20200927 The FinCEN Files - misleading the public and benefiting from criminal conduct: Page 6 of 8

20200927 The FinCEN Files - misleading the public and benefiting from criminal conduct

Nigel Morris-Cotterill

There is, at present, a state of excitement amongst the media, some financial crime consultants and some politicians in response to what they are being told is public opinion.

The so-called FinCEN Files were heavily telegraphed in a media blitz more akin to the launch of a Hollywood film that has cost a fortune but the result isn't as good as was hoped.

In the USA and the UK, mainstream media outlets have published a series of articles that, they say, arise because of what it has found in documents obtained illegally from the USA's Financial Intelligence Unit, FinCEN.

No one seems to notice that all those who are profiting from the articles are gaining a benefit from criminal conduct.

That's just one reason why I would not have worked on the FinCEN papers, had I been asked (I wasn't and I'm glad).

The extraction and publication of SARs and the building of articles on them has a chilling effect on the filing of reports

There is a tacit agreement between governments and those who run businesses in their jurisdiction that the information they submit is protected from prying eyes.

The reasons for this is that SARS are not evidence of a crime. They are an indication that a regulated business has identified something sufficiently unusual in the conduct of a transaction or a person they are dealing with that they think that the information they have gathered might, in the hands of a centralised data collection and analysis agency (in this case FinCEN), be added to other information which will be of interest.

The articles demonstrate a fundamental lack of understanding of what an SAR is and what it is for

The vast majority of SARs filed around the world go nowhere. Sometimes it's because that particular SAR does not reveal anything that screams "stop this now" or it does not match with other data at all or enough to raise questions.

Depending on the jurisdiction, the filing of an SAR is a trigger for an automatic, temporary, freeze on the assets or the action to be taken is left to the business that files the report. If there is a temporary report, it often expires after a fixed time unless the FIU issues instructions to continue the freezing of the assets.

If there is no automatic freeze or if the freeze expires then business has a dilemma. If we use the example of a bank, if the bank refuses to act on a customer's instructions, the customer may sue. The bank is not allowed - because SARs are subject to strict confidentiality - to use the fact of the SAR in its defence. So, the only thing the bank can do is to let the money go and to file another SAR. This is not, as the articles have suggested, the bank, etc. being irresponsible. It is balancing an impossible position created by legislation.

Once an SAR has been filed, the reporting business should keep the customer and the account under review so that further SARs are filed if appropriate.

In each jurisdiction, the law says that SARs must be filed with a designated department - the FIU (except in Singapore where financial institutions are required to file a copy with the financial regulator) or person (for non regulated persons in the UK, it's made to "a constable"). As part of the protected arrangement, when a person files a report in good faith, that person is protected against any and all claims that may be made in contract or tort in respect of any consequences of the filing of that report.

Submitting a copy of that report to anyone else is not protected.

This causes problems in an international environment: a report filed in jurisdiction A does not attract the same protection if a copy is filed with the FIU in jurisdiction B.

Moreover, the exchange of information between jurisdictions is often restricted by law, even within the same banking group. The journalists seem to have overlooked the important point that subsidiaries and branches operating in different jurisdictions are subject to different legal and regulatory regimes. If they do know it, they have not only failed to communicate it, they have written as if it is not so.

Moreover, subsidiaries are discrete legal entities - the delivering of a copy of an SAR to an associate company, domestically or abroad, does not automatically receive the protection against action by third parties. Indeed, in a number of countries a change in the law has been necessary to allow the passing of information to a Group compliance office.

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