“FinCEN Files” Highlight Prevalence of Illegal Money in Global Financial System

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Recently, BuzzFeed News and the International Consortium of Investigative Journalists (“ICIJ”) reported on a 16-months’ long investigation into a trove of explosive documents apparently leaked from the U.S. Financial Crimes Enforcement Network (“FinCEN”).1 The reporting alleges that, throughout the world, many financial institutions profited from facilitating trillions of dollars’ worth of transactions while turning a blind eye to the related criminal activity of fraudsters, oligarchs, and terrorists.

The leaked documents, dubbed the “FinCEN Files,” primarily consist of more than 2,100 Suspicious Activity Reports (“SARs”) that were submitted to U.S. authorities by financial institutions between 2000 and 2017. SARs are highly confidential documents filed by financial institutions. As gatekeepers to the U.S. financial system, financial institutions are charged with helping to detect and report suspicious activity that may be indicative of money laundering, terrorist financing, and other types of criminal activity. In accordance with federal regulations, financial institutions must file SARs whenever they detect suspected violations of Federal law, suspicious transactions related to money laundering, or other violations of the Bank Secrecy Act of 1970.2 If a financial institution fails to identify and report suspicious transactions, it risks triggering enforcement actions from financial regulators, which are expensive to defend and can result in large monetary penalties.

Leaked SARs reportedly show funds being transferred that were later found to potentially belong to individuals on the FBI’s 10 Most Wanted List, Russian oligarchs concealing political donations and avoiding government sanctions, and transfers of funds related to terrorism. At the very least, the documents demonstrate that, despite industry and law enforcement efforts to stem the flow of illicit funds into the U.S. financial system, criminals continue to use reputable financial institutions to help launder and move the proceeds of their crimes across the globe.

For those immersed in the world of anti-money laundering (“AML”) compliance, this may not come as a shock, given that an estimated 2 – 5% of global GDP ($800 billion – $2 trillion) is laundered each year.3 However, this recent reporting will likely spur further calls for reform of AML laws and regulation that could significantly impact the compliance obligations of companies around the world.

Due to the risks involved with not filing SARs, as well as the overall growth in financial transactions’ volume, financial institutions have in recent years erred on the side of disclosure and have filed an increasing number of SARs each year.4 According to FinCEN, there were more than 2.7 million SARs filed in 2019 alone.5

Some commentators argue that financial institutions are not doing enough to actually stop money laundering, and are instead filing SARs to protect themselves from criminal prosecution while profiting from processing suspicious transactions. Others claim that law enforcement has imposed burdensome SAR filing requirements on financial institutions, but then does not sufficiently follow up on the activity that is reported. Regardless, the FinCEN Files highlight how, despite efforts by financial institutions and law enforcement, criminals are still able to utilize reputable financial institutions to move and launder their illicit proceeds, including on behalf of stock manipulators, drug cartels, terrorist organizations, and corrupt politicians.

Interestingly, just days prior to the BuzzFeed and ICIJ reports, FinCEN itself issued an Advance Notice of Proposed Rulemaking to solicit feedback on potential regulatory amendments aimed at enhancing the effectiveness of AML programs. More details about the initiative can be found on our recent post about the development here. Similarly, on September 18, the UK government announced reforms designed to clamp down on fraud and money laundering by requiring more information during the organization and registering of companies, to provide better transparency into who companies are doing business with.6 With the release of the FinCEN Files, companies with AML obligations will need to pay close attention to the regulatory landscape as further reforms are likely, which could have significant implications for corporate AML compliance programs.

1 See Fergus Shiel & Dean Starkman, About the FinCEN Files investigation, International Consortium of Investigative Journalists, Sept. 19, 2020, available at https://www.icij.org/investigations/fincen-files/about-the-fincen-files-investigation/; Jason Leopold et al., The FinCEN Files, BuzzFeed News, September 20, 2020, available at https://www.buzzfeednews.com/article/jasonleopold/fincen-files-financial-scandal-criminal-networks.

2 31 U.S.C. § 5318(g); 12 C.F.R. § 21.11.

3 Money Laundering and Globalization, United Nations Office on Drugs and Crime, available at https://www.unodc.org/unodc/en/money-laundering/globalization.html.

4 See Suspicious Activity Report Statistics, FinCEN, available at https://www.fincen.gov/reports/sar-stats (last updated Aug. 31, 2020).

5 Renewal Without Change of the Bank Secrecy Act Reports by Financial Institutions of Suspicious Transactions, 85 Fed. Reg. 101 (proposed May 20, 2020) (to be codified at 31 C.F.R. pt. 1020-1029) available at https://www.govinfo.gov/content/pkg/FR-2020-05-26/pdf/2020-11247.pdf.

6 See Reforms to Companies House to clamp down on fraud and give businesses greater confidence in transactions, Sept. 18, 2020, available at https://www.gov.uk/government/news/reforms-to-companies-house-to-clamp-down-on-fraud-and-give-businesses-greater-confidence-in-transactions.

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