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FinCEN Leak What consumers should know

HSBC has been linked to fraudulent activity in a leak of documents called the FinCEN Files. Britain's biggest bank moved millions of dollars around the world, even after it had learned about investment fraud.

Krista Lomu
· 3 min read

HSBC has been linked to fraudulent activity in a leak of documents called the FinCEN Files. Britain's biggest bank moved millions of dollars around the world, even after it had learned about investment fraud.

The FinCEN Files consist of 2,657 documents that were leaked to Buzzfeed website. The documents were shared with the International Consortium of Investigative Journalists (ICIJ) and widely reported in the media over the weekend.

The Files centre on suspicious activity reports (SARs) that banks file with authorities when they suspect customers might be doing something illegal. The leak shows HSBC filed numerous SARs between 2000 and 2017 but failed to stop the money moving around.

An old-fashioned investment scam returns

At the heart of the leaks is an investment scam that HSBC was warned about but failed to act. The investment scam was called WCM777, and Chinese national Ming Xu started it. The investment scam operated as a Ponzi scheme, meaning that investors are paid a return from money coming in from new investors.

HSBC filed several SARs about the activity but failed to include critical details in those reports. Information about the customers and the beneficial owners of accounts were not part of the bank’s SARs documentation. The bank also failed to stop the payments, which it would have the power to do if it suspects illegal activities were taking place.

What should banks do when they suspect fraud?

Banks have numerous Know Your Customer (KYC) and Anti Money Laundering (AML) procedures they must follow. These are to ensure banks know who is benefitting and using bank accounts, as well as ensuring sanctioned people are not benefitting from the banks.

Further regulation also makes banks responsible for preventing, detecting and reporting crime. These include SARs filing as well as the ability to block payments. When it comes to fraud, banks do have tools at their disposal, although it’s important to remember that:

  • SARs are not automatically evidence of wrongdoing.
  • Banks are not allowed to tell the customer a report has been filed due to tipping-off rules.

HSBC argues that it did what it was supposed to do by making the reports and that the authorities should have acted on the investment fraud sooner.

What happens next?

The leaks are likely to have two significant consequences. First, HSBC could face mounting legal action. The leak led to its shares plummeting to a 25-year-old low, and shareholders could file a lawsuit against the bank. Fraud victims who feel the bank didn't act quickly enough are also looking to sue. Not just HSCB could face a legal challenge. The FinCEN report found several UK banks tied up to fraud and Ponzi schemes.

Authorities have also announced new regulations, as well as an overhaul of existing anti-money laundering programmes. The UK unveiled plans to reform how company information is registered as part of an effort to control fraud and money laundering.

As a consumer, the report highlights the importance of due diligence when looking for investment opportunities. It is crucial to do the homework and make sure different schemes are following the recommendations and rules outlined by financial authorities. Even then, you need to stay vigilant in keeping an eye on where your money is going to and report any suspicious activities to your bank and the authorities.

Krista Lomu

Krista Lomu

Krista has been writing about finance for nearly a decade. Based in London, she hopes to turn even the most complicated topics to approachable and interesting for readers. When she's not writing and working with small businesses, she likes to read, watch football and play games - fuelled on by many cups of coffee!
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