Big Banks Caught With Hands in the Cookie Jar

The finance industry’s reputation has suffered a few black eyes over the last 20 years. On everything from taxpayer-funded bailouts to banks fleecing their customers with egregious fees, the banks are not the most celebrated institutions in the global marketplace. Despite banks’ critical contributions to society, the public routinely questions the sector’s ethics and honesty. A new leak has added fuel to the fire, triggering a massive selloff in the equities arena during the Sept. 21 trading session. One can only imagine what will be exposed in a few years concerning the Coronavirus pandemic.

The FinCEN Leaks

BuzzFeed News recently obtained files from the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The leaks revealed that dozens of banks had facilitated approximately $2 trillion of transactions flagged as suspicious between 1999 and 2017. The biggest revelation in the documents was that about $1.85 trillion had traveled through Deutsche Bank ($1.3 trillion) and JPMorgan Chase ($514 billion).

Does this mean that the big banks engaged in illicit activity? Not quite. Finance laws require financial firms to contact regulators when they come across activities that they find suspicious, like sanctions violations or money laundering. In other words, these documents do not necessarily suggest wrongdoing or criminal conduct.

The German bank said in an online statement that the incidents in question "have already been investigated and led to regulatory resolutions in which the bank’s cooperation and remediation was publicly recognized. Where necessary and appropriate, consequence management was applied."

"We report suspicious activity to the government so that law enforcement can combat financial crime,” JPMorgan noted in a statement. “We have played a leadership role in anti-money laundering reform that will modernize how the government and law enforcement combat money laundering, terrorism financing and other financial crimes.”

Other organizations listed in the documents were Standard Chartered ($16 billion), the Bank of New York Mellon Corp. ($64 billion), and HSBC Holdings ($4.5 billion).

BuzzFeed confirmed that it shared its material with the International Consortium of Investigative Journalists. FinCEN believes the leak could threaten U.S. national security, undermine investigations, and compromise the safety of various parties that submit reports.

Deutsche Bank’s Past Scandals

The Deutsche Bank name repeatedly comes up when investigating the history of scandals in the sector, so the reporting was not too surprising to anybody monitoring the financial industry.

Former employees were convicted for being embroiled in a tax fraud deal involving CO2 emission certificates worth as much as $980 billion. The bank, however, was not charged with anything due to the paucity of corporate liability laws in Germany.

The institution was slapped with $2.5 billion in fines in April 2015 for its role in the 2012 Libor scandal. Deutsche Bank had been one of many other companies to fix interest rates utilized to price trillions of dollars of loans and contracts worldwide, including student loans and mortgages.

Deutsche Bank played an integral part in the 2008 financial crisis. The company signed a $7.2 billion settlement to the U.S. Department of Justice (DoJ) for selling and allocating toxic mortgage securities before the market meltdown.

In perhaps the most noteworthy scandal, Deutsche Bank had violated international sanctions. The business paid $258 million in penalties after it was discovered that the organization executed roughly $10 trillion in transactions with Burma, Iran, Libya, Sudan, and Syria – countries that were under U.S. sanctions.

The FinCEN leaks suggested that it has had its fingerprints on suspicious funds following its 2015 settlement.

Other FinCEN Highlights

What else did the FinCEN leaks reveal?

HSBC let fraudsters move millions of dollars of stolen money, even after the company was informed about the scammers by the U.S. government. JPMorgan Chase permitted a company to transfer $1 billion through a London account, and the bank later discovered that it might have been owned by a mobster on the FBI's 10 Most Wanted List. Standard Chartered moved money for Arab Bank a decade after client accounts at the Jordanian institution had been utilized for funding terrorism. One of Russian President Vladimir Putin's associates avoided Western sanctions by using a Barclays bank account to acquire artwork.

Leaks and Papers

The Swiss Leaks (2015), Panama Papers (2016), and Paradise Papers (2017) – the world's largest financial institutions are repeatedly caught with their hands in the cookie jar. The FinCEN leaks showed that it was not a couple of banks, but rather it was dozens of organizations that either directly participated in forbidden activities or facilitated illegal transactions. It highlights an inconvenient truth that the bombardment of regulations, whether in the United States or the United Kingdom, is not accomplishing its intended desires. It is the small- and medium-sized banks that bear the brunt of these burdensome regulations, while the corporate behemoths can hide behind paperwork since they can afford to abide by these supposed safety measures. The financials contributed to the hemorrhaging among the leading stock benchmarks on Sept. 21, but if history is any indicator, the market tank is a blip on the radar.

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Read more from Andrew Moran.