Context: Recently, over 2100 Suspicious Activity Reports (SARs) were filed by banks with the United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).

• The FinCEN files identify at least USD 2 trillion in transactions between 1999 and 2017 flagged as possible evidence of money laundering or other criminal activity by compliance officers of banks and financial institutions.

About FinCEN Files

• The FinCEN Files are a set of files filed by banks with the United States Department of the Treasury’s Financial Crime Enforcement Network as evidence of money laundering or other criminal activity.
• Filed as SAR or Suspicious Activity Report by compliance officers of banks and financial institutions.
• These reports identified at least $2 trillion in transactions between 1999 and 2017. [Note: These reports are suspicions and aimed to alert authorities but not accusations of wrongdoing]

Suspicious Activity Report

• SAR is a document filed by banks and financial institutions to report suspicious activity to the USA FinCEN.
• These are meant to red flag, within 30 days of the transaction’s occurrence: criminal funds or any form of dirty money; insider trading; potential money laundering; terror financing; any transaction that raises suspicion.
• These are used to detect crime but cannot be used as direct evidence to prove legal cases.
• There are details of banking transactions that give a clear indication of round-tripping, money laundering or dealings with shell-like entities.
• FinCEN shares SARs with law-enforcement authorities including FBI, US Immigration and Customs.

Significance

• The FinCEN Files highlight the dangers correspondent banking pose.
• The term correspondent bank refers to a financial institution that provides services to another one—usually in another country.
• It acts as an intermediary or agent, facilitating wire transfers, conducting business transactions, accepting deposits, and gathering documents on behalf of another bank.

For India

• Individuals and companies being probed by Indian agencies in different cases are part of the SAR flagged to FinCEN.
• Like, transactions of Indian entities named in scams such as the 2G scam, the Agusta-westland scandal, etc. cases have all been listed with the FinCEN.

About Financial Intelligence Unit-India

• In India, Financial Intelligence Unit-India (FIU-IND) performs similar functions as those of the Financial Crime Enforcement Network.
• FIU-IND is the central national agency responsible for receiving, processing, analyzing and disseminating information relating to suspect financial transactions.
• It was set up in 2004 under the Ministry of Finance. The body reports to the Economic Intelligence Council (EIC) headed by the Finance Minister.
• It is also responsible for coordinating and strengthening efforts of national and international intelligence, investigation and enforcement agencies in pursuing the global efforts against money laundering and financing of terrorism.

Functions

• Collection of Information: Act as the central reception point for receiving Cash Transaction reports (CTRs), Non-Profit Organisation Transaction Report(NTRs), Cross Border Wire Transfer Reports (CBWTRs), Reports on Purchase or Sale of Immovable Property (IPRs) and Suspicious Transaction Reports (STRs) from various reporting entities.
• Analysis of Information: Analyze received information in order to uncover patterns of transactions suggesting suspicion of money laundering and related crimes.
• Sharing of Information: Share information with national intelligence/law enforcement agencies, national regulatory authorities and foreign Financial Intelligence Units.
• Act as a Central Repository: Establish and maintain a national database on the basis of reports received from reporting entities.
• Coordination: Coordinate and strengthen collection and sharing of financial intelligence through an effective national, regional and global network to combat money laundering and related crimes.
• Research and Analysis: Monitor and identify strategic key areas on money laundering trends, typologies and developments.

Road Ahead

• SAR has in many cases of Indian entities and individuals, mentioned their financial history of alleged irregularities.
• The clear message for agencies in India is that their cases of financial fraud and corruption are being flagged by the FinCEN.
• There is a need to have regular information exchange between financial regulators to track and nullify the efforts for money laundering.

Additional Information

Terminologies

• Round tripping refers to money that leaves the country through various channels and makes its way back into the country often as foreign investment. This mostly involves black money and is allegedly often used for stock price manipulation.
• Money laundering is concealing or disguising the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources. It is frequently a component of other, much more serious, crimes such as drug trafficking, robbery or extortion.
• Shell companies are typically corporate entities which do not have any active business operations or significant assets in their possession. The government views them with suspicion as some of them could be used for money laundering, tax evasion and other illegal activities.