We’ve just had the closest look yet at the global battle against money laundering, and it’s deeply troubling: Banks and their regulators are nowhere near restraining the flow of trillions of dollars of illicit funds.
Both the finance industry and the authorities are to blame. Without an urgent, concerted political effort, criminals — from drug dealers and terrorists to human traffickers — will keep the upper hand.
In a year-long investigation by BuzzFeed and the International Consortium of Investigative Journalists, reporters pored over about 2,100 suspicious activity reports, or SARs, which lenders file to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) when they spot potential money laundering and other bad behavior.
While the number of SARs reviewed by the journalists dwarfs any previous access to these confidential documents, they’re still just a tiny fraction — 0.02% — of the 12 million or so SARs that were probably filed during the period in question, mostly 2011 through 2017. Also, the sample isn’t representative of overall banking activity. Some records stem from the U.S. congressional investigation into interference with the 2016 presidential election. Almost half of the SARs came from Deutsche Bank AG.
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Still, the sums and the patterns of failings are staggering. This small number of reports alone flagged up $2 trillion of fund flows, $1.3 trillion from Deutsche Bank, that may have stemmed from criminal activity. And the FinCEN Files are just the tip of the iceberg, as Transparency International put it. (The banks’ responses to BuzzFeed are here.)
The U.K., home to more than 600 companies flagged in the reports, appears to be the biggest hub for dodgy money flows, with the U.S. second. Britain clearly hasn’t done enough to tighten laws against money launderers. A huge web of enablers, from lawyers to accountants and bankers, helps oil the wheels of illicit finance through London.
Banks, for their part, are too slow if not outright negligent in submitting SARs. More than a fifth of the documents included in the submissions related to subjects whose addresses weren’t known to the banks, including companies with whom the lenders were already banking.
SARs, which should be filed within 60 days of detecting potential criminal activity, were sometimes submitted years later. According to the BuzzFeed/ICIJ report, that was allegedly the case with JPMorgan Chase & Co., which processed payments for Paul Manafort, President Donald Trump’s former campaign manager, after he resigned from the 2016 campaign amid money-laundering allegations. HSBC Holdings Plc kept moving money for an investment fund that was already under investigation over allegations it was a Ponzi scheme, the report says.
Alarmingly, banks often just rely on internet searches to find out who their clients are and only file suspicious reports after news breaks or formal investigations are launched. In the bundle of SARs reviewed by the reporters, the median filing time since the suspicious activity began was 166 days. Imagine how far those funds would have gone in half a year.