22. September 2020

What the FinCEN leaks reveal about systems to fight financial crime – BBC interview with Gretta Fenner

Paper files
Will the FinCEN leaks trigger serious dialogue on making AML systems fit for the 21st century?

In an interview with BBC journalist Razia Iqbal on Newshour on 21 September, the Basel Institute’s Managing Director Gretta Fenner gave her perspective on the unfolding FinCEN Files story. Here is a brief summary.

The story does not come as a surprise to those of us in the anti-corruption community, she said. But it’s too easy to simply blame the banks for “allowing” money laundering to take place. This means ignoring 50 percent of the problem. We must also talk about the shortcomings in the current regulatory and supervisory framework. We must also acknowledge that the problems FinCEN Leaks reveals are not new. A blame game will not solve them; only courageous and committed action will.

The role of Financial Intelligence Units

Today most financial institutions invest large amounts of resources in transaction monitoring and customer due diligence in an effort to comply with anti-money laundering and counter terrorist financing (AML/CFT) regulations. If they flag suspicious activity, they are obliged to submit a Suspicious Activity Report (SAR) to the relevant Financial Intelligence Unit (FIU). FinCEN, from where the leaked files emanate, serves as the FIU in the United States.

FIUs are responsible for assessing the report and deciding whether any further action is needed, such as compiling a dossier and escalating it for further investigation by law enforcement.

A tension – no easy option

A number of media reports about the FinCEN leaks gave the impression that it is up to the banks to decide what to do once a SAR is filed. This is a wrong perception. What happens once a SAR is filed is defined by law. But the laws vary from one country to another.

The most challenging question in this context is whether the law should instruct the bank to proceed with the transaction while the SAR is being assessed, or to freeze the assets (and for how long?) during this process. Financial institutions and regulatory authorities have debated this matter for decades.

The tension comes from risks inherent in both options. If you block a transaction or freeze a bank account, you risk tipping off the suspect. If you continue business as usual while the transaction is assessed, you risk that the money disappears, perhaps transferred into a non-cooperative jurisdiction where it’s impossible to find it again.

Capacity gaps in FIUs and enforcement

Public frustration about the banks’ behaviour is understandable. But it should be met with equal frustration about systems failures on the public side.

While requirements for transaction monitoring and customer due diligence are increasing, leading to a growing number of SARs being filed, many FIUs do not have the necessary resources, tools and procedures to meaningfully and swiftly analyse reports. This makes the money laundering prevention and detection system a hit and miss game.

A way forward

An important part of the solution is to focus more on risks than on quantity. In other words, FIUs should increase their capacity to conduct strategic analysis of SARs so that both reporting and analysis focuses on major risks instead of just producing more and more data.

Financial institutions, FIUs and law enforcement must also explore other ways of sharing intelligence in a timely, proactive and strategic manner.

Both of these require reporting entities, FIUs and regulators to develop a joint vision instead of falling prey to the pointless blame game. FinCEN leaks must be used as a trigger for serious dialogue around how to overhaul the prevention and detection system and the processes around them.

At the end of the day we all want the same outcome: a more strategic, powerful and swifter way for banks and other reporting entities, FIUs and law enforcement to work together to stop financial crime.

More

  • Listen to the interview here on BBC Sounds (available until 19 October). The story starts at minute 14:00, and the interview with Gretta Fenner at 17:30.
  • The latest edition of the Basel AML Index, which measures the risk of money laundering and terrorist financing around the world, highlights systemic failings in the quality of AML supervision. This is another part of the story of why AML/CFT systems are not working.
  • In our quick guide to the role of FIUs in asset recovery, Senior Asset Recovery Specialist Thierry Ravalomanda gives a brief overview of the different types of FIUs and how they support anti-corruption and asset recovery efforts. It’s available in English, French, Spanish and Portuguese.
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Gretta Fenner

Managing Director
+41 61 205 55 11
Biography