The Cheat Sheet

Decoding the FinCen files revelations

Radhika Merwin | Updated on September 23, 2020 Published on September 23, 2020

Is this like the X-Files fictional Sci-fi series?

Oh no, though it is quite scintillating and has a great deal of intrigue and mystery enmeshing large global and all major Indian banks. The FinCEN Files, essentially, are based on more than 2,100 secret reports filed by nearly 90 banks and other financial players and submitted to the US Treasury Department’s Financial Crimes Enforcement Network. So, FinCen, you get it?

It reveals over $2 trillion suspect funds flowing through the financial system between 1999 and 2017. The cache of suspicious activity reports (SARs) were obtained by BuzzFeed News and shared with the International Consortium of Investigative Journalists. ICIJ’s investigation throws up names of ‘big daddy’ banks such as JPMorgan Chase, HSBC, Standard Chartered Bank, Deutsche Bank and Bank of New York Mellon. The top in the SARs report by amount are Deutsche Bank — $1.3 trillion — and JPMorgan — $514 billion.

That’s big money! But what are SARs?

Essentially, they are reports that financial institutions need to send to the US authorities. Insider trading, transactions linked to money laundering, terrorism financing or other crimes, transactions by individuals known or suspected to have links to criminal or terrorist organisations etc. can trigger an SAR. The reports reflect the concerns of global bank money-laundering compliance officers. In the case of the FinCen files, the most common reason for filing an SAR by banks was the suspicion of money laundering.

So, is SAR a proof of violation of the law?

No; it is only a way to bring irregular activity or possible crime to the attention of government regulators and law enforcement. They at best show the failure of banks and other financial institutions to stop illicit money flows. The FinCen files disclose payments processed by major global banks, and reveal how ‘dirty money’ flowed around the world. The SARs in the FinCEN Files were mostly filed by a few large banks: Deutsche Bank, Bank of New York Mellon, Standard Chartered Bank, JP Morgan Chase, Barclays and HSBC Bank -- constituting over 85 per cent of all SARs in the leak.

And, how do Indian banks come into this picture?

Well, the FinCen files have flagged as many as 406 transactions as “potentially suspicious” involving almost all major Indian lenders, including State Bank of India, Punjab National Bank, Union Bank, ICICI Bank, HDFC Bank, Axis Bank, Standard Chartered (India) and Deutsche Bank.

These banks were involved in transferring a total of $406,278,962 out of the country and receiving $482,181,226 into the country. Some of the large-value transactions include the transfer of $119,548,135 from DBS Bank to Bank of India and transfer of $53,520,418 from Deutsche Bank AG to Deutsche Bank.

How serious is it and what does it mean for banks?

The actual impact on the banks is unclear, because SARs do not imply banks have broken any law or regulation. FinCEN shares SARs with authorities including the Federal Bureau of Investigation and the US Immigration and Customs Enforcement. They are used to detect crimes, but are not direct evidence to prove legal cases.

According to latest reports, regulators in Europe, Africa and the US have called for banking reforms post the revelation of the FinCen Files. In Liberia, Tanzania and Seychelles, too, financial regulators and anti-corruption officials are reported to have enquired for further details.

In India, for now, there has been an eerie silence both from the government and the regulators, and banks, of course. Indian banking stocks, however, took a knock post the FinCen Files reports, fearing more bad news for the already stressed sector.

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Published on September 23, 2020
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