Key Takeaways

  • ICIJ releases report detailing two years of money laundering by global banks
  • JPMorgan, Deutsche Bank and others flagged in report
  • Bank shares sink as the fallout begins

A bombshell report from the International Consortium of Investigative Journalists (ICIJ), the organization behind the Panama Papers investigation, reveals the role large financial institutions played in money laundering of trillions of dollars and suggests they aren't doing enough to stop it. A trove of thousands of "suspicious activity reports" recovered by BuzzFeed News and shared with reporters all around the world indicate that global banks have been blindly moving staggering sums of illicit cash "for shadowy characters and criminal networks that have spread chaos and undermined democracy around the world" despite promises made to strengthen controls and being charged billions of dollars in fines in the past. 

Below is the ranking of the top 10 banks by reported amount in the FinCEN Files. Shares in HSBC, Barclays and Standard Chartered fell around 5% in London today. Société Générale stock was also down 4.94% in Paris and Deutsche Bank dropped over 7% in Frankfurt. Shares in U.S. giants JPMorgan Chase and Bank of New York Mellon were deep in the red in pre-market trading.

FinCEN

What Are the FinCEN Files?

The FinCEN Files investigation includes more than 2,100 suspicious activity reports (SARs) mostly filed between 2011 and 2017 flagging more than $2 trillion worth of potentially illicit transactions. They are a tiny fraction (0.02%) of the more than 12 million filed during this period. SARs are confidential documents created by employees at financial institutions (banks, money exchanges, securities brokers, casinos) to alert the Financial Crimes Enforcement Network (FinCEN) about transactions that don't look quite right. FinCEN then shares these reports with law enforcement authorities including the FBI and ICE.  

Where Have Banks Failed?

Banks can stop transactions if they find them suspicious, but are not required to do so by law. The report details how they have fallen short while being the first line of defense against dirty money. It alleges they have helped move money for everyone from corrupt politicians and fraudsters to narco traffickers and terrorist organizations despite red flags and regularly processed transactions without knowing the ultimate owners of the accounts. 

Besides being unable or unwilling to halt risky transactions themselves, it also took banks a long time to alert the authorities. While the rules say that SARs must be filed within 30-60 days once potential criminal activity is detected, the report noted that there was a median time lag of 166 days since the suspicious activity started. Barclays performed the worst among the big banks, taking a median 1,205 days to file a report from the time transactions took place. It was followed by JPMorgan (519 days), Standard Chartered (426) and Bank of New York Mellon (210) and Deutsche Bank (136). This delay may be partly because compliance workers at major banks often resort to basic Google searches, says the report, and only flag transactions after negative news articles emerge. The money? Long gone by then.