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FinCEN Files: 'Bringing the big banks to justice'

Sabine Kinkartz | Insa Wrede
September 21, 2020

Leaked documents have yet again exposed the failure of governments to rein in money laundering. It’s no different in Germany, where the financial regulators seem to be struggling to get their act together.

Dunkle Regenwolken hängen über der Skyline von Frankfurt am Main
Image: picture-alliance/dpa/F. May

Mafia clans, despots, corrupt oligarchs, fraudsters — the list of criminals who channel large sums of ill-gotten wealth into the financial system every day is long.

The United Nations estimates that around $5.5 billion (€4.25 billion) of black money are funneled into the legal system every day. The job is aided by large, multinational banks that execute the transfers, even though they are legally obliged to report any suspicious transaction to the authorities within 30 days. 

How smoothly such dubious transactions have been carried out in recent years has been revealed by the International Consortium of Investigative Journalists (ICIJ). The leaked documents also show that the banks were reluctant to report, and in some cases, they did not do so until six months or even later. 

What are the FinCEN Files?

Unsuspecting and overwhelmed authorities  

Germany's biggest lender Deutsche Bank was especially neck-deep in this murky business, facilitating more than half the $2 trillion of suspicious transactions made between 1999 and 2017, as revealed by the FinCEN files. 

The co-chairman of the Social Democrats (SPD), Norbert Walter-Borjans, is demanding stricter penalties for the perpetrators.  

"We need a corporate criminal law that not only calls individual employees to account, but perpetrator banks as a whole to account in the event of legal violations — right up to and including withdrawal of licenses," he said in a newspaper interview. 

But it is not only the banks that are responsible, financial authorities also cut a sorry figure in the scandal.  

The US dollar plays a major role in global payment transactions. If the US currency is involved, then suspected cases of money laundering must be reported to the Financial Crimes Enforcement Network, or FinCEN, in the United States.  

It is a very important agency, Markus Meinzer of the Tax Justice Network told DW, because FinCEN controls not only the US market but the entire global payment traffic in US dollars. 

Too little international cooperation 

In 2019 alone, FinCEN received reports of two million suspicious transactions, which are being investigated by around 300 employees. That ratio alone suggests that a detailed check is not always possible. 

FinCEN Files / Banken Kombolbild
Six banks account for the majority of suspicious transactions reported to FinCEN

However, if other countries or foreign companies are affected, the suspicious cases should also be reported to the authorities there. 

In Germany, it is the Financial Intelligence Unit (FIU). But according to the Süddeutsche Zeitung newspaper this hardly ever happens. In 2018, only eight so-called spontaneous information from the US were forwarded to the FIU, in 2019 that figure was 52.  

Far more reports came from German banks, financial service providers and dealers in real estate or luxury goods. In 2019 there were almost 115,000 reports, almost 50% higher than the previous year. 

Suspected cases processed too slowly or not at all 

Acting upon even these many cases proves to be an enormous challenge for the employees at a severely understaffed FIU. Dozens of the 475 approved positions at the agency remain unfilled.  

In mid-2019, more than 180 were filled by temporary staff and 51 were still open. Unsurprisingly, the FIU was criticized last May for leaving 36,000 suspicious cases unresolved. 

"The suspicion reports in Germany pile up straight and are not processed fast enough," Meinzer told DW. "This is a huge problem, not only for the FIU, but also for the subordinate authorities" because they have to react within three days to even stop a suspicious transaction. 

'Still easy to avoid regulatory checks'

Nobody wants to take the blame 

Public prosecutors, law enforcement agencies and the police are not adequately prepared and do not have the resources to effectively deal with this menace.  

"Here I miss the political will to pursue this issue really seriously and emphatically," says Meinzer.  

Similar accusations come from Lisa Paus, a Green party member and a member of the German parliament's finance committee. For years, she says, the German financial supervisory authority had refused to accept any responsibility in the investigation of financial crime.  

"The FIU has also become a veritable symbol of the chaos in the fight against money laundering in Germany," the lawmaker told DW. 

Of course, the responsible ministry sees things quite differently. "German Finance Minister Olaf Scholz did the right thing when he took extensive measures to massively strengthen the fight against money laundering after he assumed office in 2018," it said in response to the FinCEN research. "According to our findings, the cases involving Germany that have now become known have been processed and the necessary consequences have been drawn." 

Scholz has not only strengthened the FIU in terms of personnel but has also given it many new legal access possibilities, the ministry said.  

But that is not enough for Meinzer from the Tax Justice Network. "It is not enough that customs employs a few hundred people centrally, as long as they cannot even access police databases to find out who is currently under investigation or who is suspected of being involved in money laundering or other financial crimes." 

What is a SAR?

Call for a European supervisory authority 

Pushing the banks to report suspicious transactions faster, bolstering the authorities to do their job and improving international cooperation: These seem to be the key points for preventing money laundering in the future.  

The Green party's Member of European Parliament Sven Giegold also feels not enough has been done to check money laundering.  

He described it as a "large-scale government failure" and wrote on Twitter: "This must be a wake-up call for a strengthening of joint money laundering supervision with a European FIU." 

Meinzer also calls for a supervisory authority at the European level with police investigative powers. He also demands higher penalties for money laundering and for bankers involved.  

"We also need more transparency about all fines that are imposed," Meinzer says. Banks that have been involved in money laundering operations must be named and the fines imposed must also be made public, he demands. 

Such information could have a significant impact on the share prices of banks and thus motivate them to take more decisive action against money laundering.  

"At present, the suspicious activity reports would be more of an alibi," Meinzer thinks, and adds: "Like a letter of absolution that banks use to wash their hands of the matter in case a scandal should come up in the end or the public prosecutor's office should ring the bell." 

Adapted by Ashutosh Pandey

Anti-money laundering expert Graham Barrow