median time lag of 166 days -almost half a year- from the time the suspicious transactions took place and the time they were actually reported to FinCEN. The regulations in force in the US require financial institutions to file a SAR —in most cases— within 30 days after detecting a suspicious transaction.

The FinCEN Files analysis has revealed that suspicion of money laundering operations was the most common reason given for filing a SAR. Other reasons were suspicion of fraud, a FinCEN category called “financial instruments (monetary contracts),” and suspicion of “structuring,” which involves a series of transactions designed to avoid red flags.

The post-pandemic scenario is uncertain, but following the thread of our analysis, we may hazard a guess that, globally, the Compliance departments of banks will have to make greater efforts to become more robust and will learn from the mistakes made in implementing controls.

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Equipo G5 Integritas Latam

Equipo G5 Integritas Latam

Equipo G5 Integritas Latam

G5 Integritas is a consulting and strategic advisory firm for corporate clients, financial institutions, law firms, entrepreneurs and investors, specialized in: RISK AND COMPLIANCE DUE DILIGENCE AND BACKGROUND CHECK INVESTIGATIONS AND BUSINESS INTELLIGENCE SECURITY CONSULTING FORENSIC INFORMATION AND DATA RECOVERY


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