A Year After The FinCEN Files, The Biggest Change Is Still A Work In Progress

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One year ago today, BuzzFeed News and the International Consortium of Investigative Journalists published the FinCEN Files, the largest reporting project ever undertaken, which revealed how terrorists, kleptocrats, and organized criminals laundered enormous sums of money through many of the world’s largest banks and in full view of the US Treasury Department.

The series, developed over 16 months by a team that grew to more than 400 journalists from 108 media outlets in 88 countries, set off immediate reverberations. It caused the stock prices of several global banks to plunge, triggered inquiries and calls for reform in countries as disparate as the United Kingdom, Thailand, and Belgium, and led European Union lawmakers to propose in July an ambitious package of legislation that included a new authority tasked with fighting money laundering and countering the financing of terrorism.

But what is potentially the single biggest reform took place in the US last December when, at a time of intense political division and after years of delay, Congress passed the Anti-Money Laundering Act of 2020, described at the time as the biggest anti–money laundering reform in a generation. Early in his administration, President Joe Biden followed it up by identifying financial corruption as an urgent national security matter. The Treasury Department is drawing up implementation rules to the new law that are aimed at eliminating the anonymity of shell companies — opaque financial entities that are beloved by criminals and other bad actors intent on finding safety in the US dollar for their illicit gains. In the eyes of many observers, the effectiveness of those rules is critical to the success of the law.

For all the movement, the whistleblower who set off the FinCEN investigation sits behind bars. Natalie Mayflower Sours Edwards was a senior intelligence analyst at the Financial Crimes Enforcement Network, or FinCEN, the arm of the Treasury Department in charge of policing international money laundering. Edwards had tried to alert the agency of her concerns about the system’s flaws. She was arrested in October 2018 and charged with conspiracy to disclose documents that included more than 2,100 highly secret “suspicious activity reports,” or SARs, amassed by the agency after she was found with a flash drive and a cell phone that indicated she was sharing the documents with BuzzFeed News reporter Jason Leopold.

Edwards’ attorney Stephanie Carvlin told the court that Edwards was concerned that “if FinCEN were not able to effectively aid law enforcement, terrorist activity might go undetected.” She said she had attempted to contact Congress and identify herself as a whistleblower before going to the press. In January 2020, she pleaded guilty to one count of conspiracy and faced a maximum sentence of five years in prison. In June 2021, US District Court Judge Gregory Woods sentenced her to six months in prison.

BuzzFeed News Editor-in-Chief Mark Schoofs has credited Edwards with doing “more to bring transparency to the global financial system than almost anyone else in recent memory” and called on President Biden to issue a pardon.

The trove of SARS detailed more than $2 trillion in suspicious transactions and provided an unprecedented look at the worldwide flight of dirty money in search of a safe harbor, often in the US. It showed how, amid weak enforcement of weak laws, some of the world’s most notorious criminals manipulated the international banking system to legitimize money from drug dealing, terrorism, and looting impoverished countries.

The FinCEN Files showed that banks often appeared to have no idea whose money they were moving. It revealed how five global banks, including JPMorgan Chase, HSBC, and Deutsche Bank, continued to process suspect transactions after they had paid large fines and promised to clean up their acts. JPMorgan Chase, the largest bank in the US, moved money for individuals and businesses tied to the looting of public funds in Malaysia, Venezuela, and Ukraine.

The anonymous shell companies let a construction mogul drain millions from state agencies in Venezuela, including an anti-poverty program. A network of shell companies allowed Ukrainian oligarch Ihor Kolomoisky to move fraudulent money from his own country into factories in the US, many of which he let fall into disrepair and ultimately abandoned, along with their workers. The US State Department eventually sanctioned Kolomoisky earlier this year.

The new law takes aim at shell companies, which reveal almost no information about themselves and have no real purpose except to mask the secret movement of capital around the globe.

In Washington, a measure had been kicking around for years that would require American shell companies to disclose who owned them and profited from them. By December, the FinCEN Files had given Congress the momentum it needed to finally get the measure voted into law.

The plan was so popular that Republicans joined Democrats in overriding President Donald Trump’s veto, which he issued citing a provision concerning social media companies. The veto override was the first in Trump’s presidency.

“Investigative reporting has shined a light on money laundering, and sustained public attention certainly helped get these provisions across the finish line,” said Sen. Ron Wyden, a Democrat from Oregon, after the FinCEN Files stories were published a year ago.

Putting the mandate into action has been left up to FinCEN, the intelligence division of the Treasury Department that has long been overmatched by the amount of dirty money coursing through the US financial system. FinCEN’s main tool to track illicit funds is the suspicious activity report, a form that banks file any time they believe a customer may be engaged in money laundering, terrorist financing, or other financial crimes.

FinCEN has received more than 2 million reports in a single year — far more than officials can analyze or, numerous sources said, even read.

The FinCEN Files investigation showed that filing SARs did little to toughen oversight or prevent future wrongdoing. The new legislation requires the agency to build and scrutinize an additional system that identifies the owners of shell companies.

The Treasury Department is working to determine who will be covered by the new disclosure rules. The law specifies that it applies to any small corporation, limited liability company, "or other similar entity" with fewer than 20 employees or less than $5 million in annual sales. Public corporations make similar disclosures already.

In a statement sent to ICIJ, FinCEN wrote, “implementation is a top priority for FinCEN, and we are working diligently with our domestic and international industry partners and law enforcement and regulatory stakeholders to take concrete steps to further the national security of the United States and protect the U.S. financial system and the American people.”

FinCEN is grappling with whether other types of businesses, such as partnerships, trusts, and other entities, should be included as well. Financial reformers worry that getting this wrong would allow criminals to exploit the exemptions and hide behind a different kind of paper company.

A major industry lobby, the National Federation of Independent Business, has asked FinCEN to exclude “sole proprietorships and partnerships” from the new higher threshold of disclosure. Their worry is that small companies without large administrative staff might face an unfair paperwork burden and risk exposure to fines.

Supporters of inclusion such as the FACT Coalition, a public interest group in Washington concerned with financial reform, have pressed for a more expansive interpretation.

“We’re looking to include partnerships, sole proprietorships, business trusts, foundations, and business associations,” unless otherwise exempted, said Erica Hanichak, government affairs director for the FACT Coalition. If these are excluded, supporters say the new law would provide a loophole for secrecy.

Anti-corruption advocates say another, less heralded piece of the legislation could soon bear fruit for whistleblowers.

The legislation established a new FinCEN whistleblower program that would provide incentives in the form of monetary awards and protection against retaliation to individuals who step forward to expose financial crimes.

In the world of stock markets and securities, people who blow the whistle on misconduct can win a share of any financial penalties that are imposed as a result. Over the last 11 years, about 200 whistleblowers have collected more than $1 billion through this program.

But there had been no similar process for people who blow the whistle on corruption or money laundering in banks.

It is not clear how the new rules would have affected Edwards, a member of the Chickahominy tribe, who lives with her husband and daughter in Virginia. She began serving her six-month prison sentence in West Virginia on Sept. 3.

“You really need to change how we think about government whistleblowers,” said Mary Inman, an attorney specializing in cases like hers. “The government needs to take a much more enlightened view.”

Before she reported to prison, Edwards told BuzzFeed News she believed that her decision to share what she knew would force bankers to confront the stream of dirty money propping up terror networks, narcotraffickers, and other criminals. “I’m absolutely proud of what I did,” she said, “and I know American lives have been saved.”

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