Global banking compliance rocked by FinCEN leaks

The leaked FinCEN files have revealed that criminal gangs were able to transfer billions of $/€/£ globally using authorised bankwires, despite authorities having formally flagged the transactions as suspicious or as related to criminal activities.  

Reported this Sunday by Buzzfeed News, HSBC is at the centre of the scandal, having knowingly allowed transactions from a criminally sanctioned ‘ponzi scheme’ to go ahead, fulfilling payments across its global banking network and failing on its obligations to record the transactions – thus allowing the criminal gang to launder $88 million of proceeds.  

The cases relate to ‘suspicious activity reports’ (SARs), which are accounts that raise suspicion from banks, in spite of little evidence that they are committing any wrongdoings. 

SARs do not enforce that a bank must suspend transactions of an account, however they act as part of a bank’s compliance duties in relation to monitoring potential criminal activities, which must be registered with national authorities or financial police units. 

A series of documents was leaked to BuzzFeed, which revealed significant errors and unfulfilled SARs duties by tier-1 European and North American banks, with accounted for a total of $2 trillion in illegal transactions.

Of concern for European regulators, Deutsche Bank is documented as the FinCEN files ‘top offender’, with the German bank reported to have facilitated more than $1 trillion transactions The shocking FinCEN files will present a further headache for Germany federal financial services authority, following on from this summer’s fallout of the Wirecard AG scandal.

Deutsche Bank this morning published a corporate statement, underlining that the majority of SARs incidents have already been investigated and led to regulatory resolutions.”

A one-year investigation, the FinCEN files emphasized the role of banks when it comes to customer understanding and profiling, of which is one of their key responsibilities, in the fight against fraud and money laundering. 

Highlighted by the investigation, JP Morgan’s London subsidiary banking unit, allowed £1 billion to transferred through its banking systems without verifying personal account details, resulting in suspicion that the money may have originated in organised crime.

The releasing of the documents led to a significant fall in the share prices of the banks that were implicated, including HSBC, Standard Chartered and Barclays. 

UK banks and authorities are not exempt from criminal exposure, as the investigation reveals that London by far maintained the highest number of SARs non-compliance firms (+ 3,000 registered).  

As reported by The Guardian, the banks responded with HSBC offering statement, detailing: “All of the information provided by the ICIJ is historical.” The bank said starting in 2012, “HSBC embarked on a multi-year journey to overhaul its ability to combat financial crime across more than 60 jurisdictions.” 

Meanwhile, Barclays added that it ‘complied with all our legal and regulatory obligations including in relation to US sanctions’.

Also detailing: “Criminal activity which may seem obvious with hindsight is often only uncovered as a result of careful evidence gathering after the event in question has occurred or after a SAR has been filed. If we conclude we have financial crime concerns, we take appropriate action and have done so in numerous cases over the years.”

Standard Chartered stated: “We take our responsibility to fight financial crime extremely seriously and have invested substantially in our compliance programmes.”