There is a special place in hell for drug dealers, child traffickers, arms smugglers and people who enrich themselves at the expense of the poor — of which South Africa has its fair share.

But what about the banks through which these ill-gotten gains are laundered? And what about the regulators that are meant to ensure that the banks are not profiting off the criminal underworld? Is there a special place in hell for them too?

It would appear not. In fact, such is the hands-off attitude of the regulators that the world’s biggest banks are able to trade with bandits and thieves with impunity and still pretend they have the moral high ground. 

It’s despicable. 

Over the past fortnight, a plethora of stories have emerged on this subject, all thanks to what is dubbed as the FinCEN Files investigations. 

US digital media organisation BuzzFeed News and the International Consortium of Investigative Journalists have spent the past year digging into thousands of Suspicious Activity Reports, among other documentation, to map the people, organisations and banks behind more than 200,000 transactions. 

Suspicious Activity Reports are submitted by banks and other financial intermediaries to the US Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, when they observe transactions that suggest money laundering or other illegal activities. 

Once submitted, these documents are classified and often never see the light of day — you cannot even subpoena one.

The same applies in South Africa — financial intermediaries, including banks, estate agents, lawyers, car dealerships and Krugerrand dealers, are required to submit reports on all suspicious activity to the Financial Intelligence Centre.

The results of the FinCEN investigations are still emerging, but it’s clear that we have a rare window into global financial corruption, the banks enabling it and the government agencies that fail to stop it.

While the report is largely US-focused, South Africa is no different. We may have an efficient and modern financial sector and a well-structured and funded Financial Intelligence Unit, but our track record over the past decade regarding money laundering and corruption paints a less than perfect picture. 

The investigations reveal that big banks around the world — HSBC, Deutsche Bank, Standard Chartered, JP Morgan Chase and the like — approved more than $2-trillion in transactions between 1999 and 2017 despite the fact that very often their own systems and staff flagged the transactions as suspicious. 

For example, despite whistle-blowers stepping forward and alerts filed with the US government, Standard Chartered continued to trade with suspicious clients in Iran, including the Taliban. Bank of America, Citibank, JPMorgan Chase, American Express and others processed millions of dollars in transactions for the family of Viktor Khrapunov, the former mayor of Kazakhstan’s most populous city, even after Interpol issued a Red Notice for his arrest. And HSBC, already fined $1.7-billion for aiding and abetting narco-launderers in 2012, and supposedly toeing the line under a deferred prosecution agreement, continued to do business with the same types of people that got it into trouble in the first place.

Bear in mind that the banks — and their shareholders — make a tidy profit off all this activity and that freshly laundered money makes other crimes possible. In the process, democracy is undermined, inequality is accelerated and public funds squandered. 

None of this is new. Money laundering and the crimes that go with it have been a documented problem for decades. But what these files expose is what we know, but choose not to think about — the networks through which dirty money traverses the world have become the vital arteries of the global economy. 

This is clearly documented in the case of HSBC, where regulators fretted that criminal convictions could affect HSBC’s ability to operate in the US, destabilising the bank, with serious implications for financial and economic stability across the world.

So while conspiracy theorists blather on about handfuls of wealthy and educated people who apparently have an extreme psychological desire for power, or who helped engineer a virus to profit from a vaccine, a shadow financial system enabled by criminal masterminds has intertwined itself with the legitimate financial economy in such a way that it can no longer be seen apart. 

Which would you prefer?

While the report is largely US-focused, South Africa is no different. We may have an efficient and modern financial sector and a well-structured and funded Financial Intelligence Unit, but our track record over the past decade regarding money laundering and corruption paints a less than perfect picture. 

A legal friend from CDH points out that in the Basle Anti-Money AML Index of 2018, measuring effective enforcement of Anti-Money Laundering measures, South Africa is listed as one of the Top 10 “decliners”. The Corruption Perception Index, published internationally by Transparency International, has also given us a score of 43 — a score below 50 is indicative of corruption issues. The 2019 Rule of Law Index places South Africa in position 47, in the lower half of the world, just above Argentina and just below Ghana. 

So why are we still debating these issues? What these reports tell me is that the banks are successful at flagging suspicious activity — even if it’s the tip of the iceberg. 

This means they need to be thinking hard about the quality of their partner relationships — with correspondent banks, payment services providers or other regulated or unregulated intermediaries. 

They need to figure out how to assess and monitor those in the context of real hard data, not just the endless consultant reports that end up being a whitewash more often than not.

Then governments need to take a hard look at their own enforcement — because it’s sorely lacking. BM/DM