Under the powers granted by the Bank Secrecy Act of 1970 (BSA), the Treasury Secretary in 1990 established the Financial Crimes Enforcement Network (FinCEN) to meet the growing needs for centralized analysis of financial information in the battle against money-laundering.

 

In a further expansion of its powers, the BSA was updated in 1992 to require financial institutions (including money service businesses, insurers, money exchangers, casinos and precious metals dealers) to file Suspicious Activity Reports (SARs) when their clients engage in behavior defined as suspicious by FinCEN. 

 

In contrast to the Right to Financial Privacy (RFPA) established in 1978, information submitted through SARs does not need to be approved by the subject of inquiry, nor is the subject informed of the SAR submission. This has led to complaints of invasion of privacy. Other complaints have been raised that the current informational structure in use at FinCEN, which allows all participatory agencies to freely upload data and download entire databases, violates the law requiring law enforcement agencies to acquire warrants before sharing information. Alternatively, other groups are arguing for further integration on the grounds that crimes and terrorism can be prevented by effective information sharing.

Part of the Treasury Department’s new Office of Terrorism and Financial Intelligence, the Financial Crimes Enforcement Network (FinCEN) helps law enforcement agencies combat money laundering and terrorist financing. FinCEN primarily analyzes information accumulated from the Bank Secrecy Act (BSA) in combination with other government and public information and compiles it into databases made accessible to 165 federal, state and local agencies.

FinCEN is a member of the international Financial Action Task force and shares information with the 106 other Financial Intelligence Units (FIUs) that form The Egmont Group. It is the only federal agency devoted solely to gathering, analyzing and disseminating information from law enforcement, intelligence and public databases.

Hundreds of thousands of financial institutions are subject to Bank Secrecy Act reporting and recordkeeping requirements. These include depository institutions (e.g., banks, credit unions and thrifts); brokers or dealers in securities; money services businesses (e.g., money transmitters; issuers, redeemers and sellers of money orders and travelers' checks; check cashers and currency exchangers); casinos and card clubs; and dealers in precious metals, stones, or jewels.

 

FinCEN assisted with a case against a naturalized US citizen who pled guilty for sending more than $4 million to Iran through intermediaries in Hong Kong and the Middle East. Between 2001 and 2002, the defendant violated the International Emergency Economic Powers Act (IEEPA) (PDF), which forbids the transfer of funds to Iran. His broker refused to transfer the funds after inquiring about the unusual activity and filed a Suspicious Activity Report (SAR), which eventually led to a trial and conviction. After he could no longer use his broker, the defendant fell back on the ancient Hawala banking system, in which members of the system transfer funds to other members in various cities relying solely on the honor system to make and settle debts. FinCEN’s extensive database and cooperation with international regulatory and intelligence communities were an essential element in building the case.  

 

FinCEN also proved instrumental in uncovering a complex bank fraud scheme. In 2002 an individual forged a number of documents that supported his claim to be an owner of a bank and affiliated with a large multinational financial institution. After putting $750,000 into the alleged bank, investors began taking a closer look. In response to the inquiries, the multinational financial institution supposedly associated with the fraudulent bank filed an SAR, notifying the FBI both of his scheme to defraud investors and attempt to steal a bank’s identity. While awaiting sentencing, the defendant stole his mother’s identity and used her credit card to purchase a sports car valued at more than $30,000 for an exotic dancer. In light of all of this activity, the judge sentenced him to five years in prison and ordered him to pay $88,000 in restitution to his various victims. 

 

In line with its primary function of interacting with various government agencies to share financial information in money-laundering cases, FinCEN tightly regulates the laws regarding reporting procedures. In September 2007, in coordination with the Office of the Comptroller of Currency (OCC), FinCEN fined Union Bank of San Francisco $10 million for failing to implement adequate counter money laundering measures. 

 

In another federal trial, prosecutors introduced evidence provided by FinCEN that showed the defendant defrauded Medicare of millions of dollars through a program that provides medical equipment to patients. Testimony was presented supporting the allegation that the defendant was guilty of healthcare fraud as well as multiple counts of structuring currency transactions and money laundering. Over the course of several years, the defendant and co-defendants submitted millions of dollars worth of false and fraudulent claims to Medicare on behalf of Medicare recipients, resulting in their actual receipt of more than $2 million from the Medicare program. The defendant bribed physicians, who were charged as co-defendants in the federal indictment, to verify that Medicare beneficiaries needed the medical equipment. The physicians have admitted that at least half of those claims were fraudulent. The jury found the defendant guilty of more than a dozen counts of structuring currency transactions to evade the federal reporting requirements. Upon conviction, the judge sentenced the defendant to more than five years in federal prison without parole. The court also ordered the defendant to pay restitution and to forfeit to the government hundreds of thousands of dollars.

 

 

According to USAspending.gov, the federal government’s clearinghouse for federal contract information, the Financial Crimes Enforcement Network spent $1.9 billion this decade to acquire goods and services from businesses. More than 1,400 contractors were hired by FinCEN to provide ADP and telecommunications services ($453 million), maintenance and repair related to aircraft components and accessories ($255 million), facility operation and maintenance services ($152 million), management support services ($122 million) and hazard-detecting instruments and apparatus ($89 million).

 

The top 10 contractors of FinCEN are:

 

 

When Gov. Elliot Spitzer (D-NY) fell from power as a result of a prostitution scandal, it was banking records maintained by the Financial Crimes Enforcement Network that may have helped in the investigation. Under the Bank Secrecy Act, financial institutions are required to report suspicious activity through special reports filed with FinCEN, which collects the information in a database accessible by law enforcement agencies including the IRS, FBI, DEA and various state regulatory agencies. It is believed that the investigation into Spitzer began as a result of a routine inquiry by a Long Island office of the Internal Revenue Service.

 

Officials say the suspicious activity in Spitzer’s case was a money-laundering technique known as “structuring,” which can be detected from reviewing forms filed by banks for all customer transactions totaling $10,000 or more. According to the FBI, Spitzer chose to pay for services in cash rather than wire transfer. Assuming that Spitzer was withdrawing large sums of money from his account to pay for his “escort services,” his bank’s system would have flagged the activity as possible structuring.

 

For someone who served as his state’s attorney general before becoming governor and was quite familiar with money laundering schemes, Spitzer’s behavior was shocking to experts. “It’s almost unfathomable,” said David Caruso, chief executive of the anti-laundering consulting firm Dominion Advisory Group. “He showed almost no level of sophistication whatsoever.”

The Hot Trail to Cold Cash (by Megan Barnett, Portfolio.com)

As concerns about fraud and terrorist financing grow, an increasing number of suspicious deposits, withdrawals and money transfers are being reported by banks and others to the federal government. Banks and credit unions as well as currency dealers and stores that cash checks reported a record 17.6 million transactions to the Financial Crimes Enforcement Network in 2006.

 

“I don’t think Americans understand that their financial transactions are being reported and routinely examined,” said Barry Steinhardt of the American Civil Liberties Union. “The government has access to untold volumes of records and can draw all sorts of conclusions about us, and many are going to be wrong.”

 

The FinCEN’s database now contains records of more than 100 million financial transactions going back to at least 1996. The number of suspicious activity reports soared from 413,000 in 2003 to 1 million in 2006. Federal law requires the reports to remain secret. They are written by officers at financial institutions who specialize in detecting suspicious activity, such as a series of large transactions.

Feds might be studying your finances (by Thomas Frank, USA Today)

The ongoing problem of financial schemes originating in African countries has gone so far as to use counterfeit seals of the Financial Crimes Enforcement Network. Consumers have reported receiving letters, purportedly from the director or deputy director of FinCEN, telling of an automatic stop order that has been placed on a large sum of money being transferred to them. Intended victims are told that a “Clean Report on Fund” is required to obtain the funds being held. These letters, brandishing the FinCEN seal, instruct the potential victims to pay an “agent broker” a fee to obtain a “Clean Report on Funds” so that the funds will be cleared and not confiscated by the “United States Treasury International Monetary Fund Policy.”

 

FinCEN has urged consumers to report such fraudulent letters to their state, local and or federal law enforcement agency. The agency says it is working closely with law enforcement agencies to identify the source of the letters and disrupt the scams.

In December 2007, the Wall Street Journal (WSJ) published a Page One article that argued that fraud was a big contributor to the mortgage crisis. It cited examples such as a phone technician earning only $105,000 a year, with assets of only $35,000, who managed to buy a palm-tree-lined mansion with a nearly $2 million mortgage from Bear Stearns. The technician had lied on his loan application, claiming he and his wife were top officers of a marketing company earning $50,000 a month. Officials at Bear Stearns never bothered to confirm this. Later, the legendary financial institution posted the first quarterly loss in its 84-year history, writing down $1.9 billion of mortgage assets, because of bad loans.

 

The article went to claim that fraud “goes a long way toward explaining why mortgage defaults and foreclosures are rocking financial institutions, Wall Street and the economy.” It cited statistics from the FBI showing that the share its white-collar agents and analysts devoted to prosecuting mortgage fraud has risen to 28%, up from 7% in 2003. Suspicious Activity Reports, which are filed by lenders with the Financial Crimes Enforcement Network, shot up nearly 700% between 2000 and 2006. Furthermore, the story said that losses from fraud could total a record $4.5 billion in 2006 alone, a 100% increase from the previous year. The FBI said its active mortgage-fraud cases had increased to 1,210 in 2007 from 436 in 2003. In some regions, fraud may account for half of all foreclosures.

Fraud Seen as a Driver In Wave of Foreclosures (by Michael Corkery, Wall Street Journal)

 

The Columbia Journalism Review (CJR) took umbrage with the WSJ story in that it tried to let lenders off the hook for the mortgage crisis by showing how much fraud was being committed by white-collar criminals. As the CJR remarked, “If the premise of this [Wall Street Journal] story is true, we need to seriously rethink the mortgage dilemma and tighten safeguards to protect lenders, Wall Street securities dealers and institutional investors against hordes of unscrupulous borrowers. And yet, the Federal Reserve has neglected to do anything of the kind in proposing new lending rules. Instead, these deal entirely with unscrupulous lending practices.

The writer, Dean Starkman, wrote, “But, of course, the premise of the story is not true. I don’t know anyone who thinks that. Even Bear Stearns, an alleged victim in the story, if you can believe it, isn’t saying that. And even if you think it is true, there is a journalistic problem here: The assertion is unsupported. The evidence cited in the story does not make, or come close to making, the case for the idea that borrower fraud is an important driver of the mortgage crisis. To see that, frankly, does not even require a particularly close reading.