The FinCEN Files Impatiently Bypasses Government Entities Responsible for Acting on SARs Filings

K2 Intelligence Investigations · Compliance Solutions · Cyber Defense

For those who haven’t yet had the time to catch up on the ongoing #FinCENFiles reporting, the following is a brief description of the underlying story and some thoughts about the eventual effects on the parties involved.
 
Financial institutions worldwide are obligated to report suspicious activity and transactions to their countries’ respective financial authorities through the filing of suspicious activity reports, also called SARs. In turn, said authorities are supposed to investigate or otherwise make use of the information reported to them, including initiating prosecutions. All of this is required to happen confidentially—and for good reason. Sharing the reports, the information within them, or even the knowledge that a report has been filed may put at risk those reporting and can potentially compromise or hinder the authorities’ investigation of the transaction or activity and their determination of if, when, and how to intervene. 

In the case of the FinCEN Files, information related to more than 2,100 SARs submitted by nearly 90 financial institutions to the United States’ Financial Crimes Enforcement Network (FinCEN) has been leaked and become the object of investigative journalism by not only the International Consortium of Investigative Journalists (ICIJ), which brought to us the Paradise and Panama Papers, but also by 108 media entities in 88 countries. The documents were provided to them by BuzzFeed News.

The data made available on the ICIJ website contains information on more than $35 billion in transactions dated from 2000 to 2017 that were flagged by U.S. and international financial institutions as suspicious. Further, an interactive map on the ICIJ website visually displays select cases with details about both the originator and beneficiary banks “to illustrate how potentially dirty money flows from country to country around the world, via U.S.-based banks.” 
 
Not surprisingly—and notwithstanding the intent and actual significance of a filed SAR—sensational news articles about the FinCEN Files are being published globally, by the minute. Nor is it surprising that the stocks of global banks plunged following the FinCEN Files revelations. 

Those who have been working in this field for a significant period of time know that the FinCEN Files leak is exceptional and unprecedented in terms of importance, even for a global news scoop such as this one. For decades, the underlying information—the contents of SARs filed around the world—has been considered and treated by compliance professionals as extremely confidential. That’s because the reports, which flag transactions for further review and only subsequently are potentially investigated by law enforcement authorities, aren’t necessarily indicative of criminal conduct or other wrongdoing; rather, as indicated by the name of the reports, they reflect compliance officers’ suspicions. In other words, the reports filed are not intended to be nor should be considered as hard evidence for singling out, condemning, and/or making a final judgment on the parties involved. They are a record of an event that raised some suspicion and is therefore made available in a large national repository should it be helpful to those responsible for ongoing and future criminal investigations. 
 
The ICIJ states on its website that its investigation “reveals the role of global banks in industrial-scale money laundering—and the bloodshed and suffering that flow in its wake.” I would argue that the investigation also reveals solid evidence that the banks and their compliance officers—deputized by governments to fight money laundering, terrorism financing, and other financial crimes—are actually executing their responsibilities.
 
In fact, what I find most interesting about this case is that by making a portion of the leaked records available to anyone and everyone, and in an easy-to-digest format (e.g., by country and by financial institution, by sender and recipient location), the FinCEN Files scoop appears to be impatiently bypassing the role of government entities responsible for taking action on the suspicious report filings and, in a way, voicing (the predominantly silent but commonly felt) frustration at the lack of discernible follow-up by those same enforcement agencies. 

Could this unprecedented leak result a wave of change for the fight against money laundering, a call to action that results in a supranational re-evaluation of governments’ approach to processing SARs and the creation of a feedback loop (for example by FATF and/or the Egmont Group, jointly with industry subject-matter experts), or will it stop short at the familiar onslaught of criticism directed at the financial institutions involved?
 
Only time will tell what the outcome of publishing the highly confidential reports will be. Hopefully, after the initial pressure on the financial institutions wanes, those left standing to take action will be inspired governments, with their attention shifting to the swiftness with which they analyze and react to the very valuable but also very costly information that is constantly being provided to them (free of charge), and the need for a private-public discussion on how to make evermore incisive use of it.

Please note that I am neither in favor of nor against the leak, what has been written based on the information that was leaked, the conclusions that have been drawn, or any of the parties directly or indirectly involved.

The FinCEN Files have opened a debate on the process of SARs reporting and the AML/CFT system. 

Additional reading:

https://www.icij.org/investigations/fincen-files/

https://www.icij.org/investigations/fincen-files/download-fincen-files-transaction-data/
 
https://www.bloomberg.com/news/articles/2020-09-21/highlights-from-the-fincen-files-on-banks-suspect-transactions

https://publications.parliament.uk/pa/cm201719/cmselect/cmtreasy/2010/201006.htm

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