Exposing A Global Laundromat
BEHIND the big names of major banks around the world is a hidden story of the failure of the global financial system to detect cross-border crime.
BEHIND the big names of major banks around the world is a hidden story of the failure of the global financial system to detect cross-border crime. Without the political will or a jointly agreed road map, many loopholes in our financial system will not be patched. In other words, the banking network is still prone to being misused by major criminals as a gigantic laundromat to clean dirty money.
These fundamental weaknesses were revealed in a 16-month global investigation led by the International Consortium of Investigative Journalists and BuzzFeed News together with 108 media from 88 nations, including Tempo. Before this investigation, the same consortium uncovered the role of tax havens in concealing the wealth of high rank officials and very important people (VIPs) through the publication of the Panama Papers and the Paradise Papers.
This time, the source of the data is the suspicious transactions reported by the United States Financial Crimes Enforcement Network, or FinCEN. This collaborative investigation discovered failures in the global banking system to report potentially illegal financial transactions carried out by their clients. This leak of documents, named #FinCEN Files, contains details of 2,100 suspicious transactions between 2000 and 2017 with a total value exceeding US$2 trillion.
Included in these documents are 496 transactions involving 20 banks in Indonesia, including Bank Mandiri, BNI and BCA. These banks are named in suspicious transactions discovered by four banks from the United States, namely JPMorgan Chase & Co, Standard Chartered Bank, Deutsche Bank AG, and Bank of New York Mellon. These suspicious activity reports between December 2008 and July 2017 record funds flowing into Indonesia amounting to around Rp3.2 trillion and funds transferred out of Indonesia amounting to at least Rp4.2 trillion.
Of course, the existence of these suspicious activity reports does not immediately mean that they are financial crimes. Like the Center for the Reporting and Analysis of Financial Transactions (PPATK) in Indonesia, FinCEN only detects potential criminality in banking transactions, then forwards the information to the law enforcement authorities. However, some of the documents prove that there were several transactions believed to be linked to bribery or other crimes that were not followed up by legal processes.
In Indonesia, these transactions were related to suspected markup in the procurement of six Sukhoi Su-30MK2 fighter aircraft from Russia’s Rosoboronexport in 2012. The price of the Sukhoi jets is alleged to have been marked up from U$55 million in 2010 to US$83 million in 2011. When this was first discovered by the Indonesia Corruption Watch, the House of Representatives’ Law Commission and the Corruption Eradication Commission stated that they were ready to follow up the alleged corruption believed to amount to around Rp1.5 trillion. However, the case simply faded away and nothing more has been heard of it.
If our banking early detection system had been properly connected with the law enforcement authorities, this investigation could have proceeded quickly. According to FinCEN documentation from the middle of 2011 to the beginning of 2012—along with the transactions to purchase the Sukhoi aircraft from 2011—there were 14 transfers of funds totaling US$10 million from the company producing the Russian jets, Rosoboronexport, to a businessman named Sujito Ng, alias Djin Tjong in Indonesia. Sujito is the owner of the company Trimarga Rekatama, which was the broker for the purchase of the Sukhois for the Indonesian Air Force.
Apart from Sujito, a number of individuals and local companies are mentioned in #Fincen Files, including coal tycoon Andi Syamsuddin Arsyad alias Haji Isam, and prominent oil palm company Musim Mas. Isam, for example, is reported to have received an almost Rp700 billion transfer from a shell company in the British Virgin Islands tax haven in 2014. A proper law enforcement system is needed to determine whether there are any breaches of the law in the FinCEN report.
The problem is that it is an open secret that FinCEN’s partner in Indonesia, the PPATK, often complains about the delays in following up its reports to law enforcement authorities. Furthermore, the compliance of banks in Indonesia is still an issue. As long as these fundamental weaknesses are not put right, it will be difficult to rid this nation’s financial system of the proceeds of crime.