FinCEN Files: The Weaknesses of the Current AML Regime Revealed

The ensuing indignation that was sparked worldwide re-opened a never-ending conversation about the fine line between financial institutions’ legal and moral obligations. Looking at it from an industry perspective, however, the leak also revealed one of the key structural challenges that all the stakeholders are facing in this space, which is spotting signs of criminal activity in the noise of data. A problem to which a solution is already in our reach: flag-driven AML analytics and accelerators.

What is the FinCEN Files leak?

On September 21st, more than 2,500 documents involving about $2tn in payments over a 20-year period ending in 2017, of illegal transactions– the so called FinCEN files– were released to the public. FinCEN is the US Financial Crimes Enforcement Network. The leaked documents were Suspicious Activity Reports (SARs), which Financial Institutions have a regulatory requirement to issue that raise concerns about their clients’ undertakings.

FinCEN Files: Banks and Law Enforcements are drowning in SARs and the sheer volume means that the Regulators are unable to follow through

The FinCEN files leak is the latest in a series of scandals that have exposed financial crime and money laundering activities. But does this new leak prove that banks are turning a blind eye when it comes to money laundering? As you may guess, it is more complicated than that.

Banks can and need to do more. This leak highlights that many banks prefer to file multiple defensive SARs instead of changing their actions towards the customers and no longer supporting them with access to banking services. The generation of huge volumes of SARs is tick the box regulation and not in the spirit of current AML regulations. We believe that banks have an obligation to serve society and not just shareholder’s profit. Benefitting from illegal activity is never acceptable.

What needs to be remembered, is that banks are not law enforcement and they must walk a fine line between AML practices and ‘tipping off’ criminals. Clearly, global law enforcement misses effective tools for dealing with the volume and complexity of money laundering and the use of banks for illegal activities. Regulators are also under resourced to address the volume of issues arising from current AML practices. Banks, law enforcement and Regulators all need to change their approach to successfully resolve these issues.

In the last year, FinCEN alone received 2 million Suspicious Activity Reports (SARs). Add in the UK, European, Asian, African, Latin America, and Middle East regulators and there is almost no chance of piecing the puzzle together and responding with AML monitoring process that address the current challenges faced by our Financial Services industry.

The solution to this problem is in widespread collaboration between global law enforcement, Regulators and banks working with the latest advancements in technology. It is clear to us when designing the RedFlag Accelerator that Data Science and Machine Learning, built on flag driven AML Analytics would identify the patterns and behaviours worth investigating in order to build new outcomes to prevent ongoing, repeatable behaviours of money laundering and criminal activity in our banking infrastructure.

We would love to hear your view on FinCEN. Join a conversation in the comments section on our LinkedIn profile or contact RedFlag Accelerator team to understand how your data can help fight against human trafficking and modern slavery.