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FinCEN, or the Financial Crimes Enforcement Network, will be appearing before Congress in an oversight hearing on April 28th. Typically, these hearings are used by elected officials to interrogate regulators publicly about their actions, their regulatory agency, and the economy as a whole. Although the questioning will likely focus on the sanctions on Russia and the rise of cryptocurrencies, representatives should be firm in their questioning over why FinCEN does not publicly provide evidence of its purported effectiveness.
The public currently has no means of knowing how effective FinCEN––and the vast amounts of financial data it collects––is in combating financial crime. FinCEN does not say how many of the reports result in new convictions or charges in existing investigations. It merely announces the total number of reports it receives from the public:
In fiscal year 2019, more than 20 million BSA reports were filed by more than 97,000 U.S. financial institutions, providing a wealth of potentially useful information to agencies whose mission is to detect and prevent money laundering, other financial crimes, and terrorism.
As Norbert Michel and I pointed out in a recent comment letter, there is an important qualifier to take note of in this announcement: the information was referred to as being potentially useful. It could also be potentially useless. It is most likely that only a small fraction of those 20 million reports were in response to actual criminal activity. In fact, the Bank Policy Institute (BPI) confirmed as much in a 2018 study where a survey found that a median of 4% of suspicious activity reports (SARs) and an average of 0.44% of currency transaction reports (CTRs) actually warranted additional review from law enforcement (Figure 1). Even fewer reports likely resulted in stopping or apprehending criminals.
Given that the available data suggests that the U.S. anti‐money laundering (AML) regime costs between $4.8 to $8 billion annually, FinCEN should openly reveal its success rates, including how many SARs and CTRs resulted in a conviction, how many were tagged on to ongoing criminal cases, how many were ultimately meaningless, and other pertinent information. If Americans' financial privacy is being infringed, they have the right to know how the government is defending it.
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