Victims or Perpetrators?!

Banks can often become the easy targets to get blamed for the ongoing financial crimes all over the world. Recently, Buzz Feed’s revealed the leaks of suspicious activities report which confirmed that they are fulfilling their roles in fighting against the international money laundering. It also suggested that the whole system is on the verge of collapse and that is something to re think about. Banks can detect the actual suspicious criminal activities from their clients in many ways. Selecting the clients based on their own risks assessments, supported by public information and their risk appetites. Next is to make sure that the clients and their operations do not belong to the watch lists of the potential crimes groups of the terrorists or even the sanctioned persons, companies and countries. It’s an obligation for the banks to mandatorily check before executing a transaction and, if required, freezing it. Final step is to monitor the transactions of their clients to identify suspicious behavior, especially money-laundering schemes or tax evasion. And if such the case, after blocking the transactions, banks are supposed to report them to the regulator or the specific agency in charge of investigating financial crime {Financial Crimes Enforcement Network (FinCEN) in the United States, Tracfin in France}.

The leaked FinCEN files are based on more than 2,500 documents called SARs (Suspicious Activity Reports) that banks sent to US authorities between 2000 and 2017. The banks, therefore, had fulfilled their obligations to measure and alert for possible financial crime.

SARs are standardized reports completed by financial institutions about suspicious activity and are sent to FinCEN. Financial institutions are required to report suspicious activities that may be connected with criminal activity (i.e., money laundering, corruption, tax evasion). All SARs are compiled in a database, made available to US law enforcement and other global financial-intelligence agencies. International Consortium of Investigative Journalists are doing a fine job as it is shedding light on the complexity of situations within the global market, where the skillful use of international borders becomes a strategy with an immense amount at stake.

Criminals’ creativity in their actions, discrepancies between regulations in various countries, complexities of banks’ information systems that detect these alerts and potential gaps within the banks’ control frameworks all cause a difficulty for the banks to work smoothly. . Regulators are overwhelmed, scattered as the 2,500 files that leaked (via BuzzFeed) represent only 0.02 percent of the total number of SARs. Criminals leverage off inconsistencies between jurisdictions to find loopholes in the system, cruelly highlighting the lack of global coordination.

Terminating all the shell companies in the US and making it a compulsion to always name the company’s owner which will result in more transparency. Increasing the direct accountability of bankers like modifying company policies to increase accountability of front-office employees may suffice, measures such as fines, salary penalties in cases of not complying with the rules. Constantly upgrading the data management systems to identify fraud patterns to help identify the potential frauds and prompt actions to be taken faster.  Leveraging data management and artificial intelligence to build fraud-detection patterns and to share this with the banks and regulators. As the whole system is subjected to be suspicious, and as it is based on the confidentiality, it is high time to be asking for more transparency and visibility from the regulators and governments. These can be few of the measures which can be taken to raise the banks from being in the watch zone. It is an overall political and economic effort to enforce these measures.