You must have heard about the FinCEN leaks through marketfeed. Not many news outlets have given clear information about this major scandal, here is what we found.

FinCEN Leaks are a set of documents and data that have been collated by ICIJ or International Consortium of Investigative Journalists. These documents have flagged a number of transactions made through huge international markets like HSBC, Deutsche Bank, JP Morgan, Bank of New York Mellon, Barclays etc.

These transactions were made on behalf of politicians, corporations, shell companies, businessmen, and others. They are mostly fraudulent in nature and were used to sponsor political campaigns, sporting events, corporate transactions, terrorist organizations, and many illegal and corrupt activities as well. The total amount of transactions in these papers sums up to Rs 1.46 crore crores, yes crore crores. You can try counting the number of zeroes.

Share prices for the listed banks and companies began to fall all across the world once the news was out. Let us find out what exactly was wrong with these transactions.

What was wrong with these transactions?

  • If one of us needs to transfer money from one bank in India to another bank in a different country, it cannot happen directly. If the transaction happens in US dollar, it HAS to go through a US Bank.
  • All suspected or confirmed fraudulent transactions in the US need to be reported to FinCEN or Financial Crimes Enforcement Network, a part of US Department of the Treasury. Banks or Financial institutions report these suspected transactions in the form of SAR or Suspicious Activity Report.
  • Enforcement Agencies in the USA like the FBI, use this data from the SAR to track fraudulent transactions and flag these wrongdoers, or so they say.
  • Banks that fail to report fraudulent transactions or file a SAR on time are penalized by the US Government. Keeping this in mind, the banks made it a point to keep a track of fraudulent transactions and file SARs when needed.
  • HERE’S THE CATCH! The banks can charge a transaction fee, even on these fraudulent transactions that they report. The banks kept reporting the fraudulent transactions and kept charging the transaction fee. Essentially, the banks made money for “reporting” the crime, when they should have “blocked” such a fraudulent transaction.
  • The banks kept filing SARs on these fradulent transactions and kept charging transaction fees when the right thing to do was to block or deny such a transaction.
  • The SARs report kept piling up until they were leaked by internal sources. These international group of journalists kept connecting the dots based on the transactions, linking them to powerful people around the world.
  • This leak showed how certain the banking system all across the world facilitated fraudulent transactions from right under the system’s nose.

What about India?

Around 44 banks were listed in the data dump, including the country’s largest bank, State Bank of India. The fraudulent transactions reported shows that Indian banks received more than ₹3,500 crores ($482 Million) from outside the country and transferred ₹2,900 crores ($406 Million) from India. Investigative journalists are trying to connect the dots of these transactions.

So far they have found Jindal Steel, IPL Sponsoring, Gangster Dawood Ibrahim and some terrorist organisations linked to the leaked papers. Shares of Indian banks have fallen strongly, and are continuing to fall. Jindal Steel has lost almost 20% of its market cap in the last 2 trading days alone.

FinCEN files: Major Indian banks figure in suspicious transactions list

Also, shares of major banks around the world have fallen. Stock prices of HSBC, one of the world’s largest banks, have hit a 22-year low because of this scandal, falling even below COVID-crash levels. Global markets are falling.

How was this made possible and what can be the future course of action?

The FinCEN links were made by a dedicated group of investigative journalists at ICIJ, Buzzfeed News and 108 other agencies all across the world. The project spanned over 16 months involving partners from 88 countries.

In all, an ICIJ analysis found, the documents identify more than $2 trillion in transactions between 1999 and 2017 that were flagged by financial institutions’ internal compliance officers as possible money laundering or other criminal activity — including $514 billion at JPMorgan and $1.3 trillion at Deutsche Bank.” read the ICIJ website.

There is no official statement by either of the companies or FinCEN itself with respect to the leaks. HSBC was fined multiple times previously for similar fraudulent transactions earlier, yet it played a major part in the FinCEN leaks. Fines may be imposed, licenses may be cancelled, those held responsible may be prosecuted, but will things get better from here? That is something only the respective Governments can answer.

To know more about the figures, people involved, processes in FinCEN leaks, Click Here.