The Tribune

ActivTrades Weekly

By Ricardo Evangelista

www.activtrades.bs

Last Sunday, September 20, BuzzFeed News International, a consortium of investigative journalists, published their analysis of a batch of leaked documents from the Financial Crimes Enforcement Network (FinCEN). The leaked files give account of more than 200,000 suspicious financial transaction reports, occurred between 2000 and 2017, that were sent by banks all over the world to the US authorities.

Some banks and other financial institutions in more than 170 countries were shown to be implicated in facilitating fraudulent activities, such as money laundering and allowing individuals to avoid sanctions that were supposed to prevent them from accessing the global banking system. Some interesting facts were revealed by the analysis: The banks involved include some of the largest and better-known names, such as HSBC, Barclays, Standard Chartered, Deutsche Bank and JP Morgan, and the reported irregularities include moving money for international crime syndicates and terrorist organizations. Interestingly, in some of the highlighted cases the banks prolonged the illicit activity, even after being cautioned by US officials. Also, it is worth noting that in the leaked papers the UK is compared to Cyprus and classified as a higher risk jurisdiction, with over 3000 firms named in the FinCEN files.

Traditional credit institutions are suffering the impact of interest rates at historically low levels, which dents the profit margins of loans, mortgages and credit cards – the bread and butter of the banking business. At the same time, many fintech start-ups are becoming serious competitors in the field of cash transfers and payments, threatening the position traditionally occupied by banks. This challenging environment is expected to become even more so. The leaked FinCEN papers highlight the fact that despite being aware of the suspicious activities the institutions didn’t consistently take the necessary actions, allowing them to continue; this will have serious repercussions. Regulation will no doubt increase, which is likely to further reduce already tight operational margins and, even more importantly, it is expected that the organizations whose failures were uncovered by the investigation will end up paying hefty fines. To give the readers some perspective, in 2014 the French bank BNP Paribas agreed to enter a guilty plea with the US authorities for facilitating deals with sanctioned countries such as Iran, Cuba and Sudan; it was the first time a global bank had agreed to a guilty plea for violating American economic sanctions and the total value of the fine paid was in the order of $9 billion. It is probable that a similar outcome awaits several of the institutions whose failure to comply with international regulations was uncovered by the leaked files.

As the full extent of the breaches was revealed, banking stocks plummeted and in Europe the Refinitiv Banks index, which measures the performance of bank stocks,, currently shows a drop of more than 30% for the year, making it the region’s worst performing sector. The stock markets’ reaction, as investors swiftly moved to price-in the new risks, provides a good illustration of the challenges some traditional financial institutions are facing.