FinCEN Files are just the tip of the iceberg for Western financial institutions

A steady drip of financial scandals, from the explosive Panama Papers to the Luanda Leaks, have highlighted how Western financial institutions’ complicity in allowing a motley crew of oligarchs, mafia bosses and other kleptocrats to carry out suspicious transactions on an industrial scale. Now, the FinCEN Files should set off fresh alarm bells for European policymakers as the cache of thousands of leaked documents from the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) once again exposes the extent to which major international financial institutions have facilitated financial crimes and skulduggery of every stripe.

The latest leak offered up some troubling revelations about some of Europe’s most prominent lenders, delivering a particularly damning report card for Deutsche Bank, which was responsible for more than half the dirty money profiled in the FinCEN Files, apparently allowing the movement of some $1.3 trillion in criminal cash between 1999 and 2017.

The FinCEN Files should have sparked a major reckoning among the household-name financial institutions which filed Suspicious Activity Reports (SARs) yet simultaneously facilitated problematic transactions, as well as with the regulators charged with overseeing them. Despite the FinCEN leaks’ potentially explosive revelations, the exposé attracted less controversy and press coverage than previous financial scandals, generating a day or two of headlines before being overshadowed by the second wave of Covid-19 sweeping across Europe.

European policymakers should take a second look at the FinCEN Files and consider their implications for public policy, because the pattern that they reveal of major Western financial institutions facilitating large-scale corruption is likely only the tip of the iceberg. Even only looking at a single country—Russia— the FinCEN leaks are full of enough examples of Western complicity in dodgy financial flows to hint at what’s going on behind the scenes.

Close Putin associates Arkady and Boris Rotenberg, for example, were sanctioned by the United States in March 2014 following Russia’s annexation of Crimea; Arkady has also been sanctioned by the European Union. The sanctions were intended to cut the Rotenbergs, who have made a fortune through infrastructure contracts with the Russian state, completely off from the Western financial system. Instead, the Rotenberg brothers were apparently able to continue moving millions through the British bank Barclays. According to the FinCEN leaks, Barclays allowed companies’ accounts to remain open until 2017 despite spotting suspicious activity and concluding that they belonged to Arkady Rotenberg.

JP Morgan, meanwhile, apparently ignored a number of red flags to move $1 billion through a London account which apparently belonged to notorious underworld figure Semion Mogilevich, dubbed the “Boss of Bosses” of the Russian mafia and a long time feature on the FBI’s Most Wanted List who’s been accused of gunrunning, drug trafficking and murder.

It was Deutsche Bank, however, that comes across as the black sheep of the European financial sector. According to the FinCEN Files, top managers at the German lender were acutely aware of flaws leaving the bank open to money laundering, especially from Russia. More than 100 internal alerts were raised concerning the companies at the heart of the “mirror trade scandal” which saw Deutsche Bank accepting countless dubious trades, yet bank management seemed unperturbed and even actively brushed off concerns. When Bank of America employees visited Deutsche Bank’s London office to raise concerns about Russian money laundering, a Deutsche manager shut down the conversation and unceremoniously asked them to leave the building, a situation which so alarmed the Bank of America workers that they filed a confidential report with the U.S. Treasury.

It’s inevitable that there are countless similar cases that have yet to be exposed in an information dump like the FinCEN leaks. Take the example of Russian ammonia giant Togliattiazot (TOAZ). Over the past 15 years, the management of TOAZ has been accused of swindling the company and its minority shareholders out of what looks like billions of dollars. Most of those implicated, including father-son duo Vladimir and Sergei Makhlai, have fled Russia and been put on trial in absentia.

The Makhlais and three other individuals were found guilty of fraud—more specifically, of defrauding the company and its minority shareholders by siphoning off $1.4 billion through complex offshore networks, an intricate scheme which could not have been carried out without the involvement of Western financial institutions. The stratagem involved selling TOAZ’s products at knock-down prices to a Swiss firm controlled by one of the Makhlais’ partners, who then apparently transferred the 15-20% price differential to their offshore bank accounts in Switzerland and elsewhere.

Switzerland has long been notorious for its financial secrecy, but it’s far from the only European country to have become a conduit for dirty Russian cash. A report earlier this year by UK law firm Clifford Chance laid out in excruciating detail how Swedbank, the largest bank in the Baltics, actively targeted high-risk customers from the former Soviet bloc and processed some €37 billion in suspect payments, including more than 500 transactions which may have violated U.S. sanctions. In particular, Russian oligarch Iskander Mahkmudov—Swedbank Estonia’s biggest client and a major shareholder in weapons manufacturer Kalashnikov, which was sanctioned by both the US and the EU after the seizure of Crimea—allegedly managed to funnel over €1 million to his counterparts at Kalashnikov USA using a network of shell companies.

Just as the FinCEN leaks reveal only the tip of the iceberg in terms of European financial institutions’ facilitation of disreputable Russians’ financial crimes, Russia is only one nexus of corruption among many taking advantage of European financial institutions’ lax enforcement. Reports have consistently confirmed that kleptocrats from African oil barons to Central American mafias are managing to route substantial sums of dirty cash through the European banking sector.

With the FinCEN leaks once again hinting at the true scale of the links between Western financial institutions and criminal enterprises the world over, the situation must be treated with the media attention and political urgency it deserves.