Leaked FinCEN Documents Show Global Banking Responsible for $2 Trillion in Dirty Money

Banks all over the world have been caught red-handed laundering illicit money and helping affluent individuals evade American sanctions, according to FinCEN documents.

The traditional financial system is broken in many ways. But is crypto much better?

Banks Privy to Money Laundering

Governments have been wary of public ledger cryptocurrencies for years.  In their eyes, digital assets are nothing more than tools to aid money laundering and other illicit financial activity.

Regulators aren’t wrong here: Bitcoin and other cryptocurrencies are used to facilitate illicit activity. The critical difference, however, is that the world’s largest banks are fully regulated and should be under careful watch by major governments.

Leaked documents now indicate the depth of regulators’ negligence.

ICIJ analysis has revealed FinCEN documents showing a minimum of $2 trillion of funds had been knowingly laundered through the banking system between 1999 and 2017. Notably, $1.3 trillion of this comes from Deutsche Bank.

Activities highlighted in these documents include laundering funds for known and corrupt individuals, helping Russian oligarchs evade Western sanctions, and embezzlement.

The FinCEN files are from the regulator’s suspicious activity reports. Individuals and institutions file these reports to identify any suspicious movement of funds. While they aren’t proof of wrongdoing, they can lead to further investigations.

It’s also worth noting the documents obtained by the ICIJ comprise a mere 0.02% of all suspicious activity reports filed between 2010 and 2017.

The total amount of money laundered by banks is expected to be much higher than the $2 trillion in the reports.

Crypto Fixes This?

Public blockchains are open, transparent, and auditable by anyone, while bank ledgers are open only to bank employees and audited exclusively by hired professionals.

Though one has the impression that bank employees and auditors are keeping a close watch on the movement of funds, examples like that of Wirecard reveal that this is often not the case. It’s also possible for banks to deceive auditors by falsifying the nature of a bank’s activities or simply not providing some data.

This is impossible on public blockchains because, as the name suggests, all information is public.

In the traditional financial system, banks are both the facilitators of money laundering and the enforcers of anti-money laundering laws. This arrangement is visibly flawed, and regulators are finally starting to notice.

FinCEN recently announced a massive overhaul to anti-money laundering processes.

Decentralized Finance (DeFi) built on public blockchains are free from this inherent corruption. Think of DeFi protocols like Aave and Compound as banks whose accounting ledgers are automated and code-driven. Potential customers can do extensive due diligence before deciding to deposit their money or take a loan from these protocols.

Of course, laundering is also present in DeFi. And bad actors aren’t be restricted from transacting in public ledger cryptocurrencies. But these transactions cannot be hidden on a public blockchain. The premise of transparency and openness thus makes it easier to track funds over a public blockchain, as proven by Chainalysis.

KYC and AML could make their way into DeFi as regulators apply pressure on the teams behind these protocols. But finance over a public blockchain is a proven solution that enhances the integrity of financial services.