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highlyquestionabl299 karma

Given that the banks here filed SARs to report the activity, and presumably applied their internal risk rating methodology to either elevate the rating of the customer or force a risk exit, what is it that you feel they actually did wrong? Since it's the government that is responsible for law enforcement, what risk/compliance control do you believe failed here? You mention elsewhere that you believe stronger enforcement of Beneficial Ownership rules would help to address this issue, but given that the FinCEN CDD Rule came into effect only in May 2018, what beneficial ownership information should the banks have collected and what regulatory cudgel could they have used to compel customers to provide this information?

highlyquestionabl136 karma

, the banks didn't have enough information of who their customer was. "In more than 620 of the reports, banks flagged the use of “high risk” jurisdictions at least once. Corporate account holders often provided addresses in the U.K., the U.S., Cyprus, Hong Kong, the United Arab Emirates, Russia and Switzerland. At least 20% of the reports contained a client with an address in one of the world’s top offshore financial havens, the British Virgin Islands."

Respectfully, and as a great admirer of your work, this doesn't answer the question. You cite this as a KYC failing, but prior to May 2018, KYC requirements expressed in the BSA only required Customer Information Program info on the direct customer. That is to say, only the customer itself had a regulatory obligation to disclose its name, physical address, and government ID. It was only after the implementation of the CDD Rule in 2018 that disclosure of that same CIP information for the customer's beneficial owners became a regulatory requirement. Certainly there have been instances of Banks having major KYC failures, but what you're describing is not one of them. Lastly, what does a customer being domiciled or incorporated in a high risk jurisdiction have to do with knowing said customer's identity? It's no secret that corporations use tax loopholes and venue shopping to minimize tax burden (hence the large number in BVI), but that is neither inherently illegal nor demonstrative of a KYC failure. Of course there is often a reference high risk jurisdictions in SAR filings; that nexus often leads to suspicion which leads to the SAR. Wouldn't it be much more problematic if there was a large amount of transaction activity with a high risk jurisdiction and there weren't SARs filed?

highlyquestionabl32 karma

Thanks for the reply. When you say: ​

Banks then reported extensive use of shell companies in offshore jurisdiction for which they couldn't know at the end who the customer was.

Isn't this somewhat of regulatory problem rather than a problem with the financial institutions themselves? Until FinCEN promulgated the CDD rule in 2018, the banks had no regulatory tool to use to compel the disclosure of beneficial ownership information through intermediary layers of ownership. They couldn't really require such disclosure from a policy perspective, because if they did they would be instituting a non-regulatory requirement that conflicted with local laws and regulations in the jurisdictions where their customers were domiciled/incorporated. It's not that they couldn't know who the end customer was--they're able to do that today thanks to the CDD Rule--it's that the government didn't require them to.

At the same time we explored the number of cases in which they asked for additional information for which they didn't get responses:

Out of the more than 2,100 reports we reviewed, in more than 680 reports in the FinCEN Files, financial institutions asked for more information about entities and on more than 160 occasions other banks didn’t respond.

I would be willing to bet my left leg that in the 160 incidences you describe above, the financial institution from which the information was requested was not located in the US. 314(b) would have given complete cover for such information sharing if they were.

Some banks or branches in countries such as Switzerland cited local secrecy laws in their jurisdictions to deny the information.

This is exactly the point I was making above. Until there was a regulatory tool that the banks could use to demand beneficial ownership information, how could they institute a policy that conflicted with laws and regs in the countries in which they operate? Only by being able to point to a relevant US regulation were they able to finally compel the disclosure of ownership information, and even that is fraught with issues, as the rule has specific carve outs that allow certain entities to maintain a large degree of anonymity (non-statutory trusts intermediary owners with legal entity trustees, anyone?)

This is, at it's core, a regulatory and legislative problem. I do not see (from the several pieces I have read -- I acknowledge there may well be more that I have not seen) how this is an instance of financial institutions promoting money laundering to make a quick buck.

highlyquestionabl23 karma

It just makes it clear that these folks, no matter how well intentioned, don't understand the business or regulatory landscapes. What worries me more is the fact that most people will just assume that the banks are pieces of shit for not kicking out every entity or individual w a SAR filing, not realizing that there is a huge chance that they themselves have been a relevant party on a SAR at some point.

highlyquestionabl22 karma

It doesn't take "balls" to mention Abby Martin. She's an Assad and Maduro apologist and a 911 truther. She doesn't deserve recognition from a real reporter.