The Meaning of the FinCEN Files «Global Financial Integrity

The United States occupies a uniquely important place in this global effort to rid the world of dirty money. As the regulator of the world’s largest economy and the issuer of the global reserve currency, the US government exercises disproportionate regulatory and law enforcement power over the global economy and has unparalleled visibility into its workings. US laws against bribery, fraud, and money laundering have an exceptionally long extraterritorial reach. Just as significantly, the role of US correspondent banks in facilitating dollar-denominated transactions means that their regulator, the Treasury Department, can at the stroke of pen exclude foreign actors from the US financial system. Such designations can make an economic pariah out of individuals and firms that would otherwise be beyond the reach of US law.

At first blush, the United States seems to be pulling no punches. In 2019 alone, US fines issued in connection with non-compliance with money laundering, customer due diligence, and sanctions regulations exceeded $ 8 billion. Fines under the Foreign Corrupt Practices Act, which criminalizes bribes to non-US officials, totaled $ 2.6 billion, the highest figure since the law was passed in 1979. These numbers dwarf those of any other country, even accounting for the size of the US economy . Since 2017, furthermore, the United States has for the first time been imposing economic sanctions on individuals who engage in corrupt activities abroad, a practice that other countries are now seeking to emulate. When it comes to deterring and punishing corruption and illicit finance, America is in a class of its own.

But is it enough? Recent reporting by Buzzfeed and the International Consortium of Investigate Journalists suggests the answer is no. The two news organizations obtained thousands of “suspicious activity reports” (SARs) and other documents filed by banks and other financial institutions with the Financial Crimes Enforcement Network (FinCEN), the US FIU, in connection with regulatory requirements under the Bank Secrecy Act and other anti-money laundering laws. The documents, dubbed the “FinCEN Files,” depict a financial system that is both flooded with the proceeds of crime and also itself a playground for money launderers, Ponzi schemers and other financial criminals. They offer a window into a world in which well-known kleptocrats, arms dealers with unsavory political connections, drug cartels, traffickers in stolen art and antiquities, and a rogue’s gallery of high-profile scammers succeed in moving funds through the United States and other advanced economies despite obvious red flags. The institutions banking these scofflaws, moreover, are not shadowy fly-by-night institutions, but some of the most prestigious and well-known names in the industry: JP Morgan Chase; Bank of America; Citibank; American Express, as well as a host of major European and Asian banks.

How does one square the troubling impression of a global — and American — economy awash with dirty money, as seen in the FinCEN files, with the substantial anticorruption and anti-money laundering apparatus erected over the past 40 years? There is good reason to approach the question with caution: Illicit finance is by its nature clandestine, and the situation may seem worse now than in the past because we have gotten better at spotting money laundering and the crimes it enables. Furthermore, the concerning activities documented in the FinCEN Files are only known to us because regulated financial entities complied with their legal obligations by reporting suspicious behavior to authorities. In other words, dirty money may seem more prevalent now than in the past because we have gotten better at detecting it.

Even so, one would be hard pressed to come away from the FinCEN Files with the observation that the system as currently designed and enforced is doing an effective job of keeping criminals and corrupt officials out of the global economy. This is a depressing takeaway given the vast sums that banks and other firms spend on compliance each year and the sizeable fines extracted by national authorities for breaches of anti-money laundering and anticorruption rules. With so much money and so many man-hours now devoted to preventing abuse of the financial system, why aren’t things better?

Unfortunately there is no single, straightforward answer to this question. Many shortcomings and missteps made possible the world described in the FinCEN Files. The global economy is dizzyingly complex and highly interconnected; taming it was never going to be an easy task, especially in an age where capital zips instantly across borders with the click of a mouse button, while regulation and law enforcement still happen at the level of the nation state. This being said, there are a few contributing factors that deserve special attention.

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