Why Regulated Banks Have Greater Potential For Financial Crime Than Bitcoin and Crypto

Why is Bitcoin—which operates on a transparent decentralized public ledger— constantly singled out as a threat for financial crime, when regulated banks have a well-documented free pass to facilitate illicit financial transactions?

Last week, a leaked trove of US official FinCen documents revealed that five major banks – Deutsche Bank, HSBC, JP Morgan, Bank of New York Mellon, and Standard Chartered Bank – were involved in illicit transactions pertaining to mobsters, crypto Ponzi schemes, and money laundering.

The official Financial Crimes Enforcement Network (FinCEN) document was leaked and disclosed that more than two trillion USD had been laundered and flagged as suspicious by financial institutions following the Anti-Money Laundering (AML) act. However, the dirty money was still reported to have been freely flowing through renowned global banking institutions.

The FinCEN files are the result of extensive international research on money laundering and financial crime. The documents show that between 1999 and 2017, $1.3 trillion of $2 trillion in leaked transactions that were flagged as suspicious passed through Deutsche Bank.

As Long as Banks Report Illicit Activity – It’s Basically Ok

According to CNBC on Sept. 21, the leaked documents contained suspicious activity reports that banks and other financial institutions filed with the US Department of Treasury’s Financial Crimes Enforcement Network, or FinCEN. Financial firms are required by law to alert regulators when they detect activities that may be suspicious, such as money laundering or sanctions violations.

While CNBC noted that these documents are not necessarily evidence of any criminal conduct—the reality is that the documents indicate the banks have leveraged the use of the “suspicious activity report” to FinCEN. The reporting obligations simply means that banks are required to report suspicious transactions, but this is where their accountability ends. As long as they report the transactions to FinCEN, banks and their executives are basically immune to further prosecution.

Following the news that Deutsche Bank has facilitated over a trillion dollars of the leaked illicit transactions, the German central bank issued a statement on its website on Sept. 20 which basically indicated they had followed the procedure and had cooperated with the suspicious activity report (SAR) requirement, thus fulfilling their obligation.

Per the statement :

“To the extent that information referenced by the ICIJ is derived from SARs, it should be noted that this is information that is pro-actively identified and submitted by banks to governments pursuant to the law. SARs are alerts of potential issues, not proven facts.”

While SAR reports from banks are available to US law enforcement agencies and other nations’ financial intelligence operations, agencies like FinCEN will be aware of the money laundering activities but ultimately lack the authority to do anything about them. The suspicious activity alert effectively gives the banks a free pass to facilitate any transactions they please, as long as they make a redundant report.

Consequently, illegal funds continue to flow through banks into various industries from oil to entertainment to real estate, further separating the rich from the poor, while the regulated banks that authorities ask us to trust are the ones making these financial crimes possible.

Money Laundering, Bitcoin and Crypto

Ever since Bitcoin’s inception, its reputation has been marred by its association to the Silk Road darkweb marketplace—where one could buy anything from weapons to drugs leveraging the cryptocurrency. However, as Silk Road founder Ross Ulbricht has now discovered, by leveraging Bitcoin’s transparent blockchain ledger, the illicit transactions on the sites were soon tracked and he was arrested.

With the growing use of the Bitcoin network, which now has over 40 million Bitcoin wallets and increasing—it is becoming increasingly easier to track transactions on public blockchains, while private banking institutions are still able to transact suspicious movements in plain sight.

According to Chainalysis, more than $1 trillion cryptocurrency transactions took place in 2019, but only 1.1% of them were found to be illicit. Money laundering is more than a financial crime. It is a tool that makes all other crimes possible - from drug trafficking to political crimes. And banks, not Bitcoin are currently making it all possible right under our noses.