FinCEN Files: Global banks defy U.S. crackdowns by serving oligarchs, criminals and terrorists
21 Sep 2020

ICIJ — Secret U.S. 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 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 U.S. authorities fined these financial institutions for earlier failures to stem flows of dirty money.

U.S. agencies responsible for enforcing money laundering laws rarely prosecute megabanks that break the law, and the actions authorities do take barely ripple the flood of plundered money that washes through the international financial system.

In some cases the banks kept moving illicit funds even after U.S. officials warned them they’d face criminal prosecutions if they didn’t stop doing business with mobsters, fraudsters or corrupt regimes.

JPMorgan, the largest bank based in the United States, moved money for people and companies tied to the massive looting of public funds in Malaysia, Venezuela and Ukraine, the leaked documents reveal.

The bank moved more than $1 billion for the fugitive financier behind Malaysia’s 1MDB scandal, the records show, and more than $2 million for a young energy mogul’s company that has been accused of cheating Venezuela’s government and helping cause electrical blackouts that crippled large parts of the country.

JPMorgan also processed more than $50 million in payments over a decade, the records show, for Paul Manafort, the former campaign manager for President Donald Trump. The bank shuttled at least $6.9 million in Manafort transactions in the 14 months after he resigned from the campaign amid a swirl of money laundering and corruption allegations spawning from his work with a pro-Russian political party in Ukraine.

Tainted transactions continued to surge through accounts at JPMorgan despite the bank’s promises to improve its money laundering controls as part of settlements it reached with U.S. authorities in 2011, 2013 and 2014.

In response to questions for this story, JPMorgan said it was legally prohibited from discussing clients or transactions. It said it has taken a “leadership role” in pursuing  “proactive intelligence-led investigations” and developing “innovative techniques to help combat financial crime.”

HSBC, Standard Chartered Bank, Deutsche Bank and Bank of New York Mellon also continued to wave through suspect payments despite similar promises to government authorities, the secret documents show.

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 U.S. 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.

Suspicious activity reports reflect the concerns of watchdogs within banks and are not necessarily evidence of criminal conduct or other wrongdoing.

Though a vast amount, the $2 trillion in suspicious transactions identified within this set of documents is just a drop in a far larger flood of dirty money gushing through banks around the world.  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.

FinCEN and its parent, the Treasury Department, did not answer a series of questions sent last month by ICIJ and its partners. FinCEN told BuzzFeed News that it does not comment on the “existence or non-existence” of specific suspicious activity reports, sometimes known as SARs. Days before the release of the investigation by ICIJ and its partners, FinCEN announced that it was seeking public comments on ways to improve the U.S.’s anti-money laundering system.

The cache of suspicious activity reports — along with hundreds of spreadsheets filled with names, dates and figures — flag bank clients in more than 170 countries who were identified as being involved in potentially illicit transactions.

Along with sifting through the FinCEN Files, ICIJ and its media partners obtained more than 17,600 other records from insiders and whistleblowers, court files, freedom-of-information requests and other sources. The team interviewed hundreds of people, including financial crime experts, law enforcement officials and crime victims.

According to BuzzFeed News, some of the secret records were requested as part of U.S. congressional investigations into Russian interference in the 2016 U.S. presidential election. Others were gathered by FinCEN following requests from law enforcement agencies, BuzzFeed said.

The FinCEN Files offer unprecedented insight into a secret world of international banking, anonymous clients and, in many cases, financial crime.

They show banks blindly moving cash through their accounts for people they can’t identify, failing to report transactions with all the hallmarks of money laundering until years after the fact, even doing business with clients enmeshed in financial frauds and public corruption scandals.

Authorities in the U.S., who play a leading role in the global battle against money laundering, have ordered big banks to reform their practices, fined them hundreds of millions and even billions of dollars, and held threats of criminal charges over them as part of so-called deferred prosecution agreements.

A 16-month investigation by ICIJ and its reporting partners shows that these headline-making tactics haven’t worked. Big banks continue to play a central role in moving money tied to corruption, fraud, organized crime and terrorism.

“By utterly failing to prevent large-scale corrupt transactions, financial institutions have abandoned their roles as front-line defenses against money laundering,” Paul Pelletier, a former senior U.S. Justice Department official and financial crimes prosecutor, told ICIJ.

He said banks know that “they operate in a system that is largely toothless.”

Five of the banks that appear most often in the FinCEN Files — Deutsche Bank, Bank of New York Mellon, Standard Chartered, JPMorgan and HSBC — repeatedly violated their official promises of good behavior, the secret records show.

In 2012, London-based HSBC, the largest bank in Europe, signed a deferred prosecution deal and admitted it had laundered at least $881 million for Latin American drug cartels. Narcotraffickers used specially shaped boxes that fit HSBC’s teller windows to drop off the huge amounts of drug money they were pushing through the financial system.

Under the deal with prosecutors, HSBC paid $1.9 billion and the government agreed to put criminal charges against the bank on hold and dismiss them after five years if HSBC kept its pledge to aggressively fight the flow of dirty money.

During that five-year probationary period, the FinCEN Files show, HSBC continued to move money for questionable characters, including suspected Russian money launderers and a Ponzi scheme under investigation in multiple countries.

Yet the government allowed HSBC to announce in December 2017 that it had “lived up to all of its commitments” under its deferred prosecution pact — and that prosecutors were dismissing the criminal charges for good.

In a statement to ICIJ, HSBC declined to answer questions about specific customers or transactions. HSBC said ICIJ’s information is “historic and predates” the end of its five-year deferred prosecution deal.  During that time, the bank said, it “embarked on a multi-year journey to overhaul its ability to combat financial crime. . . . HSBC is a much safer institution than it was in 2012.”

HSBC noted that in deciding to release the bank from the threat of criminal charges, the government had access to reports from a monitor who reviewed the bank’s reforms and practices.

The Department of Justice declined to answer specific questions. In a statement, a spokesperson for the department’s criminal division said:

“The Department of Justice stands by its work, and remains committed to aggressively investigating and prosecuting financial crime — including money laundering — wherever we find it.”

‘Everyone is doing badly’: Dirty money swamps bureaucrats

Money laundering isn’t a victimless crime.

The free flow of dirty cash helps sustain criminal gangs and destabilize nations. And it is a driver of global economic inequality. Laundered funds are often shunted between accounts owned by obscure shell companies registered in secretive offshore tax havens, allowing elites to hide massive sums from law enforcement and tax authorities.

An ICIJ analysis found that banks in the FinCEN files regularly processed transactions to companies registered in so-called secrecy jurisdictions and did so without knowing the ultimate owner of the account. At least 20% of the reports contained a client with an address in one of the world’s top offshore financial havens, the British Virgin Islands, while many others provided addresses in the U.K., the U.S., Cyprus, Hong Kong, the United Arab Emirates, Russia and Switzerland.

ICIJ’s analysis found that in half of the reports banks didn’t have information about one or more entities behind the transactions. In 160 reports, banks sought more information about corporate vehicles, only to be met with no response.

Estimates by the United Nations Office on Drugs and Crime indicate that $2.4 trillion in illicit funds are laundered each year —  the equivalent of nearly 2.7% of all goods and services produced annually in the world.  But the agency estimates that authorities detect less than 1% of the world’s dirty money.

Everyone is doing badly,” David Lewis, executive secretary of the Paris-based Financial Action Task Force, a partnership of governments around the world that sets anti-money laundering standards, acknowledged in an interview with ICIJ.

His organization’s country-evaluation reports — which dig into how well banks and government agencies meet anti-money-laundering laws and regulations — show lots of box-checking but little practical progress. Many countries seem more concerned with looking good on paper than actually cracking down on money laundering, he said.

Even an association of the world’s biggest banks complained last year that regulators focus on “technical compliance” rather than whether systems “are really making a difference in the fight against financial crime.”

A Bombing in Jerusalem

For some financial institutions, the problem client is another bank.

One early morning in 2003 Steven Averbach was on the No. 6 bus in Jerusalem, when a man rushed to board as the bus pulled away.

“There were too many things out of place” with the man, recalled Averbach, who grew up in New Jersey but immigrated to Israel as a teenager. The man wore long black pants, a white shirt and a black jacket, the typical garb of an Orthodox Jew. But he wore “tipped shoes” that didn’t fit with the Orthodox sect dress, and his jacket was bulging.

In his right hand was a device that looked like a doorbell.

Averbach, who had previously served as chief weapons instructor for the Jerusalem police force, drew his sidearm. But as the ex-cop turned to face the man, “he detonated himself,” Averbach later testified in a video deposition.

The blast killed seven and wounded 20 others, leaving Averbach paralyzed from the neck down. He died in 2010 of complications from the long-term effects of his injuries.

By then, he and his family had become plaintiffs in a lawsuit in the U.S. accusing a Jordanian financial institution, Arab Bank, of moving funds that helped bankroll terrorists involved in the bus bombing and other attacks.

The FinCEN Files show that as the litigation was casting a shadow over Arab Bank, it was benefiting from a working relationship with a much bigger, more influential bank: Standard Chartered.

The U.K.-headquartered bank helped Arab Bank clients access the U.S. financial system after regulators found deficiencies in Arab Bank’s money laundering controls in 2005 and forced it to curtail its money-transfer activities in the U.S.

Read more at the International Consortium of Investigative Journalists

Explore the FinCEN Files data here

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