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”.