FINCEN FILES

FinCEN wants to clamp down on small payments fueling crime

Concerned that money transfers worth just a few hundred dollars are helping terrorists and fentanyl traffickers, the U.S. Treasury is pushing a new rule for banks, money transmitters and others.

The top U.S. financial crime watchdog wants to slash the value of transactions that banks and other financial institutions must report as potentially suspicious, citing small payments used to plan terrorist attacks and to import deadly drugs.

The Financial Crimes Enforcement Network, known as FinCEN, published a proposal with the Federal Reserve last week to require banks and others to collect and share with authorities information on potentially suspicious transactions sent overseas worth more than $250. The current threshold is $3,000.

“Malign actors are using smaller-value cross-border wire transfers to facilitate or commit terrorist financing, narcotics trafficking, and other illicit activity,” FinCEN said in its proposed rule. “Increased recordkeeping and reporting concerning these transactions would be valuable to law enforcement and national security authorities.”

The proposal comes weeks after the International Consortium of Investigative Journalists BuzzFeed News, and more than 400 reporters worldwide published the FinCEN Files investigation. The 16-month investigation was largely based on more than 2,100 leaked reports submitted by banks to FinCEN that detail possibly criminal money transfers.

FinCEN Files revealed how banks moved staggering sums of illicit cash for shadowy characters and criminal networks. Banks didn’t always know to whom they were providing services or did so even after the banks were penalized by U.S. authorities for flaws in anti-money laundering practices.

ICIJ reported on transactions, some worth only a few hundred dollars, that banks suspected may have paid for deadly drugs to arrive in the U.S. from China or been used to bribe witnesses to lie during a high-profile war crimes trial. In many cases, banks and other financial institutions, like Western Union and MoneyGram, reported the transactions as suspicious months or years after those who sent or received the money were charged or even jailed for high-profile crimes.

The existing $3,000 threshold dates to 1995. Under that rule, financial institutions that send or receive funds must collect and retain information on the sender’s name and address, the amount, the date, the bank that receives the money and other details.

That threshold is outdated, say crime fighting experts and law enforcement agencies.

In support of the new rule, FinCEN analyzed thousands of suspicious activity reports – or SARs – potentially related to terrorism financing. More than one million transactions included in the analyzed SARs were lower than $500, according to the report.

“Recent prosecutions show that individuals are sending and receiving funds to finance terrorist activity in amounts below (and in some cases, well below) the current $3,000 recordkeeping threshold,” FinCEN’s proposal said, pointing to a 2016 case in which someone in Egypt sent $1,000 to the United States to help fund a terrorist attack.

Even if the new rule reduced the yearly probability of a terrorist attack on U.S. soil by 0.26%, the benefits would outweigh the costs, FinCEN said. The agency is accepting comments from the public on the proposal until Nov. 27.

FinCEN also reviewed 78,000 wires potentially related to trafficking fentanyl, a potent opioid that causes tens of thousands of deaths in the United States each year. More than half of those transactions were worth less than $300, according to FinCEN’s analysis. As part of the FinCEN Files investigation, ICIJ reported on fentanyl’s deadly money trail and exposed more than $400,000 in payments made via MoneyGram that were linked to a ring of opioid traffickers.

FinCEN said that its proposed rule would impact more than 23,000 banks, credit unions and money transmitters, like Western Union and MoneyGram. But the costs and impacts of the rule are “likely to be low,” the network said. The agency estimated that the proposed rule would add between 24 to 36 hours of additional paperwork each year for each institution.

“The drop in the threshold is a good thing and aligns the U.S. with other peer countries,” said Sarah Beth Felix, a anti-money laundering expert and founder of Palmera Consulting in Austin, Texas. “But it’s only as good as the enforcement and the quality of the information that is enforced. And, as it stands right now, there’s little to no enforcement so the goal of getting better data will not be met.”

“It’s like sticking a Band-Aid over a gaping wound,” said Gary Pons, a London-based financial crime barrister. Lowering the reporting threshold is a good idea, but won’t achieve much on its own without improvements to the quality of reports filed by banks and to FinCEN’s capacity to identify red flags, Pons told ICIJ. “Without additional improvements, it is likely that the increased number of reports will merely make the position worse in the short term.”

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