Demystifying FinCEN: Why It’s Much Ado About Nothing Much

The recent reports on SARs (Suspicious Activity Reports) on Sept 23, 2020 published in some newspapers, based on the illegally-leaked FinCEN data by ICIJ (International Consortium of Investigative Journalists) etc., have created an unwarranted negative sentiment in the market during these trying times of COVID-19 pandemic.

The first question that arises is whether any cognizance of the data, illegally leaked, should be taken at all.

It’s a known fact that leaking FinCEN data or revealing the details of a SAR filing is a criminal offense in USA under the Bank Secrecy Act 1970 (BSA) which can result in a fine of up to $250,000 and five-year jail term for each offense.

FinCEN issued a statement last month on the unauthorized disclosure of SARs and referred the matter to the US Department of Justice and the US Department of the Treasury’s Office of Inspector General for initiating necessary action.

While it remains debatable whether various enforcement agencies in India or worldwide can legally initiate enquires based on these very sketchy and illegally-obtained data published in newspapers, perhaps, with a view to score some brownie points, without having any clear understanding of what the data actually connote, some repetitional damage to most of the large Indian companies has already been done.

I sincerely hope that these sketchy, half-baked media reports aren’t cited as credible, authoritative pieces of investigative journalism, warranting action or enquiries against those whose names are featured in the media reports.

It’s, therefore, necessary to clear the air surrounding SARs / FinCEN.

SAR or Suspicious Activity Report is a document filed by Banks, Money Exchange Agents, Security Brokers, Financial Institutions and even Casinos to report suspicious looking financial activities to FinCEN within 30 days from the date of any transaction. SARs are neither accusations nor can they be cited as evidence of criminal conduct or any other financial misconduct. They cannot be used as evidence in any court of law.

It’s interesting to note that there is absolutely no onus on part of the reporting entities to prove that the transactions reported under SARs are indicative of financial irregularities or any misconduct.

However, non-reporting makes them liable for imposition of heavy fines or even incarceration of the concerned officials.

Given this situation (30 days’ time period for reporting; no responsibility for the authenticity of the data reported; and heavy fines for non-reporting), eligible reporting agencies in US and elsewhere choose the easier way: they report all such transactions (they report over 2 million every year only in US alone) which even remotely look suspicious without going into any details. For example, if a manufacturing company is exporting merchandise for a certain value and also importing raw materials for a value similar or closer to the export value within a given period of time then from a reporting agency’s perspective, both the transactions will be treated as ‘round tripping’ and will fall within the ambit of SAR.

Such transactions may actually be totally innocuous and business-driven, but because of a faulty reporting system, such transactions, more often than not, get reported to FinCEN.

An irony indeed, but that’s the way it is.

While this looks bizarre on one hand, on the other hand the account holder remains absolutely oblivious of the fact that the transactions undertaken in the usual course of business through his account are under FinCEN scrutiny until the time such data are stolen, sensationalized and put into the public domain by some newspapers which may be having vested interests. Left to FinCEN, most of these data will not warrant any investigation, filed as they are in a routine manner.

Had this not been the case, FinCEN, in so far as India is concerned, may have reported these 4–5-year-old transactions, mentioned and sensationalized by newspapers to FIU-IND (Financial Intelligence Unit — India), the counterpart of FinCEN in India, which was set up in 2004 under the Ministry of Finance to deal with such transactions appropriately.

I am of the reasoned opinion that there was no such reporting by FinCEN to FIU-IND on the said transactions. FinCEN probably didn’t find anything really wrong or perhaps worth pursuing with the Indian enforcement agencies on these transactions. Some transactions, however, showing serious financial misconduct like Augusta Westland, Maxis Communications etc. are already being investigated by various Govt. Agencies.

It’s now time for the Union Government to take a balanced, reasonable view, avoiding any kneejerk reaction in the process.

Our respected Prime Minister has also repeatedly said that wealth creators need to be respected and encouraged.

When the corporates are working overtime adding to the governmental efforts towards an economic recovery in India, nothing adverse should be done based on the unauthentic and illegally leaked data until and unless there are prima-facie compelling evidences of serious financial misconduct. Otherwise it may result in slowing down the economic recovery process during these trying times.

It may also not be appropriate to even remotely presume at this point of time that people or companies whose name featured in FinCEN indulged in any illegal financial activities.

Truth could be just the contrary.

It’s worthwhile to mention here that even the reporting entities are not required to keep the details of the financial transactions reported to FinCEN after a period of 5 years. But the companies in India now (even after 5 years) may have to go through the travail of this reporting of the illegally obtained data which could see enforcement agencies raising queries with the companies named by these newspapers.

All such companies will have to dig out their archived data base and retrieve all the relevant documents to show that all the exports / imports and various other business transactions undertaken by them several years ago had proper and defined underlying. What a colossal waste of time on the part of both — enforcement agencies and companies.

Let’s pause for a moment here and look at the enormity of the leaked data. Stolen data pertain to the period 1999–2017, total number of SARs — 2121 (this is just the tip of the iceberg), aggregate transacted amount — USD 2.099 trillion, No. of banks reporting these transactions — 6 (Deutsche Bank, SCB, BONYM, JP Morgan, Barclays and HSBC). The volumes are indeed huge, but all these are financial transactions (though some may be dubious as well). The real dirty money which gets transferred from US to various countries worldwide and vice-versa to carry out subversive activities in foreign lands, however, never gets reported.

Government agencies always focus on business and commercial transactions, and what is disquieting is that because of a few unscrupulous persons and business entities, others also have to face the brunt and wrath of various agencies.

This needs to be factored, and the agencies need to adopt a balanced, and fair approach so as to avoid panic reactions in the market.

Most industries are under immense pressure already. Any undue pressure further on them will prove debilitating.

Corporates are always easy targets. In these trying times, it’s in the interest of all stakeholders of the economy that reason, sense of fair play, and sense of proportion be kept in mind before arriving at any conclusion.

So, what’s the way out? In my opinion, if any cognizance has to be taken of the stolen FinCEN data published in the newspapers, then a minimum threshold limit should be first fixed for scrutinizing the financial transactions, and the same can be, say, a minimum amount of USD 25 million.

Only the transactions above this threshold, should randomly be picked, analyzed and further details, if needed, can be had from the concerned companies. In other words, the focus should be on the relatively larger transactions and if any evidence of wrongdoings is found, then other transactions of smaller values may also be taken up for scrutiny, and further investigations. This will save time and money for both — government agencies and the corporates. This will provide comfort to the companies which have not indulged in round-tripping and / or any other illegal financial transactions.

In these trying times, when the Govt. is trying to extend all possible help to business enterprises, otherwise struggling to stay afloat, any witch-hunting, or selective targeting, by the enforcement agencies based on these illegally-obtained data must be avoided.

This is the time to focus on productive activities to strengthen the country and economy, and not encourage anything that weakens the national resolve.

(Author is a Banking veteran, worked with major public & private sector banks in India & USA on senior positions.)

What do you think?

Written by nbidigital

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