20200927 The FinCEN Files - misleading the public and benefiting from criminal conduct: Page 7 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 articles demonstrate a fundamental lack of understanding of how regulation works in an international environment

One article refers to the appointment of "monitors" at HSBC in New York as part of a settlement with the authorities there. Those monitors complained that they were not immediately welcome when they went to London and Hong Kong. The article admits that the monitors had no jurisdiction outside the US but it's more than that: HSBC in the USA is a subsidiary; it is not the headquarters.

Also, the monitors are not regulators: the extent of what is it permissible to show them will be defined by the regulators in the countries they visit. They might have imagined they were working on something like the Financial Services Authority's Project Trident but Project Trident was when the UK's then regulator decided to inspect overseas branches and subsidiaries of UK headquartered banks. It's not the same at all.

The over-riding impression left is that monitors were obstructed which by definition means that the article takes the view that, despite the disclaimer, the monitors were entitled to unrestricted access to any part of the Group that they wanted.

The reports sensationalise that which is not a problem at all

Great attention has been paid to an office in London which provides a registered office for more than 1,000 companies. This is absolutely not a cause for concern nor, even, question. Company formation agents commonly provide registered office services for companies they form. It is not unusual for such a business to provide company secretarial services for many companies. Again, this is not, of itself, a cause for concern or comment.

Where there would be something to question is if an individual at that address were to be a director for a large number of companies. That would indicate that he is a nominee director which means that someone else is controlling the company. That feeds into concern over the use of companies for criminal purposes.

But that is not what the reports are focussed on : it's only about the registered office and there is no context or explanation provided.

There's not much that we didn't already know

The articles are based on SARS that are at least three years old. The cases that they refer to have, for the most part, been in the public purview during that time. Yes, there are more details and - this might surprise you - the actual investigative research that has been published is high quality and there are some things that are new. I'm not critical of the carrying of reports: much of it is genuinely educational both within the financial sector and the public at large. If we take the illegally obtained data and prejudicial reporting out of the equation, it's a bloody good campaign.

Those who imagine that a wholesale revision of practices will result are deluded: the regulatory regimes are convoluted and sluggish. So are laws. And because of that, so are the policies and procedures in financial institutions. Agile they are not and nor can they be unless the legal and regulatory regimes are enormously simplified. That's not what legislators and regulators do. Add in other groups that claim some form of leadership and there's no chance that any business can deal with everything.

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How do I know if I'm suspicious?

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