FinCEN Files Confirm the Elephant in the Room

A report by Robert Mazur, former U.S. Federal Agent and author of “The Infiltrator”

I’ve had the privilege of working with journalists from the International Consortium of Investigative Journalists (ICIJ), BuzzFeed News and many other media outlets during the past decade. When approached a few months ago to analyze leaked Suspicious Activity Reports (SARs) and offer my perspectives about the significance of the documents, I paused and consulted to ensure that I would not likely be opining about transactions that had occurred so recently that I might be undermining efforts within FinCEN or law enforcement to pursue ongoing crimes. Satisfied that wasn’t the case, I analyzed hundreds of pages for many days.

As time drew near publication, FinCEN suggested that sharing this information with the public could undermine national security, harm ongoing investigations, endanger the safety of witnesses, and chill the efforts of an otherwise spirited participation of institutions in the SAR process. In my view, the opposite is much more likely.

As we saw in the Panama Papers, Paradise Papers, Herve Falciani’s release of HSBC records, and Bradley Birkenfeld’s disclosures about UBS’s criminal tax conspiracies, truth is critical to fighting large-scale systemic crime and corruption. The reporting of facts relative to these SARs offers that same important factor: truth.

There is no escaping the elephant in the room: the combined efforts of law enforcement, regulatory agencies, and compliance professionals to identify and attack the more than $2 trillion a year in illicit funds moving around the globe is a failure. In-depth analysis by the United Nations on Drugs & Crime (UNODC) also estimates that, of that $2 trillion, roughly $400 billion is generated from the sale of illicit drugs every year. Law enforcement authorities around the globe do not identify and seize anything close to 2% of that drug revenue. I’m talking about real “bad-guy” assets, not fines imposed on banks and paid by shareholders because the bank previously laundered. And yes, I said laundered. I did not say “intentionally failed to maintain an anti-money laundering program” – legal speak for far worse. This fact is the leading cause of the exponential growth of organized crime.

There is a mosaic of reasons for this failure. Although SARs are an important tool, we must face facts. SARs related to significant accounts are reported by bank compliance professionals about what account relationship managers in the same institution know, or should know. Why compliance is constantly blamed for not identifying and cleaning up another department’s mess is baffling. As an excuse, management most often embraces the concept of pointing a finger at an artificial intelligence failure. Of course, you can’t indict failed software. Relationship managers know, or should know, the truth surrounding significant deposits made by their clients because their salaries are tied to those deposits, and it is their duty to know their customer. This isn’t rocket science.

Only one piece of the mosaic lies in the fact that, for decades, major criminal conduct has been facilitated through financial institutions because of the extraordinarily late filing or failure to file SARs concerning transactions that reek with suspicion. Another piece of the puzzle falls at the doorstep of a law enforcement community that apparently isn’t focused or adequately resourced to effectively use the information in the sea of SARs that are filed each year.

BuzzFeed journalists shared details with me concerning 14 Suspicious Activity Reports (SARs) filed by four major international banks during the years 2011 through 2017. Two of the banks are based in the US, one is based in the UK, and one is based in Germany. These SARs consisted of hundreds of pages that collectively relate to more than $45 billion in suspicious wire transfers. Five of the 14 SARs were filed many years after the reported transactions occurred, causing roughly $15 billion of apparent illicit funds movements to have gone unreported for as long as five years.

Reported transactions

In nearly every instance, the reported transactions involved shell companies from many corners of the tax-haven world that had nominee owners who clearly were not the beneficial owners of the funds that were moved. Many of the shell entities used the same PO Box addresses, and in some cases had no address. These transactions carried red flags that have been known to the anti-money laundering world for decades, including:

• The transactions had no apparent economic, business, or lawful purpose.
• The accounts and counterparty account holders receiving or sending the funds were all nominee companies established in high-risk money laundering jurisdictions, such as Seychelles, BVI, Cyprus, Panama, etc.
• The entities were formed in countries that were not the same countries in which the entities either maintained bank accounts or allegedly conducted business.
• The officers and/or directors of the companies were also officers in hundreds of companies that also appeared to be shell companies.
• The addresses of the company that maintained the account used the same address as hundreds of other shell-like companies.
• A significant portion of the funds transferred were conducted in large round-number amounts, often times on multiple occasions in a single day, and were sent to the same counterparty.
• Many wires were sent in repetitive, high round dollar amounts in close periods of time.
• No definitive information could be found for the counterparties through external research.
• The relationship between the parties couldn’t be determined.
• An individual that could be linked to the transactions at times was discovered to have been the subject of bribery, corruption and/or organized crime activity.
• Many of the transactions appear to involve “Mirror Trades”, a method of conducting simultaneous purchases and sales of stable-priced commodities in order to secretly move funds across borders and conduct unreported currency exchanges.
• Some of the shell companies were linked to prior tax evasion and fraud investigations.
• Some companies had very basic websites that appeared to contain identical information taken from other websites

SARs

Most of the 14 SARs referenced above were filed after, according to media reports, a series of inquiries were made in early 2014 about the propriety of mirror trades. Those inquiries were logged by the Russian Central Bank, Hellenic Bank, and back-office staff at Deutsche Bank itself.

In my opinion, the U.S. dollar transactions reported in the 14 SARs appear to have been conducted for the purpose of moving funds connected to illicit activity from Russia, or on behalf of Russian or Ukrainian residents, to places outside of Russia. In my opinion, it is likely that one or more of the account relationship managers or other executives managing these accounts knew that these fund movements were related to illicit transactions at or near the time that the transactions occurred. Such knowledge, if it existed, could constitute a violation of the Money Laundering Control Act (18 USC Code 1956 (c) (7) (B)) and would be punishable in the U.S. as a criminal offense. A violation of this offense could involve imprisonment of 20 years and a fine equal to either $500,000 or twice the amount of money laundered.

One might wonder how U.S. dollar transactions conducted on the other side of the globe can be prosecuted by authorities in the U.S. It is important to note that the U.S. Money Laundering Control Act has extraterritorial jurisdiction under certain circumstances. Basically, 18 USC Code 1956 (c) (7) (B) notes that:

• Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity,
• knowing that the transaction is designed in whole or in part to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity, is guilty of this offense.
• As used in this section, with respect to a financial transaction occurring in whole or in part in the United States (which U.S. dollar transactions involve regardless of where conducted in the world), an offense against a foreign nation includes many crimes, including robbery, extortion, fraud, or a scheme or attempt to defraud, by or against a foreign bank. It also includes a public official, or the misappropriation, theft, or embezzlement of public funds by or for the benefit of a public official.

The reality of massive laundering through banks in the Baltics deserves an extraordinarily close look by impartial prosecutors and law enforcement in many nations. It’s up to those soldiers of justice to focus on the truth, rather than on shallow excuses offered by senior management of banks that often attempt to use alleged failed compliance programs or inadequate data analysis as the shiny objects of distraction from the truth. In my opinion, it is a problem caused by an industry driven by deposits that oftentimes wraps itself in a blanket of plausible deniability to justify the unjustifiable. It is why governments around the world identify and seize less than 2% of the underworld’s fortunes, and it is why corrupted governments suck freedom, justice, and an even playing field from the lives of far too many.

The SARs I reviewed could also relate to a serious national security issue that our intelligence and law enforcement communities should be closely monitoring – that being the possible attempts to undermine fair and free elections in many nations. It’s no secret that Special Prosecutor Bob Mueller and his gifted team identified this problem that continues today. Undermining the elections of free nations can only be done with the power of funding. It requires money to secretly pay for operatives, equipment, and to unduly influence actors in free nations. The massive export of wealth and power from Russia evidenced in the SARs I reviewed should be a top concern and consideration by everyone in the free world.

I have spoken publicly to thousands of compliance professionals around the world. The one thing that I have consistently heard from many of them about SARs is that, when filed, they seem to go into a blackhole. Despite the filing of SARs that identify a clear pattern of transactions related to criminality, compliance professionals are very rarely contacted by anyone at FinCEN or at any law enforcement agency. That frustration undermines what otherwise could be a much more responsive SAR filing by the financial community. There are simple ways to correct this problem.

Those in financial institutions, FinCEN, and law enforcement agencies must be held more accountable. Having a system such as SAR filing and evaluation done in a blackhole with no apparent real scrutiny of how well or poorly this system is being administered creates a scenario that, if compromised, could cause important information to never see the light of day. In today’s day and age, with high-ranking public officials in many countries being influenced by the excessive wealth and power of criminal organizations, this should be a concern. Corruption knows all nationalities.

It is my hope that this matter gets a very thorough review by the Inspector General’s Office and Congress, so the public can be assured that the financial community, FinCEN, and law enforcement are all doing the maximum that can be done to most effectively serve the public through the SAR program.

About the author

Robert Mazur was a highly decorated U.S. federal agent for 27 years. He is a court certified expert in money laundering related matters in both the U.S. and Canada. He is the NY Times Bestselling author of The Infiltrator, a memoir of his life undercover as a money launderer within the underworld, and was an Executive Producer of the internationally released film by the same name based on his book. He is now the President of KYC Solutions, a company that provides speaking, training, consulting, and expert witness services globally.