FinCEN Files: An Alternative Opinion – Interview with Industry FCC leader by FCN

Following publication of materials last Sunday by the ICIJ known as the Fincen Files, and the follow on’s this week, Financial Crime News interviewed a leading active financial crime fighter at a Tier 1 Bank who was willing to respond with their take as an insider on this important matter. This opinion is important because whilst some of these types of views are being widely shared privately, they are not being heard from incumbents publicly for obvious reasons and is therefore an important contribution to the discussion. This interview is published without revealing the name, which seems in keeping somehow with the times we live in. There is no question that the cases highlighted by the FinCEN files are serious, worthy of attention and represent examples where investigations and action to establish guilt and accountability are absolutely necessary. The manner of these leaks though and the commentary around publication suggest this is being done by the media, with collateral damage resulting, and without much of an alternative narrative or response.

Q1 – FCN: ICIJ FinCEN leaks. What were your first impressions?

Response: I have no reason to question the initial intention of the consortium of journalists, to raise public awareness about the challenges faced in fighting financial crime, where criminals by and large continue to generate significant proceeds of crime and only a relative few are prosecuted and only a small amount of illicit assets are seized. To raise these concerns would still be news, despite these facts being well known and regularly discussed at public conferences and with stakeholders. Being raised in the popular media, could well have made a difference and helped move the debate from what’s not working to what should be done to make the system work better. There are plenty of concrete proposals, many that have been successfully piloted and more that leverage the tremendous opportunity that data and technology present today, as well as building on the spirit of collaboration that exists across an ever increasing eco system. There are also proposals that ask for a fundamental shift away from focussing just on technical compliance to focussing on outcomes in order to improve overall effectiveness, to sharing information and working together in a joined up way in the public and private sectors both domestically and internationally. More on this later.

Q2 – FCN: So how have in your opinion the ICIJ reported this story so far?

Response: It seems to me that they have reported the story, which is not based on anything like a representative sample, based on a narrative that is generated by a fundamental lack of understanding of the current internationally agreed AML/ CTF frameworks, and without providing context, proffering alternative views, or crediting those for the great work they do every day that goes and remains unseen and unreported.

Headlines that could be written, for example to say that Banks identified and reported potentially important suspicious activity to authorities have instead been written to say essentially that Banks have allowed US$2 trillion in suspected criminal funds to be laundered, suggesting intent and or complicity. Often journalists privately complain that headline writers often hijack their pieces, in order to sell a story, but the body of the stories in the FinCen files all too often follow this narrative.

For what it’s worth, I have spoken with many colleagues this week both inside my organisation and across the Industry and the common consensus is the reporting is highly misleading and the commentary is full of inaccuracies and much of it should be challenged. That Financial Institutions, nor those employees who would wish to do so are not able to, should not be a surprise, not least because laws that govern us all prevent commentary on cases that may be the subject of SARs filed and or criminal investigations. That leaves open though an unchallenged false narrative that is dangerous and may have a lasting effect.

On another level, the reporting has caused additional harm at multiple levels – effectively trashing the work of hard-working professionals who have taken it their mission to fight financial crime, trivialising the efforts and 10s of billions of dollars spent by Financial Institutions on multi-year enhancement programmes, that have made a difference and do so every day.

Q3 – FCN: Could you elaborate a bit more on the areas that ICIJ could have provided more context?

Response: As I read though the many articles this week, it was clear to me that the journalists did not understand how banking works, particularly how Correspondent banking works, the role for example of the originator bank and the obligations and responsibilities of the supervisors and of law enforcement in these jurisdictions. Instead they focussed almost entirely on major US and non-US banks licensed to clear US$ currency, and in such cases the challenges and expectations around know your customers’ customer. Furthermore, differences between international and national legal framework governing AML and Sanctions laws were either ignored or simply considered irrelevant to the reporting, despite compliance with ALL laws and regulations being the minimum standard for doing banking business, despite the difficulty. Lastly the concept of tipping-off, data privacy challenges, follow the money requests, keep open procedures, exiting challenges and the vagueness of what raises suspicion in any one case let alone across the industry in different jurisdictions, in different circumstances are important details that should but were not given airtime.

Q4 – FCN: Are you saying the portrayal of Banks laundering what sounds like huge sums as alleged by the ICIJ is false?

Response: No Bank worthy of its license wants to bank criminals and terrorists. Certainly not where I work or with whom I deal. The unfortunate truth is however that criminal proceeds are laundered and whilst the amounts are too high, they still make up a tiny proportion of money’s flowing through banks at click speed on a daily basis. Banks have fine tuned their systems and controls to spot identifiable proceeds and when suspicions are detected to report these suspicions to the appropriately law enforcement agency. In most cases, it’s likely that a Banks suspicion, even if further investigated by law enforcement,  will not lead in most cases to a prosecution, conviction or a confiscation order.  This places the Bank in a difficult position. If a SAR is filed should a customer be exited? If a SAR is filed about a customer of a correspondent bank, should the Bank restrict further transactions for that customer? The answer to these 2 questions appears to be an unqualified resounding YES and YES, from the ICIJ reporting. If this position was followed, the ICIJ reporting would no doubt instead be on the mass closure of accounts by Banks towards long standing bank customers, and the de-risking of third countries from the international financial system, without time to open new accounts, without providing good enough reasons and without due process.

I mentioned earlier that the leaks and reporting do not provide sufficient context. For example whilst US$2 trillion is quoted regularly as being amounts Banks may have laundered, the use of the US$2 trillion figure is sensational and deeply misleading, this is because suspicion is not the same as guilt and ranges from situations where suspicion can’t be ruled out to situations where there is a high degree of confidence of criminal funds being identified. One leaked SAR suggests suspicions of a customer where US$354 billion made up from 100,000 separate transactions was reported. If all these funds were true criminal proceeds, this one case would represent approx 25% of global criminal proceeds estimated as laundered each year, and all the transactions reported and leaked would represent 150% of total estimated laundered criminal funds. This though generated from just 2,100 US filed SARs. Whilst US$2 trillion is therefore a highly questionable figure to use, it might be useful to know that. according to the US Government, an estimated US$2 quadrillion moves through the US financial system in a year. A quadrillion is a thousand trillion!

Q5 – FCN: So the Banks are perfect?

Response: No not at all. Many have made serious mistakes, historically underinvested and insufficiently understood the challenge, complexity and the requirements. Some still have that journey to make, but for the Banks that have been targeted, what you see today is not what they might have been in the past. That’s not to say things can’t get better, that mistakes won’t be made but overall, these and many other Banks have upgraded their systems and controls after many years of work, in many cases under independent supervision and enhanced oversight. Banks are important and weak links here can be exploited. The size of large Banks operations though mean that occasional bad actors will emerge and some criminals will get through the defences. Whilst it’s high time Banks found ways to talk more often about the positive contributions they make, to do so within the current strictures requiring confidentiality and the potential legal challenges that this might invoke, make a public disclosure on this difficult, though what’s available otherwise is only the opinions of their critics.

It’s a legitimate question to ask if the Banks are doing enough, but this question should be asked of all stakeholders and a fair and balanced judgement taken once all evaluations are made.

For what it’s worth, the Banks have been pleading for reform for the last few years, and in particular SAR Reform, which if successful would reduce the likely number of SARs filed, that these would be of much higher quality and those with higher levels of confidence of suspicion and focussed on those areas that are priorities for and can be actioned by Law Enforcement.

Q6 – FCN: What will be the impact of these ICIJ Fincen Leaks?

Response: The immediate impact is that everyone’s focus is on the immediate fallout. Boards and Regulators want to know if a Bank is named, if so why and in what circumstances and what potential exposures there could be. This is the normal reaction to any media publication, but this time it’s intense. A significant part of this week has been trying to explain what is covered in this interview to many stakeholders and to keeping up morale within FCC teams in particular. This after a very intense and challenging 6 months dealing not only with the normal challenges we face but also with Covid 19 and the fallout that will come from this. It has been “interesting” to see mostly SMEs commenting publicly on these matters, though too many are “Subject Matter Enthusiasts” and not it seems to me, with some exceptions “Subject Matter Experts.” As with all news stories there are some that even appeared ecstatic as the leaks were about to be announced as though this was Watergate.

Longer term, let’s see. We might miss the opportunity to do effective SAR Reform or to focus on the solutions to long standing problems which require trust and collaboration, as well as the right ideas, which will be a loss we will regret. Then again it just might be the impetus required. If these leaks, with all the criticisms that can be made of them, force the difficult questions to be raised and the right solutions to be found, then I for one will admit the leaks were in the public interest, notwithstanding the reporting is underwhelming.

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Martin Johnson
Martin Johnson
2 months ago

Great to see the impact of the leaks from the perspective of a current practitioner at last. Provides the objectivity and balance that has been so far absent in a debate hijacked by so called professionals who use cases such as this to raise their profiles and promulgate their own agendas. Well done FCN