FinCEN leaks highlight need for “radical” approach to tackling financial crime

Governments need to consider taking more “radical” measures to tackle financial crime threats in the wake of the FinCEN Files, even if there is a risk of “intelligence leakage”, an industry poll has found.

A live survey of hundreds of anti-money laundering (AML) industry practitioners found that 88% were in support of financial intelligence units (FIUs) taking a new and more daring approach.

The poll took place during a Thomson Reuters webinar entitled, “Beyond the FinCEN files: Building a better framework for financial intelligence”. Participants included financial crime compliance (FCC) officers, regulators, consultants and members of the financial intelligence community.

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The webinar featured Robert Mazur, a U.S.-based AML expert and former undercover agent, and Michael Messier, an FCC consultant and former U.S. Drug Enforcement Administration (DEA) supervisory special agent based in Mexico City.

The existing approach to AML is failing to disrupt serious financial crime, with less than 1% of illicit funds detected every year, the webinar heard. In this climate, banks can write off even billion-dollar penalties as a cost of gaining access to the $2 trillion global criminal economy, Mazur said.

Mazur was an adviser to the International Consortium of Investigative Journalists (ICIJ), which coordinated the recent coverage of the leak of more than 2,500 documents from the U.S. Financial Crimes Enforcement Network (FinCEN). The leaks showed that, all too often, banks were filing suspicious activity reports (SARs) years after the transactions had taken place, he said. On many occasions they would only file reports defensively in response to adverse media coverage or public law enforcement operations, he said.

“Having been on the other side of the curtain, it was very obvious to me that there was a … considerable percentage of the international banking, business and financial service providers community that provides — in a very orchestrated way — services to the underworld. If you know the right people, you get to have the type of discussions with these people that is 180 degrees different from the discussion you’ll have with them if you’re not a card-carrying member of the underworld,” Mazur said.

“I dealt with people who were perceived as pillars of the community. I can tell you that they weren’t. They were different people when the rubber hit the road for them, servicing the people who possess money seeking secrecy from governments. We know that’s probably about $2 trillion a year and I can tell you the profits off $2 trillion can get some very good people to do some very bad things.”

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Only one-quarter of the poll participants said the FinCEN leaker’s actions were not justified. A total of 35% said the actions were justified, while 14% said the leaks were “absolutely justified”. Despite this sympathy for the anonymous leaker’s objectives, 55% of participants said the leaks were likely to have placed individuals at risk. One-third of respondents said the overall impact was negative, while 10% believed the leaks had an “overwhelmingly negative” impact upon the AML/CFT regime.

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In the wake of the FinCEN Files, Linda Lacewell, superintendent at the New York State Department of Financial Services, has said that money laundering has been allowed to “metastasise” to the point where it is endemic in the financial system.

“The suspicious activity report — originally intended to alert law enforcement to potentially criminal activity — has become a free pass for banks. The report itself is frequently riddled with the names of anonymous shell companies that make it practically impossible to determine the identity of the perpetrators,” she said in an “op ed” article.

This view was a simplification of the deep-seated problems within the AML/CFT regime, with law enforcement agencies also having to accept some of the blame, Messier said during the webinar.

“The ultimate audience for these SARs is law enforcement. In defence of the banks, they will file these SARs and never hear anything back on them. So, they’re doing what they’re required to do. Law enforcement, many times, may not see those SARs until they query the system five years down the road,” he said.

“So I wouldn’t say the banks are using it as a ‘safe harbour’. They’re not doing it intentionally but it’s coming across like that because of the current system that we have in place,” he said.

Top 10 targets

The international law enforcement community needs to coordinate its efforts and target the “top 10” major players in the world of money laundering, Mazur said. He cited the prosecution of Altaf Khanani, who was arrested in Panama in 2016, following a joint operation between U.S. and Australian authorities, as a success story.

A focus on the big players was the only way the AML community would see money laundering detection rates rise significantly above the current level, he said.

“I think it’s unfair to blame banks for that percentage [of detection]. I think the ‘meat and potatoes’ of that problem falls on the law enforcement community for its failure to recognise the importance of this issue. They have failed, in a very unified way, to go after the biggest money launderers in the world. They’re spending far too much time tagging people who are small-time criminals with silly money laundering charges when they should be using those resources to go after the biggest of the big,” Mazur said.

Cross-border collaboration

The webinar heard that FIUs needed to take a more “radical” and innovative approach to cross-border collaboration through public-private partnerships. A total of 58% of participants in the live poll said they supported more collaboration through these “triple P” partnerships, such as with Australia’s Fintel Alliance, even if it increased the odds of intelligence “leakage”.

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“The FinCEN Files showed that we are at an inflection point where we need to address the deficiencies in our current system and press forward in a unified manner,” Messier said.

“We have to be bigger risk takers. Both governments and the private sector have to recognise that the vast majority are trying to do the right thing — but they need to align their efforts. It’s almost like having a Ferrari that’s ready to drive but the cylinders are not firing in unison. We have what it takes here.”

A more daring and aggressive approach to public-private cooperation will be central to the push for “effectiveness” in the detection and disruption of serious financial crime, Mazur agreed.

“More communication and more collaboration can be nothing but a positive thing,” the former undercover agent said. “We need to do something to reorganise ourselves — create higher priorities for money laundering prosecutions, get the best of the best and deal with pulling it all together in a public-private manner.”

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Join our financial intelligence webinar and our esteemed panel:

Robert Mazur, President, KYC Solutions Inc

Michael Messier, Private Consultant & Senior Advisor, Financial Crimes and Compliance 

Nathan Lynch, APAC Manager, Regulatory Intelligence, Thomson Reuters

for their discussion on the future agenda for AML/CTF compliance.

Register here to watch the webinar!

Nathan Lynch is an experienced writer, public speaker, manager and technology enthusiast in the field of financial regulation and risk management. At Thomson Reuters, Nathan leads a team of experts who provide breaking news, deep analysis and practical guidance to risk practitioners in the global financial services sector.
Nathan manages Thomson Reuters’ award-winning Regulatory Intelligence team across the Asia-Pacific region, tracking developments in financial services law, regulation, financial crime and risk management.
Nathan has been involved in building innovative, tech-based businesses in the financial services “regtech” sector — including Complinet Australia and the Thomson Reuters Risk business.

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