The FinCEN Files: What is the Money Laundering Scandal All About?

The leaked documents involve approximately about $2 trillion worth of dubious transactions.

Published
Explainers
3 min read
The dubious transactions carried out by the banks have been enriching potential suspects "and their shareholders while facilitating the work of terrorists, kleptocrats, and drug kingpins", claims the original report.
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Investigating a massive stockpile of leaked government documents, Buzzfeed News along with a consortium of international journalists uncovered that a large group of major banks allegedly approved trillions of dollars of potentially suspect criminals from around the world.

These dubious transactions are carried out despite bank staff warning against their potential relation to crime, enriching potential suspects "and their shareholders while facilitating the work of terrorists, kleptocrats, and drug kingpins", argues the report.

The leaked documents involve approximately about $2 trillion worth of transactions, revealing how some of the world's biggest banks have allowed criminals to move dirty money around the world.

The FinCEN Files: What is the Money Laundering Scandal All About?

  1. 1. What Are the FinCEN Files?

    Mostly dating from 2011 to 2017, with records of some transactions that occurred as early as 1999, the FinCEN files are over 2,500 documents that banks sent to the US authority.

    These documents contain Suspicious Activity Reports (SARs) that banks and other financial institutions submit to the US Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, when certain transactions raise flags of money laundering or other illegal activity.

    The documents are some of international banking's most closely guarded secrets. They are so closely protected, the report claims that they were never meant to be available to the public. In the US, you can’t access them through 'Freedom of Information' requests nor can you subpoena them in legal proceedings.

    Although they themselves are not evidence of a crime committed, they can however support investigations and intelligence gathering and be further indicative of compliance processes in place.

    Expand
  2. 2. Why Does This Matter?

    The most important factor to be able to profit off a criminal enterprise is to have a mechanism in place to launder money.

    Money laundering is the process of taking 'dirty money' – money generated from crime – and cleaning it or 'washing it' in an account at a respected bank where its links with crimes would be erased.

    Banks are supposed to have mechanisms in place that prevent this laundering of money through its accounts. By law, they are required to know who their clients are.

    Fergus Shiel from the International Consortium of Investigative Journalists (ICIJ) said the leaked files were an "insight into what banks know about the vast flows of dirty money across the globe".

    There are extraordinary sums of money involved. Shiel noted that the documents in the leaked FinCEN files cover about $2tn of transactions and they are only a small proportion of the SARs submitted over the period.

    The problems with money laundering aren’t just confined to one bank or one country. The SARs in the FinCEN files flag people and organisations in more than 170 countries and territories.

    At least 44 Indian banks have been flagged in these reports. The banks mentioned in the SARs include: state-owned Punjab National Bank (290 transactions); State Bank of India (102); Bank of Baroda (93); Union Bank of India (99) and Canara Bank (190), among others.

    Indian banks figure in SARs linked to over 2,000 transactions valued at over $1 billion.
    The FinCEN Files: What is the Money Laundering Scandal All About?
    (Photo Courtesy: Buzzfeed News)
    Expand
  3. 3. What's the Loophole?

    FinCEN's budget of $115 million is relatively small compared to other Treasury subsidiaries, like the Internal Revenue Service or US Mint. BuzzFeed News has reported that the vast majority of these Suspicious Activity Reports (SARs), are never even read, much less investigated.

    SARs, designed to fight against money laundering, contain a crucial loophole: Banks are required to file a report with FinCEN, but not terminate the suspicious activity or stop serving the suspect clients.

    Expand
  4. 4. What Does All This Mean?

    At the moment, it is not entirely clear what negative consequences, if any, banks highlighted in the FinCEN files may face.

    The transactions detailed in the files demonstrate that the system is flawed, but does not make clear if the banks themselves have not broken any rules.

    “Unless there are more substantive allegations of fact, we expect that (these articles) will not have lasting impacts on the industry or stock prices,” Oppenheimer analyst Chris Kotowski wrote in a note to clients, reports Reuters.

    Expand

What Are the FinCEN Files?

Mostly dating from 2011 to 2017, with records of some transactions that occurred as early as 1999, the FinCEN files are over 2,500 documents that banks sent to the US authority.

These documents contain Suspicious Activity Reports (SARs) that banks and other financial institutions submit to the US Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, when certain transactions raise flags of money laundering or other illegal activity.

The documents are some of international banking's most closely guarded secrets. They are so closely protected, the report claims that they were never meant to be available to the public. In the US, you can’t access them through 'Freedom of Information' requests nor can you subpoena them in legal proceedings.

Although they themselves are not evidence of a crime committed, they can however support investigations and intelligence gathering and be further indicative of compliance processes in place.

Why Does This Matter?

The most important factor to be able to profit off a criminal enterprise is to have a mechanism in place to launder money.

Money laundering is the process of taking 'dirty money' – money generated from crime – and cleaning it or 'washing it' in an account at a respected bank where its links with crimes would be erased.

Banks are supposed to have mechanisms in place that prevent this laundering of money through its accounts. By law, they are required to know who their clients are.

Fergus Shiel from the International Consortium of Investigative Journalists (ICIJ) said the leaked files were an "insight into what banks know about the vast flows of dirty money across the globe".

There are extraordinary sums of money involved. Shiel noted that the documents in the leaked FinCEN files cover about $2tn of transactions and they are only a small proportion of the SARs submitted over the period.

The problems with money laundering aren’t just confined to one bank or one country. The SARs in the FinCEN files flag people and organisations in more than 170 countries and territories.

At least 44 Indian banks have been flagged in these reports. The banks mentioned in the SARs include: state-owned Punjab National Bank (290 transactions); State Bank of India (102); Bank of Baroda (93); Union Bank of India (99) and Canara Bank (190), among others.

Indian banks figure in SARs linked to over 2,000 transactions valued at over $1 billion.
The FinCEN Files: What is the Money Laundering Scandal All About?
(Photo Courtesy: Buzzfeed News)

What's the Loophole?

FinCEN's budget of $115 million is relatively small compared to other Treasury subsidiaries, like the Internal Revenue Service or US Mint. BuzzFeed News has reported that the vast majority of these Suspicious Activity Reports (SARs), are never even read, much less investigated.

SARs, designed to fight against money laundering, contain a crucial loophole: Banks are required to file a report with FinCEN, but not terminate the suspicious activity or stop serving the suspect clients.

"These documents, compiled by banks, shared with the government, but kept from public view, expose the hollowness of banking safeguards, and the ease with which criminals have exploited them", stated the report.

"Profits from deadly drug wars, fortunes embezzled from developing countries, and hard-earned savings stolen in a Ponzi scheme were all allowed to flow into and out of these financial institutions, despite warnings from the banks’ own employees."

What Does All This Mean?

At the moment, it is not entirely clear what negative consequences, if any, banks highlighted in the FinCEN files may face.

The transactions detailed in the files demonstrate that the system is flawed, but does not make clear if the banks themselves have not broken any rules.

“Unless there are more substantive allegations of fact, we expect that (these articles) will not have lasting impacts on the industry or stock prices,” Oppenheimer analyst Chris Kotowski wrote in a note to clients, reports Reuters.

(With reports from Buzzfeed News and Reuters)

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