- Leaked reports from the US Financial Crimes Enforcement Network (FinCEN) have revealed the dark sides of global banking system. Several global firms have been named in the reports that recorded suspicious activities.
- On Monday, 21 September, in the US, the news also ignited sell-off in bank shares. Some Australian banks have also been reported in the leaked files.
- It is alleged that suspicious activities include transactions by criminal organisations, terrorist outfits and drug cartels.
Global banks have come under pressure after reports emerged that some global banks have been found to be facilitating transactions for illegal organisations. It has been alleged that banks continued dealing with culprits even though regulators had warned.
HSBC, Standard Chartered, JP Morgan, Bank of New York Mellon and Deutsche Bank have been named in the reports. There are more banks on the list circulated in the media.
The US Financial Crimes Enforcement Network (FinCEN) files have been revealed by the media. This triggered a sell-off in markets on Monday, 21 September, in the US. The leaked documents contain suspicious activity reports (SARs), sent to authorities. Xx`
SARs are sent to authorities when banks believe customers could be involved in crimes. It is the banks' duty to freeze the cash movement whenever any evidence of criminal activity emerges. The leaked documents highlight how money was siphoned via large banks and anonymous companies.
It was reported that SARs were submitted to FinCEN for transactions between 1999 and 2017. The authority has noted that leaks pose a threat to national security, investigation, and people who had filed the reports to the authority.
High-profile global banks under strain
JP Morgan has been alleged to have transferred money for people and companies engaged in stripping public funds in Malaysia, Ukraine, and Venezuela. It was engaged in transferring money for culprits involved in the famous 1MDB scandal in Malaysia.
JP Morgan also moved money for a company that cheated the Venezuelan Government. Moreover, the bank transferred money for Paul Manafort, who has faced money laundering and corruption charges from his connections with a pro-Russian political party in Ukraine.
The SARs, submitted with FinCEN for transactions between 1999 and 2017, have transactions worth over $2 trillion that were flagged as money laundering or criminal activity.
The US authorities have asked banks to strengthen their anti-money laundering systems. Banks had been fined and threatened to instigate criminal charges over the transaction meant for criminal activity and money laundering.
Some high-profile banking companies in the files also include Barclays, Société Générale, State Street Corporation, Commerzbank AG, and China Investment Corporation.
In 2012, HSBC had acknowledged that money was laundered for drug cartels in Latin America. Specific-sized boxes for HSBC’s teller window were used to deposit huge amounts of money obtained through illegal drug trafficking.
Under a deal with authorities, HSBC agreed to pay a hefty fine, and authorities deferred prosecution for five years. After five years, the accusations were meant to be dismissed if HSBC continued to fight money laundering.
The report now suggests that HSBC had been engaged in transferring money for suspected characters in multiple countries. In 2017, the charges on HSBC were dismissed by the authorities.
It also alleged that banks on the FinCEN files have continued moving money to companies registered in safe havens without knowing the ultimate owner of the accounts. These safe havens include the British Virgin Islands, Hong Kong, Russia, Switzerland, Cyprus, the UK, the US, and the UAE.
Jordanian Arab Bank, which was accused in financing a blast in Jerusalem in 2003, was benefiting from a relationship with Standard Chartered. Arab Bank was barred from money-transfer activities in the US after authorities raised concerns on anti-money laundering practices.
Standard Chartered faced millions in fines after the US regulators found money laundering practices. Like HSBC, the bank entered into two deferred prosecution agreements with authorities.
The leaked files now reveal that Standard Chartered processed money transfer for Arab Bank customers between September 2013 and September 2014. They also suggested that Standard Chartered was transferring money for Arab Bank customers until February 2016.
AUSTRAC and Australian banks
Australian Transaction Reports and Analysis Centre (AUSTRAC) is the financial intelligence agency that supervises anti-money laundering and counter-terrorism financing. As a regulator, it is responsible for protecting the financial system from abuse.
The agency collects financial reports from the financial institution to gather financial intelligence. The information obtained by the authority relates to criminal activities and potential criminals. Crimes have now become more sophisticated, and criminals have developed new ways to exploit the system.
AUSTRAC has also kept pace with significant changes in the sector in terms of technology and disruptive practices. Over recent years, the authority has been responsible for unearthing unfair practices by a few of the leading banks of the country. AUSTRAC continues to monitor the financial services industry for any misconduct and breach of laws.
According to reports, Macquarie Group Limited (ASX: MQG) and Commonwealth Bank of Australia (ASX: CBA) have also been named in the leaked files of FinCEN. A small amount of money also pertains to Australia and New Zealand Banking Group Limited (ASX: ANZ).
Most recently, the authority had fined State Street Corporation, which failed to report international fund transfers. It is not clear whether the transactions reported in leaked files of Australian banks were reported to AUSTRAC.