WHAT ARE THE FINCEN FILES?

On 20 September 2020, the International Consortium of Investigative Journalists published a series of leaked documents from the Financial Crimes Enforcement Network (FinCEN)¹. FinCEN is the US Treasury Department’s bureau that collects and analyzes information about financial transactions with the aim of combatting terrorist financing, money laundering and other financial crimes. The so-called FinCEN files contain more than 2,100 suspicious activity reports (SARs)² that were filed by financial institutions to FinCEN between 1999 and 2017. These 2,100 FinCEN files represent less than 0.02 percent of the total amount of SARs filed during this period. The total amount of transactions covered by the FinCEN files was over $2 trillion.

KEY FACTS

Almost 90 global financial institutions appear in the FinCEN files:

• Some of the largest US financial players reported processing large transactions affiliated with a Kazakh politician wanted by INTERPOL.
• The documents show a high exposure to certain tax havens (e.g. Panama) and high-risk jurisdictions (e.g. Venezuela).
• A childhood friend of the Russian President Vladimir Putin was accused of using a UK-based bank as a way of avoiding sanctions specifically targeted against him. 
• The Chelsea football club owner Roman Abramovich was accused of using offshore accounts to make secret investments in other teams’ players. 
• The United Arab Emirates' Central Bank processed $142 million between 2011 and 2012 despite the transactions being labelled as suspicious due to their connections to Iran.
• A major US bank allowed a company to transfer over $1 billion through a UK account, without systematically identifying the ultimate beneficial owner (UBO). This account was later revealed to be potentially owned by an individual on the FBI’s Ten Most Wanted list.
• A Russian oligarch and close associate of President Putin secretly wired money to a couple who then donated £1.7 million to the UK's governing Conservative Party.

WHAT’S NEW? 

Unlike the earlier scandals (e.g. Panama Papers, 1MDB, Luanda leaks, etc.), the FinCEN files reveal an exposure to money laundering throughout the entire financial sector. The information disclosed in those files indicate that money laundering is still today a major structural and global issue that needs to be addressed. Moreover, the reported illegal activities also show the increasing level of sophistication behind money laundering schemes.

Despite the efforts by financial institutions to prevent money laundering activities, terrorist financing and other forms of financial crime, the pandemic has highlighted that further improvements are still necessary to enhance the robustness of companies’ regulatory and compliance framework. The time for technical compliance is over and financial institutions cannot afford not to have more systemic and effective frameworks.

In particular, financial institutions will need to connect the dots between the information gathered from client due diligence and suspicious activity reports.
As a silver lining, the leaked reports show that screening and monitoring systems are working as intended. 

The FinCEN files reaffirm the importance of the financial sector and its preventive compliance measures in the combat against money laundering and terrorist financing, as these topics are likely to remain high on the public agenda for many years.

CONSEQUENCES FOR FINANCIAL PLAYERS

• Following the publication of the leaked FinCEN files, financial regulators worldwide seized the opportunity to call for further global reforms.
• We expect regulators to increase their scrutiny of the robustness of frameworks, particularly regarding high risk countries and tax haven jurisdictions.
• Although the institutions mentioned in the files claim that they have strong AML measures in place, the significant drop in their share prices indicate concern on behalf of investors and clients. 

CONTACT US

The Financial Crime Team at Capco Belgium provides skilled and pragmatic services on all aspects of financial crime, including AML/KYC, sanctions, transactions monitoring.

For further information and questions about how our team can assist you in your regulatory and compliance endeavors, do not hesitate to contact us.   

Jeroen Dossche
Partner
T +32 3 740 10 00
E Jeroen.Dossche@capco.com

¹ https://www.icij.org/investigations/fincen-files/

² A SAR is used to report suspicious transactions or suspicious facts. However, a SAR – in itself – does not constitute proof of money laundering. In fact, only a fraction of SARs will eventually result in criminal proceedings.