Change the System (#FinCEN)

I got this endorsement from the one and only Alice Cooper the other day …

… it was sent by a friend to cheer me up and it surely did. A lot. Love Alice Cooper.

But it made me reflect too on the message: “change the system”.

Change the system.

Change The System.

Change The System!!!!

But, what’s wrong with the system?

Lots, I guess.

We live in a world where there are less wars, but there are still wars; there’s less human abuse, but there’s still a lot of human abuse; there are less suffering malnutrition, but there’s still malnutrition; animals are hunted to extinction; the planet is being destroyed; we have a pandemic; and, and, and …

However, the latest thing I realised is when I made the comment on the FinCEN documents that it’s not the banks that are at fault, it’s the system. The banks were filing SARs, Suspicious Activity Reports, by the truckload. It’s just that no one followed uyp.

Exactly. 433,000 reports and 23000 defence against money laundering orders. Just 46 prosecutions.

— Bobbybear (@Bob_josey) September 22, 2020

First, what is the FinCEN scandal?

You’ve probably seen the headlines, but the source of the scandal are leaked documents given to Buzzfeed, so start there.

Buzzfeed were given more than 2,500 documents, most of which were files that banks sent to the US authorities between 2000 and 2017. The authority at the centre of all of this is the Financial Crimes Enforcement Network in the USA – FinCEN for short – an agency within the Treasury Department.

“It collects millions of these suspicious activity reports, known as SARs. It makes them available to US law enforcement agencies and other nations’ financial intelligence operations … what it does not do is force the banks to shut the money laundering down … [and] the FinCEN Files investigation shows that even after they were prosecuted or fined for financial misconduct, banks such as JPMorgan Chase, HSBC, Standard Chartered, Deutsche Bank, and Bank of New York Mellon continued to move money for suspected criminals.”

Interestingly, when Buzzfeed contacted the Treasury Department about these SARs, their response was a statement saying that it was “aware that various media outlets intend to publish a series of articles based on unlawfully disclosed Suspicious Activity Reports (SARs).” It continued, “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.”

In other words, the Treasury is aware of these illicit activities, as are the banks, but no one is really co-ordinating a cohesive response.

This is explored in depth in blogs by Simon Taylor at 11FS and Ajit Tripathi at Embedded Finance.

CHANGE THE SYSTEM!!!

In fact, it’s interesting that I posted a few tweets about this linking to articles dating back years on how foreigners use the UK banking system to launder money.

Banks allow criminals to launder billions through the financial system, with London at the heart of the operation ...

... well, there's a surprise (not)

— Chris Skinner (@Chris_Skinner) September 21, 2020

This is not new. It’s been around for years. It’s a known issue that banks sepdn ages trying to deal with  and yet no one has a macro view.

We have databases of Politically Exposed Persons, huge tombs of text on Anti-Money Laundering processes, and yet it’s well known that trillions of dollars are laundered every year through the system.

CHANGE THE SYSTEM!!!

In other words, what this demonstrates is that the 99.9 percent who do nothing untoward and yet are caught in lengthy checking processes for identity and onboarding are at the expense of the 0.1 percent who do everything wrong to buck the system.

It’s similar to when we all used to fly and 99.9 percent of us who have no intent of causing trouble have to go through security checks that are completely over the top for the 0.1 percent who might have a shoe bomb or box cutter.

We need better systems to deal with this. Some might say that’s blockchain and distributed ledger technology. I would say  it’s just all about digital identity and creating an effective identity system that is shared across banks, across agencies and across nations.

Darn. That’s why we haven’t changed the system …