Money laundering and the FinCEN papers – how the UK has been impacted

Brian Rogers

Regulatory Director

First, it was the Panama Papers in 2016, which involved the leak of 11.5 million financial and legal records exposing a system that enabled crime, corruption, and wrongdoing through hidden and secretive offshore companies. Now, in 2020, it is the FinCEN files that reveal the role of global banks in money laundering on a massive scale.

Both cases were brought to the public’s attention by the investigations undertaken by the International Consortium of Investigative Journalists (ICIJ).

In its latest investigation, the ICIJ was provided with a substantial number of files by BuzzFeed News, including 2,100 suspicious activity reports filed by major banks and financial firms within the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) - the equivalent of the UK’s Financial Intelligence Unit (NCA) (UKFIU).

What the ICIJ discovered

The investigation found that five global banks kept profiting from significant criminal activity, even after these organisations had been heavily sanctioned for previous anti-money laundering failings. This resulted in them being warned that if they didn’t stop doing business with suspicious customers, they would be subject to further sanctions.

Rising concerns over suspicious activity

It seems clear from the ICIJ investigations and other recent headlines that some financial institutions view acting for criminals as part of their normal operations, and that they see themselves as too big to take on. When you look at the profits that can be earned from handling suspicious transactions involving over $2trillion (1999 - 2017), it’s easy to see why.

During the period 2011 – 2017, over 12 million suspicious activity reports were logged in the US, with some commentators noting that many reports were made just to appease regulators and make it appear that the US financial sector was playing its part in tackling money laundering. When, in fact, large organisations were continuing to take an active role in money laundering activity.

Some will argue that banks have changed their systems to tackle money laundering since the suspicious activity reports were made, but current intelligence seems to suggest that this may just be a façade and that criminal activity is still taking place without challenge.

It is apparent from the FinCEN files that enforcement agencies may have allowed large banks to continue their involvement in suspicious activities. In one case, it agreed for the bank to pay $1.9bn in return for charges being put on hold pending a five-year probation period. However, the bank continued its activities during that time, with the enforcement agency saying at the end of the period that the bank had “lived up to all of its commitments”.

How the UK is impacted

Although the FinCEN files relate to the US, the banks involved also operate in the UK, so their activities need to be monitored here as well.

In 2017, the UK had its own banking crisis when it was alleged that four banks had been involved in allowing the laundering of a reported £65bn as part of a Russian scam, which can be traced back to 2010. The scam involved using a series of front companies in the UK, which allowed the actual owners behind them to remain a secret. The companies conducted fake business deals between themselves, then sued each other in courts in Moldova, demanding the repayment of hundreds of millions of pounds of loans. 

The changes coming via Companies House, where directors have to be formally identified, should help to reduce the amount of criminal activity carried out using ‘front’ companies; but only time will tell.

History seems to suggest that there are plenty more scandals waiting to be uncovered and that it is a matter of when, not if, this will occur. Financial institutions around the world evidently need to be held accountable for their actions, but if not the wider organisation, then the responsibility should fall to the individual directors. Crime simply cannot be allowed to pay at any level.

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