An ongoing investigation by The Indian Express in collaboration with 109 media organisations in 88 countries teamed up with the International Consortium of Investigative Journalists and BuzzFeed News has revealed how financial transactions by Indian citizens and firms have been red-flagged to the top US financial watchdog, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), for possible money laundering, financial fraud or drug dealing. These cross-country investigations are based on suspicious activity reports (SARs) by compliance officers in financial institutions, on transactions that involve clients with high-risk profiles, or past brushes with the law. The sheer scale of the revelations raises troubling questions: To what extent are the Indian investigative agencies aware of these suspicious transactions that involve Indian citizens and firms? Considering that 44 Indian banks, both public and private, have been named, did these banks report these particular transactions, and flag them to the Financial Intelligence Unit-India (FIU-IND)? Given their cross-border nature, was the banking sector regulator — the Reserve Bank of India — also notified about them? Considering the seriousness of the allegations — the details of banking transactions indicate round-tripping, money laundering or dealings with shell companies — are they under the lens of the investigative agencies in India?
The suspicious activity reports (SARs) are documents filed by financial institutions, from banks to money exchanges and security brokers, to US authorities to report suspicious transactions. Such transactions have to be reported within 30 days of occurrence. While they themselves are not evidence of illegality, the SARs nonetheless serve as signals to alert regulators and authorities regarding possible irregular activities — any form of dirty money, potential money laundering activities, terror financing or transactions that raises suspicion. The files allude to at least $2 trillion being flagged as possible evidence of money laundering or other criminal activity between 1997-2017. Considering that international banks have, during this period, been warned and heavily fined by regulators for failing to inform them of suspicious transactions or for letting “dirty money” slip through, their continued occurrence, despite apparent checks and balances in the system, is worrying.
This Indian Express investigation follows other probes such as the Swiss Leaks in 2015, the Panama Papers in 2016, and the Paradise Papers in 2017, all of which have served to pierce the veil of secrecy shrouding cross-border capital flows by Indian firms and citizens. Considering that in most of the cases uncovered in this investigation, the domestic branches of Indian banks were used to either receive or remit funds, the revelations signal a continuing laxity in the current regulatory architecture in India. This raises grave questions over not just the investigative agencies but the entire regulatory apparatus. The government needs to address the gaps.
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