Several global banks moved large sums of allegedly illicit funds over a period of nearly two decades, despite red flags about the origins of the money, BuzzFeed and other media reported on Sunday, citing confidential documents submitted by banks to the US government.
The media reports were based on leaked suspicious activity reports (SARs) filed by banks and other financial firms with the US Department of Treasury's Financial Crimes Enforcement Network (FinCen).
HSBC's shares in Hong Kong and Standard Chartered's in London fell on Monday to their lowest since at least 1998 after they and other big banks including Barclays, Deutsche Bank, JPMorgan Chase and Bank of New York Mellon Corp were mentioned in the reports.
"It does not make sense that the basis for media allegations that banks knowingly hid illegal activity consisted solely of Suspicious Activity Reports that those banks filed alerting law enforcement to that very activity. Clearly, there is more to this story, but unfortunately, the reporting failed to unearth it, and the banks are legally prohibited from telling their side. In some cases, if the past is any guide, that story likely includes law enforcement asking a bank to keep open an account it has identified as suspicious so that law enforcement can track where the money is going and gather further evidence to support an arrest and conviction." Cliff Lam, director responsible for investigation and compliance, AlixPartners, Hong Kong.
"Banks are struggling to have effective transaction monitoring systems. Lots are struggling with high false-positive rates and the backlog [of existing cases]. That's why you see that sometimes SARs were raised over 100 days after the transaction"
"Enforcement agencies also overwhelmed by the number of SARs. … The scale of banking transactions has been increasing over time, but the way we deal with the data hasn't changed much."
"One corrupt customer can go to different banks and the regulator or enforcement agency can receive multiple SARs relating to the same customer, but they don't know that until they plough through the details. How we standardize the format of the reporting, how we harness technology to smooth out the data aggregation and data analysis process is also very important." Etelka Bogardi, financial services regulatory partner at law firm Norton Rose Fulbright, Hong Kong.
"It confirms what we already knew – that there are huge amounts of SARs being filed with relatively low numbers of cases brought through to prosecution,"
"It speaks about budgets of governmental entities tasked with prosecuting AML offences and the cross border jurisdictional challenges."
"It also brings out the point that managing financial crime risk goes beyond making SARs. Clearly the banks are often in a difficult position – once they file they are often told to continue operating the account whilst a case if built and of course tipping off is a separate offence."
Bharath vellore, apac managing director, financial crime screening software provider accuity
"1) Suspicious Activity Reports are almost always filed based on post-facto analysis of transactions done to pick up any transactions which by its nature, behaviour or context looks a probable attempt to launder money, evade sanctions or fund terrorists. The banks deploy technology to help sieve through and analyze a huge volume of transactions and then report such suspicious transactions to regulators.
"2) Regulators would then, basis this information, decide to further investigate and if needed have the law enforcement agencies look at the case for any criminal acts. Banks are neither a law enforcement or a prosecuting entity. The fact that these FinCEN reports have been filed is important as they serve as both a key case clue for the law enforcement agencies and a crucial evidence of money trail for the prosecutors.
"3) The above said, some examples being quoted from the leaked files, if true, would demonstrate the need for banks to enhance their due diligence on their customers, especially those with probable high risk connections. It also strengthens the recent regulatory focus on the banks to identify sources of funds and beneficial owners of their customers."
"4) Another key observation is how FinCEN treats UK as a higher risk jurisdiction, on the same lines as say a Cyprus or a Malta, for the high number of UK registered companies which come up in the filed Suspicious Activity Reports by the banks."