Shares of banks tumble after SARs declare $2 trillion money fraud

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The shares in HSBC and Standard Chartered Bank drop drastically in the last week to reach the lowest since 1998. This came after the release of media reports of suspicious activity in them as well as other banks such as Barclays and Deutsche Bank. Shares of HSBC in London dropped nearly 3.6 % reaching their bottom-most point since the Asian currency crisis of 1998. Following the same path, Standard Chartered plunged 3.6% to a 22 year low.

The International Consortium of Investigative Journalists (ICIJ), the group behind the Paradise Paper, Panama Papers, and other seminal reports, has recently come up with another report. In its reports, released on Sunday, the biggest banks in the United States, United Kingdom, Europe, and other areas have been accused to move huge sums for a criminal cabal of all stripes.

The reports were based on numerous leaked Suspicious Activity Reports (SARs) which were filed by banks and other financial firms. These filings were a part of the AML Compliance Program requirements with the Treasury’s Financial Crime Enforcement Network, abbreviated as FinCEN.

The highly anticipated leak stories by the ICIJ and Buzzfeed along with other allies give us dark damnation of the banking sector’s efforts to curb corruption. These stories also tell us about the current condemnation against the efforts of all the banking firms to fight against financial crimes such as money laundering.

What are the documents about?

The reports identify transactions during 1999-2017 which stated the cache of more than $2 trillion transactions flagged by financial institutions’  internal compliance officers as probable money laundering activity. This amount includes $514 billion at JP Morgan as well as $ 1.3 trillion at Deutsche Bank. According to the records, 5 global banks kept profiting from renowned and potent market players. These 5 banks are JP Morgan, HSBC, Standard Chartered Bank, Deutsche Bank, and Bank of New York Mellon.                  

Delivery of the sensitive, as well as suspicious papers, has turned into a deluge. It is a watershed moment for investigative journalism while a dark eve of the illicit, corrupt, and damned people in the banking sector.

The International Consortium of investigative journalists has released several counter crime documents before as well. The most popular ones include the Panama papers and Paradise papers.

These documents are based on several Suspicious Activity Reports (SARs) which were leaked by banks and other financial institutions. The leaked reports were a part of the AML compliance program requirements of the firms with the US Department of Treasury’s financial crimes enforcement network or FinCEN.

These reports also highlight the fact that banks move huge amounts of money for corporate companies that are registered in offshore havens even when they don’t know the ultimate beneficiary of the account. One such example is that of the British Virgin Islands.

What transactions are linked to unauthorized identities?

JPMorgan has been alleged of processing funds for several corrupt individuals and companies in Malaysia, Ukraine, and Venezuela. Massive sums of money have been transferred by HSBC Bank from the Ponzi scheme whereas Deutsche Bank has processed funds linked to a Ukrainian Billionaire.

The many banks which are mentioned in the reports have counter-attacked that the SARs are linked to the historical gaps. These gaps are readily reviewed, addressed, and improved. Therefore, it shall not be wrong today that the reports may depict a false image of the staunch law enforcement allies.

The leaked documents are commonly known as FinCEN files. They include over 2,100 SARs. The ICIJ has organized a team of nearly 400 journalists from over 110 news organizations in 88 countries.

What is a suspicious activity report (SAR)?

The suspicious activity reports are documents used by the financial institutions to report any kind of suspicious activity to the concerned authorities in the United States. These documents are highly confidential and are not available for public reading. Even the banks are not allowed to publicly confirm their existence. These documents are crucial when any bank observes a suspicious transaction involving money laundering, corruption, or any other criminal activity.

However, It must be noted that the SAR is not an accusation and cannot be considered as a piece of valid legal evidence. It is just a way to send alerts to the government and law enforcement agencies.

Who can file SARs?

  •  Money exchanges, security brokers, casinos, and other financial institutions are supposed to file the SARs to the Treasury’s Financial Crimes Enforcement Network of the United States. In case an institution fails to report them, they can be charged civil penalties and fines.

Who filed the most in the FinCEN Files?

Most of the SARs in the FinCEN files were filed by a few global banks. These are-

  1. Deutsche Bank (982)
  2. Bank of New York Mellon (325)
  3. Standard Chartered Bank (232)
  4. JP Morgan Chase (107)
  5. Barclays (104)
  6. HSBC Bank (73)

Cumulatively, these six banks account for more than 85% of the total suspicious activity reports filed in the leak.

How many SARs are filed each year?

The Financial Crimes Enforcement Network or FinCEN has received over 12 million SARs in the 6 years between 2011 and 2017. More than two million SARs have been filed in 2019 alone.

It is interesting to notice that the FinCEN files represent only 0.02% of the total SARs filed during the considered tenure.

What might lead to filing a SAR?

Any illicit or criminal activity involving corruption and money laundering can spark a suspicious activity report. Some of these are:

  1. Insider trading
  1. Transactions linked to terrorism financing or other crimes.
  2. Odd and inconvincible dealings (For example a diamond dealer paying a pizzeria for lingerie)
  3. Transactions by individuals known or suspected to have links to criminal or terrorist organizations.
  4. Law enforcement surveillance requests.

What is the most common reason for filing SARs by banks?

The most appeared word in the FinCEN files was money laundering. The major suspicion of money laundering by banks reflected the disgusting way in which corporates/individuals illegally obtained money. After the successful procurement of massive amounts of the green paper, they try to convert it and make it appear legitimate. For laundering the dirty money, criminals take advantage of the “washing machine” as the global financial system.

In how much time do banks have to file a SAR?

The suspicious report must be filed within 30 days of recognition of any potential fraud of crime. In some special cases (when more time is needed to identify the subject) the deadline can be extended to 60 days.

166 days was the median time taken by the banks to report a SAR in the FinCEN files. These SARs are shared with the law enforcement authorities, Federal Bureau of Investigation, and U.S. Immigration and Customs Enforcement.

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