The “‘FinCEN Files”’ have set the financial crime-fighting world into a frenzy this week, dominating the news cycle. A leak of 17 years worth of suspicious activity reports (SARs) that were submitted to the Financial Crimes Enforcement Network (FinCEN) led investigative journalists on a multi-year probe of tainted money flowing through the world’s financial systems.

While the investigative review of illegally leaked documentation and illicit cash movements makes for salacious media headlines, are we really surprised by the content (or leaking for that matter)? It is no secret that we are fighting an uphill battle against sanctions evaders and the prevention of dirty money moving through financial institutions (FIs).

The FinCEN Files ask us to stop and consider if collectively we are taking the right actions to prevent financial crimes. There is an inference that some have failed to do the right thing — including regulators and FIs — once a reasonable person became suspicious.

It was also no secret that public-private partnerships to fight financial crime were very much a work in progress. Additionally, a large portion of this data relates to a financial crime-fighting era in which regulators had yet to fine many FIs for lax controls and weak AML programs. In other words, much of the documents were pre-enterprise risk management program upgrades. However, some of these root issues remain today.

FinCEN issued a statement on September 1, reminding the world that public release of such confidential information is illegal, thus indicating they knew this was coming. It’s obvious we still have a daunting task ahead of us as a society to prevent the flow of illicit funds.

So what does this really mean?

What are the implications of the FinCEN Files?

At a broad level, we see a process that is functioning as intended. FIs review customer activity, deem it suspicious, escalate to FinCEN for action, and review the business relationship. A likely next step will be investigations following these disclosures to establish whether there was a failure of some in influential positions to exit customer relationships in line with internal risk appetite. Expect the Department of Justice to take action in the background and share the outcome of its prosecution(s) (if any) at a time of their choosing. However, this does call into question whether the process is effective.

If you are part of the financial crime-fighting community this presents an exciting opportunity to seize public awareness and momentum to enact changes to the current environment.

We have seen US legislation (ILLICIT CASH Act & Corporate Transparency Act vs. TITLE Act) stall somewhat recently due to disagreements and differing, political priorities. Public sentiment, particularly in an election year, may see this move to the top of the debate queue.

In EMEA we have seen an influx of new regulations in the last few years, including the UK Criminal Finances Act and the recent updating of the UK Money Laundering Regulations in 2017. Indeed MLD 5 and MLD 6 are hot on the heels of MLD 4. A pace EMEA has never seen before.

APAC has been a leader in regulatory sandboxes and pushing public, private engagement. We expect that to continue and pick up steam as the push for staying ahead of criminal activity gains strength in the court of public opinion.

We are likely to see a collective push towards meeting deadlines in a timely manner and greater testing of effectiveness.

Thematically, we expect to see the following come under greater scrutiny:

Push for ultimate beneficial ownership disclosures, central databases to capture and monitor such information – and sharing this information in an adequate manner while respecting privacy concerns.

Acceleration of current efforts to help better understand correspondent banking relationships and who the ultimate individual and/or entity is both undertaking the activity and the potential benefactor.

Consideration of more stringent measures, which may include the cessation of business activities, in the event a SAR is filed. The FinCEN files show us that, despite filing SARs, organizations have a history of continuing business-as-usual with these individuals and entities.

Key Takeaways

While the process was adhered to, the FinCEN Files fallout leads us to question the efficacy of it. If SARs were filed on $2 trillion USD in suspicious activities alone then you can bet this is just the tip of the iceberg.

There’s likely to be a revamp of the SAR process with greater emphasis on collaboration between FIs, regulators, and Law Enforcement. Additionally, questions will be asked of FIs that continued to do business with individuals and entities whose activities have been classified as “suspicious.”

One thing is for certain. Things are only getting started. Your AML obligation does not stop at filing a SAR.


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