The Week Of: September 21, 2020

This week’s news and stories of interest to the AML community. 

FinCEN Files expose AML regulatory weaknesses

Many an eyebrow was raised when the Financial Crimes Enforcement Network (FinCEN) released a statement in early September decrying the “unlawfully disclosed Suspicious Activity Reports” obtained by “various media outlets” and referring the matter to the Department of Justice.

Now we know why the agency was angry. Last week BuzzFeed revealed it had gotten its hands on an enormous treasure trove of SARs that offered, it said, “an unprecedented view of global financial corruption, the banks enabling it, and the government agencies that watch as it flourishes.” These documents are normally never seen by the public, but Buzzfeed managed to snag more than 2,100 of them, encompassing more than $2 trillion in flagged transactions between 1999 and 2017.

What was BuzzFeed’s conclusion after poring through these reports? Namely, the current system doesn’t work very well, if at all.

One failure is the use of deferred prosecutions—typically a fine and a probationary period for an offending bank accused of AML lapses. While the U.S. government says they are a useful tool in preventing future negligence, the truth seems to be that they rarely work.

Banks often get to the end of their agreement without actually fixing the problems. Then, instead of getting the prosecution that they had been threatened with, they just get another chance. And sometimes another.

Another problem is volume. More than 2 million SARs were issued by banks just last year. Unfortunately, BuzzFeed said, some banks treat them as a get-out-of-jail-free card, “filing alerts about a huge array of transactions without actually moving to halt them. In some cases, banks filed numerous reports on the same clients, detailing their suspected crimes over the course of years while continuing to welcome their business.”

Daniel Tannebaum, an anti-financial crime consultant, told CNBC that the regulatory pressure on compliance professionals means that banks simply try to avoid further punitive measures instead of making the best use of resources in identifying suspicious activities.

The leaked SARs suggests that banks are failing to adequately perform their AML obligations, including basic checks on customers, and allowing criminal groups to hide behind shell corporations and move their illicit money throughout the global financial system.

The problem does not lie just with the banks, however. Governments play their part too—their lack of real enforcement does not provide enough incentive for banks to perform more than the minimum required of them. What solution does BuzzFeed offer? Jail time.

The most powerful way to fix the problem might be the simplest: Arrest the executives whose banks break the law. “The bankers will never learn until you start putting silver bracelets on people,” [former senior Justice Department lawyer Paul] Pelletier said. “Think of the message you’re sending to repeat offenders.” 

“These guys know what they’re doing,’’ said Thomas Nollner, a former regulator with the Office of the Comptroller of the Currency. “You break the law, you should go to jail, period.”

Read more from BuzzFeed.

Cost of pandemic related fraud to Americans? $145 million

The Federal Trade Commission has fielded more than 200,000 fraud complaints from consumers since the start of the COVID-19 pandemic and Americans have lost more than $145 million to these frauds.

The New York Times said the schemes peaked in the spring when the country was in lockdown, the federal government was doling out hundreds of billions of dollars in relief money, and demand for personal protective equipment was at its apex.

The median loss was $300, according to data from the commission. The losses could be higher for older Americans, who are often the target of this kind of fraud, said Lucy Baker, a consumer defense associate at the United States Public Interest Research Group, which shared the data this week. Many of the victims were older, she said.

Government agencies have issued many warnings to consumers to be on the lookout for fraudsters asking for personal identifying data, such as social security numbers or Medicare information; the data shows that reports of fraud have declined since the spring.

Read more from the New York Times.

FATF reports on virtual asset red flags for detecting criminal activity

The Financial Action Task Force has released a new report about red flag indicators that can help authorities detect whether virtual assets are being used for criminal activity. It includes indicators related to:

  • transactions
  • transaction patterns
  • anonymity
  • senders or recipients
  • source of funds or wealth
  • geographical risks

The report is based on over 100 case studies collected by members of the FATF Global Network, highlighting the most important red flag indicators that could suggest criminal behavior, according to Regulation Asia.

Read more here.