Why the latest leak is misleading and actually damaging to global anti-money laundering and counter terrorism financing efforts – by Simon Owen, TEP

For a number of years now, the International Consortium of Investigative Journalists (ICIJ) has sought to justify its existence through the publication of illegally obtained documents.

There is no question that money laundering, terrorism financing, and tax evasion is abhorrent and should be eradicated at all costs.

However, the ICIJ’s previous strategy of vilifying offshore jurisdictions and institutions through sensationalist and speculative journalism – under the guise of public interest – has arguably already lost its premise and intended audience.

It’s also worth noting that the ICIJ rely on that very same audience to fund their own opaque operations – primarily through public donations.

Unethical

To be clear, most jurisdictions have long established legislative and regulatory bodies. These include investigative agencies, tasked with monitoring, reporting and taking enforcement action. Moreover, they interact on an international level, sharing data and intelligence on a legal and ethical basis, in line with related treaties and other information sharing agreements.

At the other end of the spectrum, despite the existence of various international laws and data protection acts (designed to prevent hackers and other criminals accessing and using private data illegally) it seems that the ICIJ, has again, knowingly received and shared confidential proprietary data. Not only with their merry band of unwitting journalists, but with the general public.

This is not unsurprising, particularly given that they were previously the recipient and publisher of the world’s biggest flash drive – now commonly [and unfairly] known as the “Panama Papers”. However, despite the questionable ethics and misleading reporting around this and subsequent “leaks”, the release of stolen FinCEN data is arguably their most controversial, ill-advised and unethical move to date.

As a US federal enforcement agency and bureau of the US Treasury, FinCEN is focused on combating domestic and international money laundering, terrorist financing, and eradicating other financial crimes – apparently the very same causes as the ICIJ, according to their crowd-funding sales pitch.

Unreliable

Before anyone can reasonably comprehend the relevance of the information that has been leaked, it is vitally important to understand the context of the documents that have been leaked or opined upon by the ICIJ.

Firstly, for those not exposed to the world of international compliance, a “Suspicious Activity Report” (SAR), is very much the focus of the FinCEN Files.

SARs are submissions of information that essentially alert regulatory bodies and/or law enforcement that certain client/customer activity is in some way suspicious and might indicate money laundering or terrorist financing.

It’s also worth noting that the ICIJ has only submitted a partial public release of documents – without providing a valid reason as to why they are prepared to release some, but not all.

While FinCEN clearly collaborates with its international partners around the world, it is also heavily reliant on information received from US regulated financial institutions, particularly those providing correspondent banking facilities to overseas banks.

In fact, it appears that most of the information that the ICIJ is basing its “FinCEN Files” media campaign on has been provided by US correspondent banks.

At this point, it’s imperative to understand the following:

• The submission of SARs do not in any way confirm the presence of any illegal or illicit activity;
• Many banks and other regulated entities have internal policies to submit SARs on wide-scale basis – without any real due process or justification;
• The reasoning for doing so could be as simple as having a perceived “offshore entity” involved in the related structure, despite this being commonplace;
• Contrary to public perception, leading offshore jurisdictions, such as the Cayman Islands and the British Virgin Islands are internationally recognised as being both highly compliant and transparent;
• Many banks and regulated entities have been known to file SARs subsequently to transactions being accepted;
• Much of the data is historical and in a number of cases, there are clear reasons why multiple SARs may have been submitted purely because of regulatory procedures or sanctions being made against certain entities that were later withdrawn;
• There is no justifiable correlation to the figures used in the ICIJ’s rhetoric to the reality of actual illicit transactions.

Putting aside the clear inaccuracies and the ICIJ’s usual caveat and acknowledgement that the existence of a SAR does not necessarily mean there has been any wrongdoing, there is one aspect of the ICIJ’s data analysis that is particularly interesting.

Despite the erroneous, misleading and continued claims by the likes of the OECD and European Union that offshore financial services jurisdictions are harmful and the root of much of the world’s money laundering, the statistics released by the ICIJ would indicate otherwise.

In fact, when reviewing the aggregate totals of suspicious activity in USD by jurisdiction, many of the countries with the largest exposures (in the high hundreds of millions and even billions) are actually European Union members, such as Latvia, the Netherlands and Luxembourg. They are joined in the ICIJ Hall of Shame by fellow big-hitters, the United Kingdom, the United States, Switzerland, Singapore, Hong Kong and Russia.

Contrastingly, the jurisdictions targeted by previous ICIJ leaks and the European Union in terms of blacklisting, such as Panama (Panama Papers) and Bermuda (Paradise Papers), have minimal exposure in terms of the FinCEN SARs.

While, again, there is no real accuracy or validity to the FinCEN Files statistics or their basis of calculation. However, if there were, the only reasonable conclusion would be that the real problems lie within the banking systems of some of the world’s most powerful countries – not the small nations that they continue to bully and scapegoat as being the key facilitators of money laundering and terrorism financing.

Undermining

Undoubtedly, the most disappointing aspect of the FinCEN Files is how it undermines ongoing and future investigations, many of which are cross-border and collaborative. Those of us who work in the financial services industry are acutely aware of the importance of SARs and the associated confidentiality. Clearly, the ICIJ do not.

As FinCEN have already commented, the unauthorized disclosure of SARs is a crime that can impact the national security of the United States, compromise law enforcement investigations, and threaten the safety and security of the institutions and individuals who file such reports. 

It’s also worth noting that FinCEN has already referred this matter to the U.S. Department of Justice and the U.S. Department of the Treasury’s Office of Inspector General.

Maybe this time the ICIJ’s “public interest” justification will fall on deaf ears and the accusers will now become the accused. We shall see.