Banks, including DBS, OCBC & UOB in S'pore, moved S$2.7 trillion in shady money, explained

Mothership Explains: Banks all over the world, including Singapore banks have been identified in the FinCEN Files. We explain what was found in the documents and why it matters.

Joshua Lee | September 25, 2020, 08:51 AM

You might have heard of the FinCEN Files, but what exactly are they, you might ask.

Well, we hope that this explainer will get you up to speed with what is happening with major banks, including some in Singapore, and what apparently involves a lot of dirty money.

Wait a minute — what is FinCEN?

FinCen stands for the U.S. Financial Crimes Enforcement Network. It is a bureau in the U.S. Treasury.

FinCEN's job is to look into financial crimes that have anything to do with U.S. Dollars. If a bank in the U.S. suspects a client of illegal financial activity, they are required to submit a suspicious activity report to FinCEN.

This brings us to the next question:

What are the FinCEN Files?

This is a set of more than 2,500 documents that were leaked to BuzzFeed News and then shared with over 100 news organisations in 88 countries.

The bulk of the documents are files sent from banks to U.S. authorities over an 18-year period (from 1999 to 2017).

The documents detail what U.S.-based banks thought might be suspicious activities — be it money laundering, terrorism financing, or other dastardly activity.

Bear in mind that these files — of which more than 2,100 are suspicious activity reports — are not proof of criminal activity or wrongdoing, just suspicions from banks.

It's like if you were to call the police because you spotted a hoodie-and-cap-clad stranger loitering outside your house.

He may very well be a harmless acquaintance of your neighbour's, but you deem his actions — or his fashion sense anyway — suspicious, and leave it to the police to follow up.

Like the police, FinCEN and other bank regulators can follow up on such reports by banks, as part of their efforts to prevent things like money laundering.

But first, what is money laundering?

Let's imagine that you are a drug kingpin in the completely, 100 per cent fictitious country of Thighland.

Pesky investigators are sniffing at your door and scrutinising your finances. They want to bring you to justice.

Seems like not everyone appreciates your choice of business, which by the way, is extremely lucrative. This year alone, you made a profit of US$10 million. Yay.

Trouble is, where can you store your money?

You can't put it in your local bank because the sheer number of zeroes is bound to raise questions from the local authorities — and you don't like questions.

You turn to a tax haven, say, the equally fictitious Kayman Islands, where you incorporate an "investment holding company". You also open a bank account there in the name of your company to hold your US$10 million "investment".

Banks here typically won't (or can't) dig too much into their clients' background. Nice.

To transfer the money out of Thighland and into your Kayman Islands account without getting onto the radar of Thighland authorities, you will need to send it out in small batches.

You split up your "investment" and entrust US$40,000 to each of your 250 underlings, and ensure that they — under the threat of immediate dismemberment — wire the money to your offshore account.

Then, you set up another shell company in Thighland, this time, an e-commerce startup, which will receive the "investment" from the investment holding company in the Kayman Islands.

The US$10 million flows back into Thighland but it's not yet cleaned. To be properly laundered, it has to flow out of the company.

To do this, you set up several shell companies to provide "goods and services" to your e-commerce startup, for example, software, web development, and website design.

You pay these "suppliers" an insane amount, duly recording the expenses even while no "goods and services" are actually provided.

This way, the money flows out of your e-commerce startup (looking very much like legitimate expenses), into the shell companies as income, and finally into your pocket — crisp, cleaned, and laundered.

As you can see, laundering money is not too difficult an endeavour. If banks aren't careful, they will be used by criminals to clean their money.

As such, banks have a responsibility — and a pretty hefty one at that — to ensure that their clients aren't criminals looking to use their services to launder money.

Banks in Singapore must report suspicious transactions

In Singapore, banks have to know who their customers are, especially those with big deposits.

Financial institutions in Singapore are expected to conduct checks on their prospective clients (known as "customer due diligence" checks).

If they encounter suspicious transactions, local banks are required to submit suspicious transaction reports (the local version of suspicious activity reports in the U.S.) to the Commercial Affairs Department of the Singapore Police Force.

If banks are aware of wrongdoing, they have to halt the transactions.

Who are the banks mentioned in the FinCEN Files?

Out of all the suspicious activity reports which were flagged to the U.S. authorities and leaked in the FinCEN Files, more than half were facilitated by Deutsche Bank, Germany's biggest bank.

Standard Chartered, JPMorgan, and HSBC appeared often as well.

Here are some of the specific cases, according to BBC:

  1. HSBC knowingly allowed Ponzi scheme scammers to transfer millions of swindled dollars around world.
  2. JP Morgan allowed US$1 billion to flow through a London account without knowing the owner of the company who opened it. The bank later realised it could have been a mobster wanted by the FBI.
  3. The United Arab Emirates central bank was warned about a local firm which helped Iran evade sanctions, and failed to stop the firm from working through local financial institutions.
  4. Deutsche Bank moved dirty money which was earned by terrorists, drug traffickers, and organised crime.
  5. Standard Chartered moved cash from Jordanian bank accounts which were used to fund terrorism. This went on for more than 10 years.

Were banks in Singapore mentioned?

Yes. Considering that Singapore is a financial hub, it would be pretty unlikely that local banks weren't caught up in this.

The International Consortium of Investigative Journalists highlighted, as a sample reflecting only "a fraction of the total transactions", 1,781 potentially suspicious transactions which flowed through Singapore.

The sample data shows that nearly US$3 billion came into Singapore while US$1.47 billion went out, in these 1,781 transactions.

Screenshot from ICIJ website.

Plenty of banks in Singapore were mentioned, including DBS, OCBC, UOB, CIMB, Credit Suisse, HSBC, Standard Chartered, Citibank, Bank of Singapore, Deutsche Bank, Royal Bank of Scotland, State Bank of India, and more.

In particular, DBS and UOB facilitated more than 500 potentially suspicious transactions each.

The dates of these transactions are stated too.

For example, US$13.3 million (S$18.2 million) flowed from OCBC to Credit Suisse in one transaction on December 4, 2015.

A nice round US$25.5 million (S$34.8 million) flowed from HSBC to DBS in seven transactions between March 5, 2015 and June 16, 2015.

US$10 million (S$13.6 million) went from HSBC to DBS in one transaction on November 3, 2015.

Screenshot from ICIJ website.

What did the local banks have to say to this?

Both OCBC and UOB told CNA that they have "robust" measures to deal with money laundering.

OCBC in particular, said that its anti-money laundering and terrorist financing framework is in "full compliance" with local regulations and international best practices.

Both banks said that they will leverage on technologies like artificial intelligence, to combat money laundering.

DBS told CNA that it has "zero tolerance for bad actors abusing the financial system".

The bank further explained that apart from sanctions on specific names and accounts, it is "generally very difficult" to intercept money or delay transactions as it would impact legitimate businesses.

"So the normal process – which happens behind the scenes – involves subsequent investigations to establish suspicion, based on which the necessary action is taken."

MAS studying the info from FinCEN Files

Separately, the Monetary Authority of Singapore (MAS), which regulates the financial system here, said that it is aware of the FinCEN Files.

While the agency cautioned that "suspicious transaction reports in and of themselves do not imply that the transactions are illicit", it said that it takes such reports "very seriously".

“MAS is closely studying the information in these media reports, and will take appropriate action based on the outcome of our review. Singapore’s regulatory framework to combat money laundering meets international standards set by the Financial Action Task Force."

Has FinCEN responded to the leak?

The Financial Crimes Enforcement Network (FinCEN) said on September 1 that the "unauthorised disclosure of SARs is a crime that can impact the national security of the United States, compromise law enforcement investigations, and threaten the safety and security of the institutions and individuals who file such reports".

It added that the matter had been referred to the U.S. Department of Justice and the U.S. Department of the Treasury’s Office of Inspector General.

While the transactions unearthed in the FinCEN Files are suspicious — and in some cases, involve some rather unsavoury folks — it's hard to say how serious these are since we don't know the results of the follow-up investigations, if and when they were carried out.

If anything, the entire affair shows that bad actors can take advantage of the financial system.

Mothership Explains is a series where we dig deep into the important, interesting, and confusing going-ons in our world and try to, well, explain them.

This series aims to provide in-depth, easy-to-understand explanations to keep our readers up to date on not just what is going on in the world, but also the "why's".

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Top images via DBS and International Consortium of Investigative Journalists.