An unprecedented leak of thousands of files from the U.S. government’s most confidential financial intelligence database has highlighted the world’s $2 trillion-a-year dirty money habit. The story goes much further than the “bad bankers” narrative popularly drawn from the deep reporting by many of the world’s leading investigative journalists.
In many countries, filing a suspicious activity report (SAR) can be a death sentence. Whether it’s the fentanyl trade, human trafficking, terrorism, child exploitation or wildlife crime, ruthless criminals will kill to get their hands on illicit money, and then to keep it. For example, one anti-money laundering (AML) officer in Karachi, Pakistan has two armed guards, paid for by his employer to protect his family. In Pakistan, this is just a cost of doing business as a major bank, complying with the law, and keeping staff safe.
On another occasion, a former U.S. Drug Enforcement Administration (DEA) agent explained how he found the body of a financier in a car in Mexico City. The body of the financier, one of the ex-DEA agent’s main informants on a drug cartel money laundering operation, showed signs of torture, with the man’s hands tied behind his back with his necktie. His fingertips were burnt to black stumps.
Another AML officer in Amman, Jordan, who loves his calling despite operating in one of the region’s riskiest markets, said he occasionally gets tailgated on the way home from filing required SARs on suspected terrorism financing. “They want us to know that they’re watching and that there can be consequences for this type of work,” he said, shrugging his shoulders.
An inspiring breed
Many of the world’s AML professionals love the challenge and sense of purpose that comes with analyzing financial flows in order to identify criminal activity. Their job is to understand their business, their geographical risks, their customers, and then to spot indications of criminal activity. Necessary talents include interpersonal skills and human intelligence, as well as understanding cutting-edge IT platforms and big-data analysis.
Their job is not to prove crimes. Rather, it is to act as the bank’s eyes and ears and its voice of professional skepticism. Once they have formed a suspicion, these professionals are bound by law to package up a file and feed it securely to their government’s AML authority, or financial intelligence unit.
The money laundering reporting officers may decide to close a high-risk bank account. More often, such decisions are made by the bank’s business relationship manager. Many banks have fallen afoul of regulators when there is a power imbalance between the risk, operations, and business divisions, sometimes costing bank shareholders billions of dollars in fines and remediation. In most major AML enforcement cases, the fundamental problems lie outside the compliance staff, such as in board complacency or senior management funding priorities.
“The bank’s job is to run a business and to report anything that’s suspicious,” the ex-DEA agent said. “Law enforcement’s job is to work with that intelligence, to build the bigger picture.”
Leaks, tips & tipping off
In late-September, the financial intelligence world was shaken when the International Consortium of Investigative Journalists (ICIJ) confirmed it had obtained more than 2,100 of these highly sensitive SARs that had been sent to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN).
The ICIJ published several articles based on SARs that involved more than $2 trillion and had come from some of the largest international banks, including HSBC, JPMorgan, Deutsche Bank, Standard Chartered, Barclays, and Bank of New York Mellon.
There was a palpable chill as bank staff worried that their names and contact details may be “in the wild” on confidential SAR forms because banks must provide a point of contact when they file SARs. These days FinCEN lets them list a generic contact, for personal security reasons, but in the past these SARs often listed the individual who initially voiced the suspicion within the bank. Fortunately, members of the latest ICIJ exposé have worked to minimize the risk that individual SAR filers will be identified.
In the wake of the exposé, there has been much public commentary criticizing the banks for facilitating industrial-scale money laundering even as they reported suspicions. There has less focus on the failure of law enforcement to pursue cases. AML practitioners have said the SARs revealed that the banks had reported their suspicions to the relevant agencies and that it is up to intelligence and law enforcement agencies to act further.
For banks and their AML teams, the latest leaks are a blow. Reporting on your customers is never easy, especially when the obligation is to report mere suspicions, well short of any hard evidence of a crime.
Further, financial crime experts said the leaks threaten the trust and confidentiality that banks place in FinCEN and its international partner agencies. And some policy makers and advocacy groups argue for an overhaul of the existing financial crime compliance framework.
Civil society at stake
The most positive outcome from the leaked FinCEN files would be for the public to learn the extent to which kleptocrats, drug kingpins, human traffickers, and multinational tax evaders have infiltrated the worldwide economy. If people fail to demand change, the privileges of living in a civil society built upon an equitable, clean, and well-regulated financial system may be at risk. Indeed, financial crime prevention is essential to maintaining integrity in the financial system and helping law enforcement agencies tackle serious crime.
EBanks and their AML teams have clearly made mistakes, as have regulators and governments; yet the revelations in the FinCen files should not detract from the government-private sector partnership that has fought illicit transactions for decades. Nor should it be allowed to derail the work that lies ahead.