No Money Like Dirty Money

A dizzying confluence of factors cast a pall over markets to start the new week, one of which is an investigative piece detailing the familiar combination of gross negligence and complicity at banks involved in illicit transactions.

The truly damning report comes from the International Consortium of Investigative Journalists and stems from leaked documents obtained by BuzzFeed. In essence, it confirms what scarcely needed further confirmation — namely that some of the world’s largest financial institutions aren’t always scrupulous when it comes to the transfer of possibly illicit funds, and neither are they particularly discriminating when it comes to choosing clients.

“Secret US government documents reveal that JPMorgan Chase, HSBC, and other big banks have defied money laundering crackdowns by moving staggering sums of illicit cash for shadowy characters and criminal networks that have spread chaos and undermined democracy around the world”, the ICIJ report begins, adding that,

The records show that five global banks – JPMorgan, HSBC, Standard Chartered Bank, Deutsche Bank and Bank of New York Mellon – kept profiting from powerful and dangerous players even after US authorities fined these financial institutions for earlier failures to stem flows of dirty money.

The leaked documents, known as the FinCEN Files, include more than 2,100 suspicious activity reports filed by banks and other financial firms with the US Department of Treasury’s Financial Crimes Enforcement Network. The agency, known in shorthand as FinCEN, is an intelligence unit at the heart of the global system to fight money laundering.

BuzzFeed News obtained the records and shared them with the International Consortium of Investigative Journalists. ICIJ organized a team of more than 400 journalists from 110 news organizations in 88 countries to investigate the world of banks and money laundering.

In all, an ICIJ analysis found, the documents identify more than $2 trillion in transactions between 1999 and 2017 that were flagged by financial institutions’ internal compliance officers as possible money laundering or other criminal activity – including $514 billion at JPMorgan and $1.3 trillion at Deutsche Bank.

That’s the gist of it. At the risk of coming across as unduly nonchalant, color me not surprised.

The details reveal the facilitation of transactions tied to infamous figures accused of corruption, embezzlement, evading sanctions, and fraud. Some of your “favorite” names are on the list, including Paul Manafort, Dmitry Firtash, Oleg Deripaska, and Reza Zarrab, among plenty of others.

The reporting is exhaustive, but ICIJ strikes a somewhat fatalistic tone throughout, noting that the FinCEN Files “represent less than 0.02% of the more than 12 million suspicious activity reports that financial institutions filed with FinCEN between 2011 and 2017”.

In other words, “tip of the iceberg” is a useful, but in this case wholly inadequate, way to describe the impossible task of untangling the web of illicit funds moving through the global banking system at any given minute.

The flagship piece (published Sunday) offers a simple explanation for this endemic phenomenon. “Why do banks move suspect money?”, ICIJ asks. “Because it’s profitable”.

There you go. And threats of government fines and criminal proceedings are not just poor deterrents, they are almost irrelevant considering a variety of mitigating factors including, but certainly not limited to, the notion that white collar crime isn’t aggressively prosecuted, the opacity of the transactions, the sheer scope of the problem (which ICIJ notes is overwhelming for bureaucrats), and likely corruption all along the chain.

This is bad news at a time when banks were already underperforming in 2020 and still carry heavy baggage from the financial crisis.

“It all risks another black eye for major international banks that paid a total of $20 billion from 2012 through 2015 for having lax controls against money laundering, helping clients evade taxes or violate US sanctions”, Bloomberg notes, in a piece that quotes Tom Cardamone, managing director of a Washington-based organization that tracks illegal money flows.

“[Some] clients [are] so bad that numerous suspicious activity reports are being filed about them, but no one ever does anything about it”, Cardamone mused.

HSBC was bludgeoned Monday thanks in part to the ICIJ report, but also on fears that the bank could be added to China’s dreaded “unreliable entity list”, a long-threatened retaliatory mechanism Beijing intends to use to counteract western efforts to stifle Xi’s global ambitions or otherwise undermine Chinese national security.

There’s no reason to be anything other than despondent about this. Combatting the flow of illicit money through the global financial system is as futile an exercise as the war on drugs, which is ironic because the two very often overlap.

Underscoring the sheer futility is the ICIJ report itself. “Documents in the FinCEN Files show compliance workers at major banks often resort to basic Google searches to try to learn who’s behind transfers involving hundreds of millions of dollars”, the report reads.

Needless to say, that leaves those compliance workers perpetually behind the curve. “Banks frequently file suspicious activity reports only after a transaction or customer becomes the subject of a negative news article or a government inquiry”, ICIJ goes on to write. By that time, “the money is long gone”.


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12 thoughts on “No Money Like Dirty Money

  1. I doubt the current administration does anything other than perhaps a symbolic gesture. They are at the center of the illicit flow of funds. The only successful business trump has every run was being a front man, money launderer for the global mafia. The global banking corruption is so deep it even affects the US Supreme Court. The sudden and unusual retirement of Justice Kennedy was due to a threat to destroy the career (life, possibly even end his life) of his son. His son was a long time Deutsche Bank executive that operated as the middle man for the global mafia (meaning the Russian mafia) in an effort to legitimize the monetizing of former Soviet assets into the hands of a small group of criminals in Russia, a plan architected by Putin. It is why Putin was anointed president in 1999. Putin has never been elected president of Russia in anything other than a show/fake election.

  2. Hold your horses. This article by Buzzfeed and co is based on the very freaking SARs filed by the banks. It’s not their fault the system pushes to file SARs preemptively (though some might take advantage of that to bury the lede and facilitate illicit transfers) AND, most importantly, it’s not their fault investigators can’t follow through or investigate that mountain of SARs effectively.

    But, to be fair, the day we decided it was okay to trade in any way shape or form with emerging countries was the day we accepted to deal with corrupt individuals and networks. That’s just a fact and while we may one day see emerging nations clean themselves up the same way we did (our own systems were deeply corrupt and, you can argue, some aspects of our institutions still are). It’ll take time.

    Do we do business with these countries in the meantime or do we restrict ourselves to Western World + Japan + South Korea? (I’ll let you decide whether you consider Japan corrupt or not).

    1. “The day we decided it was okay to trade in any way shape or form with emerging countries”…

      If you’ve ever worked at a bank, you are acutely aware that this is not just an “emerging country” phenomenon.

      The idea that stopping trade with EMs would stop illicit money is laughable. See Bernie Madoff, for example.

      1. Sure, corruption (and crime) is everywhere but, in the West, it’s relatively limited – depending on how you classify things such as political donations in the USA or internships to the children of employees…

        In the EMs, every business(wo)man, every official is, by the very nature of their environment, forced to engage, condone, be made aware, be made part of an ongoing systematic daily corruption. It’s literally a way of life. Not because they don’t know it’s morally wrong but because their institutions aren’t strong enough to stand up to it and the alternatives aren’t appealing.

        Our status quo is ‘no corruption’ (political donations etc. asides) ; theirs is ‘corruption’. And fighting the status quo is always harder than just going with the flow.

        NB: OTOH, I’ll concede the USA is regressing fast, thanks to its philosophical belief that businesses should be free to do as they please and consumers will always force them, via their wallet, to behave ethically enough. Yeah right.

  3. DB at the top and JPM second. Huh, who’d have figured.

    Haven’t Frontline and 60 Minutes combined over the last 20 years done like 30 pieces on this or immediately aligned topics? I’m making up a number and exaggerating on purpose. Point is, every one knows this has been occurring, that the US is perhaps the biggest center of all. And, yet, there’s been no action to stop it. Instead, we go ahead with motions to stop using paper currency because only criminals use it. Typical.

    These banks are criminal enterprises. Some of these banks will eventually just fail quietly and be taken over by the central banks.

    1. With all of this it’s Wells Fargo the Fed is trying to shut down. It is also interesting that the only major bank that will do business with Trump is DB.

  4. Having worked in the FI world for 30 plus years covering most of the places that get you into trouble, I can offer a few comments, none of which are to excuse, but to illuminate:

    The press seems to get the vapors about money laundering periodically, but they don’t offer perspective. “Secret US government documents”? We’re talking about suspicious activity reports (SARS). If a bank files one on a client, it has to be kept secret so as to not tip off the client. If you, the banker, do, you can go to jail.

    The $ value of the SARs cited is over a period of 18 years. That is a long look back and a lot has changed in the world over that time (Russia and 9/11 ). And they might want to compare the value of SARs cited versus daily clearing volumes. Fedwire and CHIPS clear some $3 TRN daily.

    Here’s how this works (or it did when I retired in 2012, but probably hasn’t changed much) – NY clearing bank provides dollar payment services to a foreign bank, who sends in payments originated by their clients. Unless one of the parties is subject to OFAC sanctions, a payment rarely gets stopped. It will get flagged for SAR reporting to FINCEN if one of the parties or structure of the transaction attracts attention (electronic scanning is done on the payments data base).

    So Paul Manafort may not have attracted attention in 2015 as a politically exposed person (PEP), but he would have in 2016. The structure of the transaction (Ukrainian owner off shore shell corporation to Manafort owned Cyprus shell corporation) would also trigger a SAR. Mr or Ms Banking Officer for the correspondent bank in question is then asked by the anti money laundering staff to inquire with his client about the business purpose of the transaction. You cannot tell your client that a SAR was or might be filed. Usually the answer that comes back is something anodyne like “consulting fees” or “Can’t tell you, bank secrecy”. That is not a popular answer. The likely outcome would be to tell the correspondent bank “We don’t want to see transactions involving PEPs and/or shell corporations anymore”.

    The unhappy correspondent bank probably then shopped around for some other NY correspondent. As the US banks were all getting beat up by the FED about the same time, their next stop was probably the NY branch of a foreign bank, who was not feeling the heat yet. I recall tossing out most of our business in an unnamed Eastern European country and watching the accounts migrate to NY branches of European banks.

    My general sense is that US banks took their hits early and put a lot of resource into anti money laundering infrastructure. In the overall scheme of things, payments is not hugely profitable. It’s a utility that you have to offer and it attracts significant regulatory attention. You have to get it right. Which doesn’t mean that mistakes don’t happen.

    Some foreign banks played cute and tried to game the system for a long time (Iranian payments thru Dubai, Russian shell corps thru Latvia). They are paying now, but probably not enough. Does Uncle Sam want a major diplomatic crisis with the UK, Germany, or Denmark by yanking a US banking license? It might be fun to try, but doubtful under the current administration.

    An enterprising junior reporter might want to put together a timeline of how much each bank got fined and when to see who has made progress. And who got fined for self reporting rather than not reporting.

    Banks over report SARs. We always said that when it hit the fan, the standard we would be held to was omniscience. There’s no downside to over reporting if you’re serious about this. But here’s what frequently happens – law enforcement expresses an interest in a flow of payments and tells the bank involved to keep the accounts open and operating so they can monitor. You continue to report the transactions, but the total keeps growing and you get whacked (in terms of publicity if not a fine) for the whole amount.

    And by the way, if you upgrade your Money Laundering systems but fail to take a a five year lookback at historical data, you can get fined for that. Or if the lookback uncovers transactions you should have found, but didn’t.

    If the US and European governments ever got serious on this topic, they would take action against offshore centers and the easy establishment of shell corporations. Looking at you, Cayman, Channel Islands, Delaware, and London real estate.

    One final thing – of course compliance investigators use Google searches. It’s a good way to get open source info. I hear reporters use it, too.

      1. I don’t have time to read this right now, but it looks like good stuff from Bill. If it is, indeed, good stuff, then thanks much to Bill for the contribution here.

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