The FinCEN Files: What they say and why it matters

Last Sunday, the International Consortium of Investigative Journalists (ICIJ) revealed how the world's top banks have allowed dirty money to flow freely around the world, defying money-laundering crackdowns in the process. They were able to do this using a cache of leaked documents from the Financial Crimes Enforcement Network (FinCEN), a bureau forming part of the US treasury department. The cache shows over 2,100 suspicious activity reports filed by banks and other financial firms with FinCEN.

While analyzing the documents, ICIJ discovered that over $2 trillion worth of transactions that took place between 1999 and 2017 were flagged as suspicious by internal compliance officers - this is 714 times higher than Malta's GDP. Yet this number represents less than 0.02% of more than 12 million suspicious activity reports filed by financial institutions with FinCEN between 2011 and 2017.

Suspicious activity reports

When a suspicious transaction is detected by compliance officers, the bank has two options. The first is to freeze and reverse the transaction and return the transaction fee. The second is to send the cash to its destination, collect the transaction fee, and later report the transfer as suspicious to US regulators through a suspicious activity report. The second option is particularly popular, with US financial institutions filing over two million reports in 2019 alone.

A suspicious activity report, or SAR, is a highly confidential document that is filed when a bank observes a suspicious transaction in their system. A SAR is not necessarily proof of criminal conduct - such a report is only filed by compliance officers within the bank feel that a transaction is suspicious, thus reflecting solely the concerns of compliance officers.

Blood on their hands - the significance of the leaks

The FinCEN leak is significant because it reveals how banks allow money to move freely around the world despite knowing that large quantities of those transactions are suspicious. While not all transactions marked suspicious are connected to criminal activity, the FinCEN files have shown how banks like HSBC, Deutsche Bank, and JPMorgan have allowed huge sums of money to end up in the hands of criminals time and time again. 

For example, Deutsche Bank helped move money for a company linked to Ihor Kolomoisky, a Ukrainian billionaire who was found to be engaged in a massive money laundering scheme. HSBC also helped move money for suspected Russian money launderers and helpted facilitate a Ponzi scheme. 

At the end of the day, moving money is a profitable endeavour. By allowing the money to pass through while only flagging it at a later stage, the bank is able to collect the transaction fee and generate profit. If the transaction is frozen or reversed, the bank cannot generate the revenue.

Standard Chartered Bank had engaged in a sophisticated money laundering scheme to bypass sanctions and transfer money to US-sanctioned entities from Iran, Libya, Sudan and Myanmar. Through the scheme, the bank altered the names of parties subject to U.S sanctions on transaction douments to allow illegal transactions to slip through the U.S Federal Reserve Bank undetected. The primary motive for doing this was that the scheme allowed the bank to profit from high premiums that Iran and other operatives were willing to pay when converting Iranian rials into dollars.

The FinCEN Files & Electrogas

The data leak also revealed suspicious dealings carried out by Afren Resources Limited, whose parent company Afren Plc indirectly held a 4.05% stake in Electrogas via shares in Gasol Plc. 

According to the leak, 101 transactions carried out by Afren Resources were flagged by Deutsche Bank Trust Company, with the transactions amounting to a total of $766,793,184.01.

Gasol had dropped out of the Electrogas consortium in 2015 in order to "maintain the long-term stability of the project." Gasol had been a lead partner in the consortium, holding a 30% stake, but was struck off after facing financial strains.

Socar Trading, who currently own a one-third stake in Electrogas, also had six wire transfers flagged in a suspicious activity report. The transfers, totalling €200 million, all originated from Socar. A spokesperson from Socar spoke to Times of Malta on the matter, explaining that Afren Resources was a shareholder in Socar Trading and an operator of a crude oil field in Nigeria. Socar says that the flagged transactions were related to the purchasing of crude oil, as the company had a contract for the oil produced in that field.

Too big to jail - why action is never taken

In the U.S, deferred prosecution and nonprosecution agreements have become common practice when dealing with big banks. Such deals are made when a company agrees to make certain changes or stop engaging in certain behaviours, and in return, no criminal charges are filed against them. If this agreement is breached, the government has every right to renew the charges. 

This was the case in 2012 after HSBC was penalised $1.9 billion under the US Bank Secrecy Act. After it was revealed that HSBC had helped launder at least $881 million for Mexican drug cartels, along with processing millions of dollars for banks in US sanctioned countries, a deferred prosecution agreement allowed HSBC to avoid immediate prosecution.

All this boils down to the fact that banks like HSBC and Deutsche Bank cannot afford to be indicted because they cannot afford to fail. Big banks employ thousands of workers around the world, a hold a significant share of the market - if these banks fail, they can take whole industries and global markets down with them.