24 Sep 2020
FinCEN Files show banks are not serious enough about beating money laundering
By John Coyne
The leaking of more than 2,100 US Department of Treasury Financial Crimes Enforcement Network suspicious transaction reports reveals what many people had already assumed: the banking sector is still not getting serious enough about fighting crime.
Over the past two years members of the global banking industry — including Australia's big banks — have gone to great lengths to illustrate their commitment to addressing money laundering.
This newfound focus was not an altruistic gesture. Increasing external scrutiny was starting to have a hefty price tag that was impacting on both their bottom line and corporate reputations.
This week's leak shows that the problem of banking compliance is alive and well.
Half-truths, gaps and grey zones
The leak reveals that the world's biggest banks had reported an eye-watering $2.7 trillion worth of suspicious transactions to US authorities.
Of course, savvy banking public relations experts could spin this story. The reports, made by banks, could be sold to the public as a sign that the industry is working closely with governments. But this is a half-truth.
The banking sector in Australia is doing more to identify transactions that they suspect could be related to money laundering, terrorism financing, tax evasion, proceeds of crime or any other serious crimes under Australian law.
They're reporting them to AUSTRAC, which is "responsible for preventing, detecting and responding to criminal abuse of the financial system".
The banking sector can then feel satisfied that it has reported the issues: and until told otherwise, continue processing transactions. Meanwhile, AUSTRAC faces an increasing number of suspect transactions that they must analyse and investigate.
Australia's banks are working more closely with the Australian Government on financial compliance. However, there are still some genuine gaps and grey zones in our financial regulation. And many international banks aren't all that keen to lift these rocks.
What's at stake?
The leaked US Treasury documents provide a good example of what is at stake here.
Of course, there is room here for the Government to introduce new legislation to address gaps, vulnerabilities, and flaws in our financial sector.
Now is as good a time as any to increase the penalties for noncompliance. However, further change in the banking sector culture is what is needed.
After corporate embarrassment and heavy criticism, Australian banks have made tremendous progress on meeting the red letter of the law. Unfortunately, they are still falling short of meeting the interests of Australian society at large.
Banking culture, especially within its boardrooms needs to continue to evolve. There must be a commitment from our banks to make a stronger ethical stance against illegal and unethical behaviour.
Boards would likely argue that making a stronger ethical stance will affect profitability through loss of customers and increasing the cost of compliance measures.
These same boards need to acknowledge that this kind of commitment has intrinsic tangible and intangible rewards for a bank.
The average Australian has a part to play here as well. We need to use our power of choice to encourage ethical banking and punish abhorrent and irresponsible behaviour.
By factoring compliance in our banking choices, we'll be making sure that ethical behaviour, or the lack thereof, has a price tag.