October 31, 2020

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Leak lays bare extent to which banks are flagging suspicious money flows

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The leak of more than 2,000 suspicious activity reports relating to more than $2tn of transactions has laid bare the extent to which banks are flagging questionable money flows around the world.

On Sunday, the International Consortium of Investigative Journalists and other media organisations including BuzzFeed published a series of articles based on the leak. 

Banks are required to file confidential SARs to national regulators and crime-fighting agencies to help root out crimes such as money laundering and terrorist financing.

The vast majority of the leaked SARs relate to previously reported scandals and regulatory issues, such as Deutsche Bank’s mirror trading scheme, which laundered $10bn out of Russia from 2011 until 2015.

Here are the key details:

Deutsche Bank

Germany’s largest lender submitted the most SARs of any bank in the ICIJ leak, a total of $1.3tn of transactions.

The most significant SARs relate to the Russian mirror trading scandal, for which Deutsche was fined $630m by the US and UK in 2017 and is still awaiting a potential penalty from the Department of Justice.

Despite more than 100 SARs being filed between 2012 and 2015 on the matter, Deutsche continued to allow Russian clients to buy securities in roubles through its Moscow office and then sell identical ones for foreign currency, including dollars, in London. Regulators said the only true purpose was money laundering.

A new detail to emerge is the concern of other banks. After a visit to its London office in 2016, Bank of America was so worried about Deutsche’s due diligence checks on Russian clients that it took the uncommon step of filing an SAR against its peer to US authorities. 

Additionally, after being asked to leave the office by a senior manager in the middle of a meeting on the matter, BofA executives are reported to have taken concerns directly to Deutsche chairman Paul Achleitner.

Deutsche said it could find no evidence Mr Achleitner received any reports from BofA and any issues would have been handled by then chief executive John Cryan.

“The Supervisory Board diligently exercised its oversight responsibility with regards to the mirror trading matter,” the bank said. “Consequences have been taken where and as appropriate, including on the management board level.”

Separately, a newly revealed 2016 letter from the UK’s financial regulator strongly criticised Deutsche for repeatedly taking on “very profitable clients, regardless of financial crime risks” and deemed that its “leadership on financial crime had been lacking for a considerable period of time”.

The language used in the subsequent public reprimand was less severe and exonerated senior managers from responsibility. The ICIJ also reported the UK’s Financial Conduct Authority was initially considering a fine of £1.7bn but reduced this to £163m.

However, the FCA said £1.7bn was a proportion of the Deutsche division’s revenue used in its fine calculation. “It is incorrect to state the FCA reduced the penalty it imposed on Deutsche,” the FCA said*. “The £1.7bn was never the penalty the FCA intended to impose . . . the FCA exercised its discretion to increase the penalty by £20m that would otherwise have been imposed, rather than reduce it.”

HSBC

Europe’s largest bank — no stranger to compliance failings after being fined $1.9bn in 2012 for helping Mexican drug cartels launder cash — is alleged to have continued transferring money totalling $15m between the US and Hong Kong, even after filing multiple SARs on a suspected $80m Chinese Ponzi scheme in 2013 and 2014.

The scam, known as WCM777, was not shut down by HSBC until after most of the money had been drained from the accounts. The bank first reported suspicious activity in October 2013 — even flagging it was a “potential Ponzi scheme” — but did not stop working with the perpetrator until about five months later when US criminal charges were filed against him.

HSBC declined to comment on the specific incident, but said it had spent billions upgrading its compliance systems since 2012 and was now a “much safer institution”.

Barclays 

The British bank is alleged to have been used by a sanctioned associate of Russian president Vladimir Putin to launder money from 2012 to 2016.

Barclays opened an account for a company called Advantage Alliance in 2008 that was later linked to billionaire Arkady Rotenberg. It conducted $60m of suspect transactions over the time period, including a role in financing a $7.5m purchase of a René Magritte painting. 

In 2016, Barclays investigated and closed the account because it found evidence of links to Mr Rotenberg, but the bank filed multiple SARs about other dubious accounts linked to the man and his family that remained open until 2017.

Barclays said: “We believe that we have complied with all our legal and regulatory obligations including in relation to US sanctions” and that an SAR was not evidence of criminal activity.

*This article has been updated to correct the attribution of this quote




2020-09-21 10:17:45


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