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EXPLAINER-Keys takeaways from the FinCen Files

Mon, 21st Sep 2020 18:24

Sept 21 (Reuters) - Shares of the biggest global banks
dropped on Monday after news reports said they allowed large
sums of allegedly illicit funds to move through the financial
system, despite red flags about the origins of the money.

Britain-based HSBC Holdings PLC and Standard
Chartered PLC fell to 25-year lows, while U.S. banks
JPMorgan Chase & Co and Bank of New York Mellon Corp
were down 4.1% and 4.7%, respectively.

These lenders were named in recent articles by BuzzFeed News
and the International Consortium of Investigative Journalists,
based on leaked documents, known as the FinCEN Files.

Here are the key takeaways from the reports:

1. What are the FinCEN Files?

The investigative series is named after the U.S. Department
of Treasury's Financial Crimes Enforcement Network, or FinCEN,
which receives alerts from banks and other financial firms about
transactions that appear to be questionable. Those alerts are
called suspicious activity reports, or SARs.

Financial institutions filed SARs for more than $2 trillion
worth of transactions between 1999 and 2017, according to the

The leaked files pertained to roughly 2,100 SARs filed with
FinCEN between 2011 and 2017, representing less than 0.02% of
the more than 12 million SARs during that time.

Among the types of transactions highlighted by the report:
funds processed by JPMorgan for potentially corrupt individuals
and companies in Venezuela, Ukraine and Malaysia; money from a
Ponzi scheme moving through HSBC; and money linked to a
Ukrainian billionaire processed by Deutsche Bank AG.

2. Why would a transaction be deemed "suspicious"?

U.S. federal laws require certain financial institutions to
file SARs if there are signs of money laundering, insider
trading, cyber attacks or various types of fraud. The existence
of a report does not confirm wrongdoing, but alerts regulators
to possible criminal activity.

Banks, money exchanges, securities brokers, insurance
companies, casinos and other financial institutions are required
to file SARs within 60 days of detection, according to the
Treasury Department.

3. What went wrong?

U.S. agencies tasked with enforcing money-laundering laws
rarely took any action after receiving SARs, nor did big banks
after filing them, according to the FinCEN Files.

As a result, the millions of suspicious activity reports had
little-to-no effect on policing the global financial system, the
articles said.

4. What does it mean for banks?

It is not entirely clear what negative consequences, if any,
banks highlighted in the FinCen Files stories may face.

Analysts on Monday said the revelations were unlikely to
lead to additional regulatory penalties or fines, because the
behavior detailed in the articles showed that the system is
flawed, but did not make clear that the banks had broken any
rules or laws.

It is possible that some banks with dated technology may
have to spend more money improving compliance systems, and that
politicians who typically criticize the industry will scrutinize
the matter further, but there was no immediate sign that was
happening yet.

"Unless there are more substantive allegations of fact, we
expect that (these articles) will not have lasting impacts on
the industry or stock prices," Oppenheimer analyst Chris
Kotowski wrote in a note to clients.

(Reporting by C Nivedita and Abhishek Manikandan in Bengaluru;
Editing by Bernard Orr)

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