Here’s what is changing after the FinCEN Files shook the world of banking

After ICIJ and BuzzFeed News pub­lished a joint inves­ti­ga­tion, offi­cials across the globe began to take action to thwart crim­i­nals and illic­it finan­cial activity.

Will FitzgibbonAnthony CormierJason LeopoldScott PhamRichard HolmesJeremy Singer-VineJohn TemplonTom Warren and Michael Hudson, The International Consortium of Investigative Journalists, December 17, 2020

Exposing a tor­rent of dirty mon­ey that the world’s most pow­er­ful banks trans­act in plain view of gov­ern­ment reg­u­la­tors, the FinCEN Files inves­ti­ga­tion has roiled the finan­cial indus­try like few sto­ries since the Great Recession — and cat­alyzed force­ful action in the US and beyond.

In the weeks after BuzzFeed News, the International Consortium of Investigative Journalists, and 108 news­rooms around the world began pub­lish­ing sto­ries based on a cache of secret records, U.K. law­mak­ers launched a for­mal inquiry into Britain’s over­sight of banks, mem­bers of the European Parliament advo­cat­ed for a stronger response across the con­ti­nent, and inves­ti­ga­tions were opened in coun­tries rang­ing from Thailand to Liberia.

Significantly, the FinCEN Files pro­vid­ed a final push in Washington, D.C., for pas­sage of a momen­tous new law tak­ing aim at one of the most effec­tive mon­ey laun­der­ing tools cit­ed in the sto­ries: anony­mous shell com­pa­nies. The leg­is­la­tion, passed last week with over­whelm­ing bipar­ti­san sup­port, requires many of these secre­tive American com­pa­nies to dis­close who owns them and who prof­its from them.

The Corporate Transparency Act marks the most sub­stan­tial revi­sion to anti–money laun­der­ing laws since the Patriot Act in 2001.

Provisions in the leg­isla­tive pack­age, tucked into the annu­al defense spend­ing bill, also address many of the oth­er sys­temic prob­lems iden­ti­fied in the FinCEN Files, which exposed the inef­fec­tive­ness of gov­ern­ment over­sight and the myr­i­ad ways that banks fail to stanch the flow of dirty money.

Among those reforms: The Justice Department would have to file year­ly reports jus­ti­fy­ing its use of deferred pros­e­cu­tion agree­ments — sweet­heart deals allow­ing banks that have run afoul of anti–money laun­der­ing laws to avoid tri­al and crim­i­nal con­vic­tions. The U.S. Treasury Department would also seek new tech­nolo­gies to bet­ter iden­ti­fy crim­i­nal mon­ey flows and to increase com­mu­ni­ca­tion between the pri­vate sec­tor and fed­er­al agen­cies. And those who blow the whis­tle on mis­con­duct would get new protections.

Although President Donald Trump has vowed to veto the over­ar­ch­ing bill — because it does not revoke an unre­lat­ed set of pro­tec­tions for social media com­pa­nies — law­mak­ers could over­ride the veto.

Public offi­cials have cit­ed the BuzzFeed News–ICIJ inves­ti­ga­tion as a rea­son the reforms gained sup­port after years of inac­tion. “The BuzzFeed sto­ry makes clear we need to strength­en, reform, and update our nation’s anti–money laun­der­ing laws,” said Sen. Sherrod Brown, the top Democrat on the Senate Banking Committee. “This action is long overdue.”

Sen. Ron Wyden, the rank­ing Democrat on the Senate Committee on Finance, also referred to the FinCEN Files on the day the leg­is­la­tion passed, say­ing: “Investigative report­ing has shined a light on mon­ey laun­der­ing and sus­tained pub­lic inter­est cer­tain­ly helped get these pro­vi­sions across the fin­ish line.” (Wyden sup­port­ed the reforms but vot­ed against the broad­er leg­is­la­tion for rea­sons unre­lat­ed to finan­cial regulation.)

To pur­sue the FinCEN Files inves­ti­ga­tion, reporters on six con­ti­nents sift­ed through a vast dis­clo­sure of sus­pi­cious activ­i­ty reports, or SARs, from the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The SARs detailed more than $2 tril­lion in sus­pi­cious trans­ac­tions in near­ly every cor­ner of the globe, with reporters link­ing flows of mon­ey to ter­ror groups, drug king­pins, and klep­to­crats. The 16-month inves­ti­ga­tion estab­lished how banks have helped facil­i­tate mass-scale mon­ey laun­der­ing and how nation­al reg­u­la­tors have failed to reign in the crim­i­nals or clamp down on banks.

Weeks before pub­li­ca­tion, jour­nal­ists work­ing on the FinCEN Files informed gov­ern­ment lead­ers of their find­ings and request­ed com­ment. Officials in the U.S. and U.K. announced they would be chang­ing anti–money laun­der­ing rules — the exact rules that the FinCEN Files showed were bro­ken and ineffective.

After BuzzFeed News con­tact­ed the U.S. Treasury Department, the agency announced that it would begin tak­ing sug­ges­tions from the pub­lic and insid­ers on how to update the Banking Secrecy Act of 1970, which has long gov­erned the country’s anti–money laun­der­ing poli­cies. Lobbyists, banks, finan­cial ser­vices firms, and aca­d­e­mics sub­mit­ted 110 com­ments, with many con­firm­ing what the FinCEN Files had shown: The U.S. anti–money laun­der­ing pro­tec­tions bad­ly need to be overhauled.

Meanwhile, on Sept. 18, two days before the first FinCEN Files sto­ries were pub­lished, offi­cials in London announced plans to improve the way the U.K. col­lects infor­ma­tion about com­pa­nies reg­is­tered there.

It is hard not to believe that the impend­ing pub­li­ca­tion of the FinCEN Files forced their hand on this,” said Tom Keatinge, direc­tor of the Centre for Financial Crime and Security Studies at the Royal United Services Institute.

Once the sto­ries broke into pub­lic view, the calls for reform grew louder.

British law­mak­ers launched a for­mal inquiry into the “deeply trou­bling” ques­tions raised in the FinCEN Files. Parliament’s Treasury Committee vowed to exam­ine what progress gov­ern­ment reg­u­la­tors and law enforce­ment agen­cies have made in pre­vent­ing mon­ey laundering.

Speaking in the European Parliament, politi­cians called for uni­form reg­u­la­tionsand stronger super­vi­sion in the form of a new over­sight agency or greater pow­ers for the exist­ing body, the European Banking Authority.

The exist­ing anti–money laun­der­ing sys­tem sim­ply does not work,” said Eero Heinäluoma, a Finnish mem­ber of the European Parliament, dur­ing a debate on the FinCEN Files. “It is a Swiss cheese, full of holes.”

Other nation­al gov­ern­ments have also jumped on the find­ings. In Seychelles and Liberia, rev­e­la­tions by jour­nal­ists were referred to anti-cor­rup­tion units for fur­ther action.

At the same time, crim­i­nals and auto­crat­ic regimes, long accus­tomed to keep­ing their finan­cial deal­ings secret, lashed out at jour­nal­ists. Before and after pub­lish­ing the FinCEN Files, reporters in coun­tries in Africa and the Middle East were shout­ed at, intim­i­dat­ed, and threat­ened with law­suits. In Turkey, a court blocked the pub­li­ca­tion of mul­ti­ple FinCEN Files stories.

At the same time, the FinCEN Files have proven to be a pow­er­ful tool in the inter­na­tion­al fight for trans­paren­cy and accountability.

Activists in Niger sub­mit­ted a FinCEN Files sto­ry as part of a ground­break­ing law­suit seek­ing to force the gov­ern­ment to open a cor­rup­tion inves­ti­ga­tion into $120 mil­lion that an offi­cial audit said went miss­ing. In Thailand, reg­u­la­tors are prob­ing four domes­tic banks whose trans­ac­tions were high­light­ed by an analy­sis for the series. And Belgian banks pro­posed the cre­ation of a plat­form to exchange infor­ma­tion about sus­pi­cious trans­ac­tions, and American banks sup­port­ed the leg­is­la­tion tar­get­ing shell companies.

The lob­by­ing arm of the bank­ing indus­try, by con­trast, has attempt­ed to down­play the investigation’s findings.

The Bank Policy Institute issued a state­ment, sup­port­ed by ads on social media, attempt­ing to throw cold water on the sig­nif­i­cance of the FinCEN Files.

The insti­tute dis­put­ed a cen­tral find­ing: that banks some­times con­tin­ue to process trans­ac­tions for cus­tomers who had been repeat­ed­ly flagged for sus­pi­cious behav­ior. The lob­by­ing group said that the gov­ern­ment “fre­quent­ly” tells the banks to keep those accounts open so law enforce­ment agents can mon­i­tor them.

Among the doc­u­ments in the FinCEN Files, how­ev­er, BuzzFeed News could find only two men­tions of any such instruction.

The lob­by­ing group also has argued that a large por­tion of SARs have noth­ing to do with ille­gal activ­i­ty. Citing sur­vey infor­ma­tion from 14 banks, the group said: “Our data indi­cate that about 4 per­cent of SARs result in any fol­low-up from law enforce­ment. A tiny sub­set of these results in an arrest and ulti­mate­ly a conviction.”

The group also said: “Ultimately, this means that 90–95% of the indi­vid­u­als that banks report on were like­ly innocent.”

But a lack of offi­cial fol­low-up doesn’t nec­es­sar­i­ly mean that the flagged activ­i­ty was law­ful. Federal inves­ti­ga­tors don’t have the resources to chase every lead and don’t auto­mat­i­cal­ly noti­fy banks when they inves­ti­gate the sub­jects of SARs, inter­views with law enforce­ment officials 

By law, banks must file a report when they spot trans­ac­tions that bear the hall­marks of mon­ey laun­der­ing or oth­er finan­cial mis­con­duct. SARs are not by them­selves evi­dence of a crime but are con­sid­ered vital for law enforce­ment to pur­sue ille­gal activity.

During a speech this month to the American Bankers Association, FBI Director Christopher Wray said SARs “cap­ture an incred­i­ble range of con­duct” and allow agents to “fol­low finan­cial trails, inves­ti­gate spe­cif­ic indi­vid­u­als and enti­ties, iden­ti­fy leads, con­nect the dots, and advance inves­ti­ga­tions.” The records, accord­ing to law enforce­ment sources, can help trace parts of drug net­works, clar­i­fy the financ­ing behind ter­ror cells, and help offi­cials decide whether to black­list com­pa­nies or indi­vid­u­als involved in misconduct.

Contacted by BuzzFeed News with ques­tions for this sto­ry, the Bank Policy Institute respond­ed by again cit­ing its own research on the issue and reit­er­at­ing that the FinCEN Files was based on an “incred­i­bly nar­row” slice of doc­u­ments, a frac­tion of the mil­lions every year.

In the imme­di­ate after­math of pub­li­ca­tion of the FinCEN Files, glob­al bank­ing stocks tum­bled dra­mat­i­cal­ly, but it was more than share val­ues that had the indus­try buzzing. The series also prompt­ed reflec­tion and debate in a range of media and indus­try forums. “That bank­ing scan­dal is a doozy,” the Independent, a U.K. pub­li­ca­tion, not­ed. “The rever­ber­a­tions … will be felt for months if not years.”

In more than 100 opin­ion pieces and columns that have been pub­lished in trade and busi­ness pub­li­ca­tions since September, indus­try experts have point­ed to the FinCEN Files while advo­cat­ing for change. In International Banker, Laurent Liotard-Vogt and Florent Palayret, who work at the busi­ness man­age­ment con­sult­ing firm Chappuis Halder & Co., pro­posed solu­tions, includ­ing reg­u­la­tions to pre­vent shell com­pa­nies, and con­clud­ed: “It is the whole sys­tem that is on the verge of col­lapse and needs to be rethought.”

Nine days after the find­ings from the FinCEN Files inves­ti­ga­tion were revealed, Linda A. Lacewell, the super­in­ten­dent of the New York State Department of Financial Services, pub­lished her own analy­sis, not­ing that the series pro­vid­ed an oppor­tu­ni­ty to tack­le long-stand­ing prob­lems. “Now, with this new spot­light, we must act,” she wrote.

Sen. Elizabeth Warren, a mem­ber of the Committee on Banking, Housing and Urban Affairs, has cit­ed the sto­ries in call­ing for sub­stan­tive changes in oversight.

In a state­ment to BuzzFeed News this week she said that the Corporate Transparency Act should be only a first step and she will advo­cate for addi­tion­al reforms, includ­ing mak­ing Wall Street more account­able for finan­cial crimes. “I’m going to keep push­ing my leg­is­la­tion to hold exec­u­tives per­son­al­ly and crim­i­nal­ly liable when their orga­ni­za­tions skirt the law.”

The International Consortium of Investigative Journalists

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