The United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) recently received over 2100 Suspicious Activity Reports (SARs) from various banks. These reports identify transactions totaling to a staggering USD 2 trillion between 1999 and 2017 which could potentially be linked to money laundering or other criminal activities. Compliance officers from banks and financial institutions have flagged these transactions as potentially suspicious.
About FinCEN
Established in 1990, the Financial Crimes Enforcement Network (FinCEN) serves as a global leader in regulating money laundering activities. Its key role is to collect and analyze financial transaction data to combat local and international money laundering, terrorist financing, and other financially related crimes.
What is Suspicious Activity Report (SAR)?
A SAR is a document prepared by banks and financial institutions meant to report suspicious activity to the USA’s FinCEN. This report is typically filed within 30 days of identifying a transaction that may be linked to criminal funds, insider trading, potential money laundering, terror financing, or any form of dubious activity. However, despite its utility in detecting crime, SARs cannot be directly used as evidence in legal cases.
The Dangers of Correspondent Banking
The FinCEN Files have highlighted the risks associated with correspondent banking, whereby a financial institution provides services to another, typically located in a different country. This intermediary bank facilitates wire transfers, conducts business transactions, accepts deposits, and collects documents on behalf of another bank.
Implications for India
Several individuals and companies presently under investigation by Indian agencies for various cases have been included in the SAR flagged to FinCEN. Transactions related to well-known Indian scams, such as the 2G scam and the Agusta-westland scandal, have been listed with the FinCEN.
Understanding the Terminology
Round tripping refers to the process where money leaves a country through various channels and returns in the form of foreign investment. Money laundering involves disguising the origins of illegally obtained money to appear legitimate, often associated with various serious crimes such as drug trafficking or extortion. Shell companies are corporate entities without active business operations or significant assets; they are viewed with suspicion as they can potentially be used for money laundering or tax evasion.
The Indian Scenario
In India, the Financial Intelligence Unit-India (FIU-IND) under the Finance Ministry, established in 2004, performs the same functions as FinCEN in the USA. It is responsible for receiving, analyzing, and disseminating information related to suspicious financial transactions. Every month, this agency obtains Cash transaction reports (CTRs), Suspicious transaction reports (STRs), and Cross border wire transfer reports from private and public sector banks under the Prevention of Money Laundering Act, 2002 (PMLA).
Reporting Procedure in India
Banks in India are required to submit a monthly CTR to the FIU on any transaction over Rs. 10 lakh or its equivalent in foreign currency. Furthermore, the STRs and CTRs are analysed by FIU and the suspicious transactions are shared with agencies like the Enforcement Directorate, the Central Bureau of Investigation and the Tax Authority for further investigation into possible instances of money laundering, tax evasion, and terror financing.
The Path Ahead
The FinCEN’s regular flagging of Indian entities and individuals with alleged financial irregularities indicates a clear message for the Indian agencies that their financial fraud and corruption cases are being noticed globally. An improved level of information exchange between financial regulators is therefore crucial to track and nullify efforts for money laundering.
