Several Indian banks helped facilitate transactions red-flagged by the United States Treasury Department's Financial Crimes Enforcement Network (FinCEN) for suspected money laundering, terrorism, drug dealing and financial fraud, a major leak of top-secret documents has revealed, reported Indian media on Saturday. 

Called the FinCEN files, the documents were exposed by an investigation and analysis led by hundreds of journalists worldwide. The FinCEN Files investigation identified more than two trillion dollars worth of transactions between 1999 and 2017. The transactions had been flagged in more than 2,100 reports by nearly 90 financial institutions.

The FinCEN Files contain a 20-page “intelligence assessment” on the mirror network and list 54 shell companies which, they say, moved billions of dollars annually from Russia through European securities markets to other jurisdictions beginning as early as 2011.

At least 44 Indian banks have been flagged in connection with transactions by Indian entities and individuals in a set of Suspicious Activity Reports filed by US banks with the watchdog agency, the Financial Crimes Enforcement Network (FinCEN), an investigation by The Indian Express shows.

As per one set of records where addresses linked to parties are in India, Indian banks figure in SARs linked to over 2,000 transactions valued at over $1 billion between 2011 and 2017. Significantly, there are thousands of transactions linked to Indian entities and businessmen where the Indian senders or beneficiaries have addresses in foreign jurisdictions.

Records investigated show that Indian banks mentioned in the SARs include: state-owned Punjab National Bank (290 transactions); State Bank of India (102); Bank of Baroda (93); Union Bank of India (99) and Canara Bank (190), among others.

Among private banks who figure in the SARs are HDFC Bank (253 transactions); ICICI Bank (57); Kotak Mahindra Bank (268); Axis Bank (41) and IndusInd Bank (117) among others.

The foreign banks that have filed these SARs include Deutsche Bank Trust Company Americas (DBTCA), BNY Mellon, Citibank, Standard Chartered and JP Morgan Chase among others.

Indian banks figure in the Suspicious Activity Reports (SARs) primarily because they are “correspondent banks” to the foreign banks which have filed these SARs and figure in the network through which these transactions have been effected.

There are cases, records show, where “suspicious transactions” have been carried out through the international payment gateway of foreign banks. In others, foreign branches of Indian banks such as a State Bank of India account in Canada and an account of Union Bank of India in UK have been used by clients for carrying out part of the transactions in question.

Key to this is the correspondent banking relationship — an arrangement over which there has been growing concern as regulators crack down on secrecy of offshore transactions.

Under this, one bank (correspondent) holds deposits owned by other banks (respondents) and provides payment and other services to those respondent banks. Through correspondent banking relationships, banks can access financial services in different jurisdictions and provide cross-border payment services to their customers.

In these SARs, the foreign banks have cited a slew of reasons to red-flag these transactions: “high-risk jurisdiction for money laundering or other financial crimes,” adverse media/public information on the client, “unidentified” parties, and the fact that “source of funds and purpose of transaction could not be ascertained.”

Meanwhile, there has been growing concern among banks over the idea of correspondent banking. According to a report by Committee on Payments and Market Infrastructures (CPMI) of the Bank for International Settlements, on correspondent banking, prepared in 2016, banks providing these services are reducing their relationships.

The report states that rising costs and uncertainty about how far customer due diligence should be done in order to ensure regulatory compliance have been some of the key reasons for banks to cut back their correspondent relationships.

The report made several recommendations including standardisation of KYC norms and using legal entity identifiers in correspondent banking, It also recommended that global watchdogs like Financial Action task Force and Anti Money laundering task force should explore ways to tackle obstacles to information-sharing, with the aim of identifying potential best practices.

While mails sent to 10 banks for their comments on the SARs did not elicit any response, an SBI spokesperson in his response, said: “The information sought herewith is not available with the Bank due to the SAR confidentiality regulations.”

The Financial Crimes Enforcement Network (FinCEN) has issued an advisory that any unauthorized disclosure of a SAR is a violation of US federal law…Both civil and criminal penalties may be imposed for SAR disclosure violations.

“This obligation applies not only to the SAR itself, but also to information that would reveal the existence (or non-existence) of the SAR. All the foreign branches of State Bank of India follow all the process as per the applicable local regulations to flag any suspicious transaction. SBI has been working with the highest level of compliance to legal and regulatory requirements not only in the India but also overseas. Bank at the same time follows a zero tolerance policy towards any violation of compliance.”