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The FinCEN Files Prove We Need an Anti-Money-Laundering Whistleblower Program

Posted  September 25, 2020

The FinCEN Files. It sounds ominous, and recalls the Panama Papers, the Paradise Papers, and others. Like those earlier stories, the FinCEN Files expose powerful players, including a large number of highly regulated banking giants.

The FinCEN Files, published by the International Consortium of Investigation Journalists and BuzzFeed News, document over 200,000 suspicious financial transactions via documents leaked from the U.S. Financial Crimes Enforcement Network, known as FinCEN. These transactions involve numerous major international banks, including, among others:

  • Deutsche Bank: In 2017 UK and NY regulators fined Deutsche Bank 163 million pounds ($204 million) and $425 million, respectively, for facilitating suspicious “mirror trades” between 2012 and 2015. These transactions allowed Russian clients to move more than $10 billion out of the country while masking the origin of the funds. At the time Deutsche Bank blamed “middle-level staffers in its Moscow office.” But according to information in FinCEN Files, top executives at Deutsche Band knew of serious failings that made the bank vulnerable to participating in money laundering.
  • HSBC: Even after HSBC paid $1.9 billion in fines for allowing drug kingpins, including El Chapo, to launder more than $880 million, it continued to do business with shady companies despite red flags.
  • Standard Chartered: In 2019, Standard Chartered agreed to pay $1.1 billion to resolve charges relating to its role in laundering hundreds of millions of dollars for unsavory entities and individuals, including those subject to sanctions and at least one bank suspected of facilitating funding for al-Qaeda attacks. The FinCEN Files reveal money laundering concerns the bank itself identified, which corroborate disclosures made nearly seven years earlier by two ex-employee whistleblowers.

The FinCEN Files are largely made up of Suspicious Activity Reports (SARs), which begs the question: why isn’t voluntary reporting through SARs enough to stop money laundering?

Why Does Money Laundering Continue Despite Voluntary Reporting in SARs?

Suspicious activity reports (SARs) are one of the tools FinCEN and other international regulators use to identify suspicious financial transactions. Financial institutions must file SARs to report certain financial transactions when the institution knows, suspects, or has reason to suspect that the transaction:

  • involves funds from illegal activity,
  • is intended to hide or disguise funds,
  • has no business or apparently lawful purpose,
  • facilitates criminal activity, or
  • otherwise aims to violate or evade federal laws or regulations, including the Bank Secrecy Act.

One of the pitfalls of relying on voluntary reporting is, obviously, that it requires financial institutions to report on their own clients. As the Deutsche Bank mirror trades scheme illustrates, big banks may be willing to turn a blind eye to potential financial crimes for “very profitable clients.” In this case, Bank of America was concerned enough about the trades to attempt a meeting with Deutsche Bank and, when that ended poorly, to file an SAR on Deutsche Bank.

This suggests the SARs in the FinCEN Files could be just the tip of the iceberg—who knows how many suspicious financial transactions were never reported at all?

We Need an Anti-Money-Laundering Whistleblower Program

The SEC has been tremendously successful in harnessing whistleblower information to crack down on securities violations. Through the SEC’s program, whistleblowers can make a submission to the agency, anonymously if they wish, and if that information helps the SEC recover funds, the whistleblower may be eligible for an award. Currently, there is no analogous mechanism for whistleblowers to disclose money laundering concerns. We’ve made the case for a program like this many times. Blowing the whistle is not an easy path, as the Standard Chartered whistleblowers can attest. Without an incentive program that allows for anonymous reporting, financial crimes will continue to fall through the cracks. Promisingly, Congress is considering proposals to create a program that does just that. As the FinCEN Files demonstrate, we need it ASAP.

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Tagged in: Financial and Investment Fraud, Financial Institution Fraud, International Whistleblowers, Money Laundering,


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