In wake of FinCEN scandal, help regulators do their job

Oliver Bullough


Hello, and welcome to Oligarchy. We are tracking how Covid-19 and the world’s response to it is affecting the super-rich — and what that means for power and politics.


I’m going to start with a digression. I have a friend who used to be a teacher, and his school was assessed on how many of its pupils achieved grades A*, A, B, or C. The principal therefore instructed teachers to focus on pupils predicted to earn a D grade, because, if those children could be lifted up one level to C, the school would hit the government’s target. 

However, when the school got inspected, it was criticized for ignoring pupils outside of this narrow group, to which the headteacher’s response was bafflement. They hadn’t wanted to treat the children this way, but the government had told them to, so they’d gone ahead and done it, and now they were being criticized for it? 

My friend doesn’t teach anymore, so he no longer spends so much time raging at hypocritical politicians (which is great for him, but a shame for the kids, because he was a great teacher) but his plight came to mind last week when I read the response of the U.K.’s regulator, the Financial Conduct Authority (FCA), to the FinCEN Files stories published by Buzzfeed News and its partners around the world. 

Large British banks – HSBC, Barclays and Standard Chartered among them – got singled out for having moved large volumes of suspicious money, and the FCA added to the chorus of criticism. 

  • “What surprises me still is there is a view in some quarters that anti-money laundering systems and controls is a lot of money for nothing in return, and it’s a huge bureaucratic exercise in red tape rather than something that’s really important,” Mark Steward, the Financial Conduct Authority’s head of enforcement, told journalists, according to City AM

I imagine that quite a lot of bank compliance officers feel like my friend did when his school got criticized for focusing on C grades: but that’s what you told us to do! 

At the risk of repeating myself, if a government sets a target, it is unfair for officials of that government to criticize people for aiming to meet that target. For years, politicians have demanded that banks file Suspicious Activity Reports (SARs), so, as a result, they have filed them, by the million. If they do indeed treat this like a “huge bureaucratic exercise in red tape,” that is because – being blunt – that’s what it is: the regulators don’t even read the vast majority of the SARs, and rarely if ever take any action based upon them.

According to a Freedom of Information request filed into the Financial Conduct Authority’s actions, it has shut down seven of its 14 investigations into money laundering breaches so far this year, and only one criminal investigation is still being pursued. It has the power to bring criminal proceedings, but has literally never done so.

  • “Now more than ever it would send out the right message if the FCA were to really flex its muscle and bring the full weight of their enforcement power to bear on offenders,” said Martin Cheek, managing director at compliance firm SmartSearch. 

Memo to the FCA: please use your powers to enforce the rules against money laundering. Or, if you lack the resources you need to do your job, or if the SARs system is broken beyond repair, please tell us, and we can design a new system.


After last week’s newsletter, a reader sent over (thanks!) a report from the U.S. Government Accountability Office (GAO), published earlier this month, which provides a fresh reason to think it’s time to radically overhaul the Suspicious Activity Report system. The office surveyed different financial institutions, to see how much it cost them to comply with the requirements of the Bank Secrecy Act (BSA), the law that lays out how the system of SARS works. The institutions aren’t identified by name, but they range from the very large – with more than $50 billion in assets – down to the small, with less than $250 million in assets. 

  •  “GAO found that total direct BSA compliance costs generally tended to be proportionally greater for smaller banks than for larger banks. For example, such costs comprised about 2% of the operating expenses for each of the three smallest banks in 2018 but less than 1% for each of the three largest banks in GAO’s review,” the report said.

So, we have a system that largely fails to stop money laundering, and which unfairly discriminates against small banks in relation to large ones. I can understand why big financial institutions and their clients might be happy for it to exist, but I can’t understand why the rest of us are.


Buried in last week’s newsletter was the detail that the British government had promised to overhaul its corporate registry, which could be good news, since at present the registry is an open invitation for fraudsters to pick up a shell company for less than the cost of a round of drinks. In the era of Covid-19 and interest-free government loans, that is an invitation they have gladly accepted.

Helena Wood, of the think tank RUSI, has had a look at the government’s proposals and given them a cautious welcome. The key problem currently is that it is too easy to create a shell company with fake documentation, thus hiding your identity, and these reforms will do too little to prevent that, because the registry will lack a legal duty to ensure that the information it publishes is accurate. Separately, since the government is unlikely to give it enough money to adequately resource a proper intelligence department, it would not be able to afford to check the information even if it wanted to.

So, what’s the solution? Perhaps the U.K. should increase the bargain basement price that Companies House currently charges for registration.

  •  “Twelve pounds is a low cost of entry. Even a modest increase in the cost of forming one of the 600,000 companies formed in the U.K. every year could raise a substantial sum to fund reforms. The prevailing argument against this to date has been that it would deter business formation in the U.K.; an argument which wears thin when considering that the 55 pound cost of registering a vehicle has hardly deterred car ownership,” she writes.

I agree. If a 50 pound registration fee is an insurmountable obstacle to an entrepreneur, then their business idea can’t be a very good one.


Interesting news from Switzerland and Uzbekistan. They have preliminarily agreed on how the $131 million that used to be in the hands of the daughter of the ex-president of Uzbekistan will be returned to the people she stole it from.

Gulnara “Googoosha” Karimova was once described in a confidential State Department cable as “the single most hated person” in Uzbekistan, which is quite something considering her dad had people boiled alive, and forced children to pick cotton. She extorted substantial bribes from telecom companies, and was jailed in Tashkent for money laundering after her father died.

The agreement on returning the cash marks the near-culmination of a lengthy legal process, but is not entirely un-troubling. The kind of ludicrous corruption that she represented may no longer be as prevalent, but that does not mean the country has cleaned up.

  • “While we support these principles and the new approach taken by the Swiss government, we are concerned that the current governance and political context in Uzbekistan may hinder efforts to repatriate assets in a responsible manner,” noted a collection of many of the world’s most significant anti-corruption groups in a statement.

Among the group’s demands were a requirement that the asset return process be transparent, and that local civil society groups could oversee it. It will be interesting to see whether the supposedly reformist Uzbek government will be prepared to countenance them.


It was my birthday last week, and my brother gave me Jill Lepore’s “If Then: How the Simulmatics Corporation Invented the Future.” I’m loving it so far, and she was fascinating on the Talking Politics podcast. I particularly liked her wry observation that it was amazing how much trouble white men took to make a computer that could tell them what women and people of color thought, when they could have just asked.

See you next Wednesday,


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