HSE University Anti-Corruption Portal
FinCEN Files Leak

The International Consortium of Investigative Journalists (ICIJ) and BuzzFeed News have released leaked files of the Financial Crimes Enforcement Network (FinCEN*).

There are around 2,100 suspicious activity reports (SARs)* concerning $2tn of transactions involving U.S. jurisdiction among over 2,600 documents obtained as a result of the Cassandra Project. The SARs had been submitted to FinCEN between 1999 and 2017.

The obtained materials have allowed the international team of journalists to detect links between major financial institutions and money laundering, fraud and other financial crimes. Notably, the institutions did not impede the suspicious transactions and continued to benefit from them.

ICIJ’s analysis of the data has shown that banks regularly process suspicious operations without knowing the ultimate owner of the account. Such transactions are most frequently conducted through offshore shell companies: for instance, at least 20 per cent of the reports contained a client with an address in one of the world’s top offshore financial havens, the British Virgin Islands, while others provided addresses in the U.K., the U.S., Cyprus, Hong Kong, the United Arab Emirates, Russia and Switzerland.

Most SARs regard such global banks as Deutsche Bank, Bank of New York Mellon, Standard Chartered, JPMorgan Chase, Barclays and HSBC. It is worth noting that these financial institutions have been held accountable for corruption, money laundering and other financial crimes by the U.S. government in recent years:

- Deutsche Bank, Barclays, JPMorgan Chase (SEC and DOJ), Bank of New York Mellon: for violations of the U.S. Foreign Corrupt Practices Act (FCPA) (primarily, for illegal/false employment or internship of foreign officials or persons related to them);

- HSBC: for money laundering in the interest of Latin American drug cartels, terrorist financing and violation of sanctions against Iran (in 2012), as well as for fraud and misuse of confidential client information for its own profit (in 2018);

- Standard Chartered: for not having revealed certain payments thereby violating Section 17 (a) (2) of the U.S. Securities Act of May 27, 1933 (at the same time it was the subject of an indictment issued by the U.K. authorities alleging failure to prevent corruption contrary to the U.K. Bribery Act.

The journalists have also detected the linkage between suspicious transactions and over 20 companies and natural persons involved in cases of corruption, fraud and embezzlement, sanctioned or evading sanctions.

Further details of the investigation can be found on the ICIJ website, in particular, in the interactive database containing information about over 18,000 suspicious transactions, carried out by financial institutions all over the world.

In spite of the fact that the ICIJ criticises financial institutions for having refrained from acting, it is necessary to understand that the full responsibility for the approval of suspicious transactions should not be shifted solely onto banks. The current situation is largely due to the fact that the existing AML/CTF regulations do not provide banks with any rules of conduct other than compiling a SAR and submitting it to the competent financial intelligence unit when they detect a suspicious transaction. Therefore the choice banks are faced with – to either continue the suspicious transaction or to freeze it – looks easy only at first glance. On the one hand, if the bank confirms the transaction and the funds are transferred, they will have been probably cashed or diverted otherwise by the time the SAR is processed. On the other hand, the freezing of a bank account as a result of a suspicious transaction may entail considerable risks of “scaring away” the persons who use the bank for transferring/withdrawing proceeds of crime thereby making it impossible for law enforcement bodies to hold those individuals liable.

Therefore the success of employment of the information submitted by banks in the form of SARs largely depends on the speed of data processing by FinCEN and its response. However, in the context of constantly expanding requirements for the transactions’ monitoring and customer due diligence the number of banks’ reports continues to grow: in 2019 alone FinCEN received over 2 million of SARs. Consequently, the regulator lacks resources and instruments to promptly and deeply analyse them.

*FinCEN is a special bureau of the United States Department of the Treasury (USDT) that collects and analyses information about suspicious financial operations in order to combat money laundering, terrorist financing and other financial crimes.

**Under the U.S. Bank Secrecy Act financial institutions must communicate the details of certain transactions conducted in U.S. dollars to the USDT and keep the record of suspicious transactions in the form of SARs. It should be highlighted that a SAR as such is not evidence of a crime: FinCEN analyses the databases created on the basis of SARs to reveal patterns of financial crimes and employ the collected information in investigations.

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