The FinCEN Files One Year Later – What Lessons Have We Learned?

The FinCEN Files One Year Later – What Lessons Have We Learned?

The Panama Papers highlighted the issues of transparency and complex ownership structures, while 1Malaysia Development Berhad (1MDB) and the Luanda Leaks exposed political corruption. The FinCEN Files exposed systemic money laundering and the sheer scale of illicit funds in circulation in the financial sector. It is only one year on from the investigation and organised criminals continue to exploit legal loopholes and weak AML regimes across the globe. The question now is whether any progress has been made towards enhancing our response to financial crime?

Criminals Cast a Wider Net and the Rise of Crypto

It has become patently clear that money laundering isn’t exclusive to financial institutions; criminals cast their nets very widely in order to evade detection by authorities and enjoy the proceeds of terrible crimes such as drug, wildlife, and human trafficking.

While financial institutions have a significant role to play in detecting illicit activity, criminals have sought to diversify their operations and exploit other industries, including real estate, luxury goods, art, and antiquities markets. Another emerging threat is the rise of cryptocurrency, which in its largely unregulated state is creating a breeding ground for criminals.

There is evidence that authorities and regulators are making efforts to close the net by holding firms such as virtual asset service providers, gambling firms and luxury goods providers accountable. But this reactive approach is barely a drop in the ocean compared to the scale of the problem and does little to prevent financial crime.

Personal Accountability

What could once be described as an operational cost for a financial institution, the potential liability of failing to comply with obligations can no longer be treated as a simple cost of doing business. Many regulators globally have introduced personal accountability regimes, aimed at holding employees accountable for their role in compliance failures and regulatory breaches. In recent years, we have seen the introduction of the Senior Managers and Certification Regime (SMCR) in the UK, the Banking Executive Accountability Regime (BEAR) in Australia, and more across the globe. As a result, we’re now starting to see an increase in enforcement actions taken against individuals for their role in compliance breaches.

Our research found that, in 2020, approximately 212 individuals received an average fine of $469,000 by regulatory authorities in the US, Spain, Italy, Guernsey, UAE, Bahrain, Andorra and China for AML and MiFID compliance breaches. In the first half of 2021, approximately five individuals in the US, France and UAE were handed an average fine of $1.6 million for their role in AML violations at financial institutions, a significant increase from the previous year. In the wake of the FinCEN Files, global AML reform, and the increased scrutiny on firms across the board, the trend of individuals being held accountable for compliance breaches will continue.

Collaboration and Innovation will Drive Change

If we’ve learned anything from the FinCEN Files, it’s that governments, law enforcement, businesses and financial institutions must act fast and work together while sharing timely information about suspicious client behaviour.

For financial institutions, now is the time to adopt a technology-first approach and place greater emphasis on the overall effectiveness of AML programmes. By leveraging technology and adopting a risk-based approach to AML, FIs can focus on sharing information and actionable intelligence with law enforcement to help intercept crime at the source.

This collaborative approach, leveraging technology and data, will create a solid foundation for detecting and, crucially, preventing financial crime.

To learn about new regulations in your region, check out our Regulatory Outlooks for North America, Europe and APAC. To discover how you can streamline AML and regulatory onboarding processes, book a demo with our team.