Money laundering is one of the largest crimes the global economy has been dealing with for centuries, and it is growing. According to the International Monetary Fund (IMF), the money laundering rate is between 2-5 percent of GDP. This ratio corresponds to an enormous amount of the world's total money. For this reason, money laundering has serious negative socio-economic consequences. For this reason, global and local regulators draft regulations to minimize these effects and prevent money from money.
Financial institutions such as banks and all organizations at risk of money laundering must comply with these regulations; otherwise, they may be exposed to severe money laundering risks and penalties. Throughout history, many institutions, especially banks, have not complied with these regulations. Still, some banks' money laundering scandals and penalties were never forgotten and engraved in memory. This blog examines the top five memorable money laundering scandals and penalties.
Founded on June 16, 1879, as Wachovia National Bank, Wachovia Bank had become one of the biggest financial services companies in the United States. Wachovia offers its customers banking, brokerage, asset, and wealth management, corporate and investment banking products and services, and nationwide retail brokerage, mortgage loan, and auto financing services.
In 2008, Wachovia Corporation was acquired by Wells Fargo & Company to create North America's most comprehensive distribution system for financial services. Once one of the largest U.S. banks, Wachovia is unfortunately responsible for the biggest money-laundering event. In 2010, it was found that the bank allowed drug cartels in Mexico between 2004 and 2007 to allow money laundering of close to USD 390 billion through its branches. Drug cartels used U.S. dollars from drug sales in the U.S. to smuggle them across the Mexican border.
Later, they used money exchangers to deposit the money into bank accounts in Mexico. Legal requirements regarding the origin of funds were not at the same level as current standards. Later, the money was returned to Wachovia's U.S. accounts, and the bank could not control the source of these funds. In addition, drug cartels have used Wachovia's mass cash service to send the banknotes back to the United States.
Someone who made this incident aware, Martin Woods, realized that his employer helped launder the drug trade profits in Mexico. Woods, who joined Wachovia Bank as a money laundering reporting officer in 2005, made his first severe warnings during the 2006 Lebanon war following reports that Hezbollah was using Wachovia accounts. However, surprisingly, he received condemnation for his attempts to freeze suspicious accounts. That year also identified "a series of suspicious transactions" related to Mexican exchange offices.
There were deposits of passenger checks with insufficient or no credentials on them and containing large amounts of sequential numbers - more sequential numbers than any innocent person would need - to an educated eye that looked like suspicious signatures. Woods then published a series of Suspicious Activity Reports (SAR), demanding that the parties mentioned above be blocked and many sequentially numbered passenger checks from Mexico be blocked.
In April 2006, Mexican military soldiers found 128 safes worth $ 100 million filled with 5.7 tonnes of cocaine on a newly arrived jet in the port city of Ciudad del Carmen. A twenty-two-month study by agents of the DEA, IRS, and others found that the smugglers bought the plane with the money they laundered through Wachovia. Between 2004 and 2007, the investigation revealed that billions of dollars of wire transfers, traveler's checks, and bulk cash shipments were transferred to Wachovia accounts through Mexican exchanges. When this money laundering scandal emerged, Wachovia managed to escape prosecution by paying a $ 160 million fine and promising to increase Anti-money Laundering (AML) procedures. This was one of the most well-known examples that shows the importance of AML compliance program.
Standard Chartered Bank
Standard Chartered is a British banking and financial services company founded in 1969 and headquartered in London, England. In 2004, Standard Chartered had some problems with the Federal Reserve and the New York regulator due to the lack of AML compliance program. During 2005 and 2006, the bank broke sanctions against Iran by ignoring regulatory agreements and working with Iranians. Standard Chartered was penalized $670 million in 2012 for its violations, but the fine had little effect on stopping its illegal practice.
In 2012, Standard Chartered was accused by New York's Department of Financial Services (DFS) of the Iranian government's failures in anti-money laundering controls that helped clear the U.S. regulations for $265 billion.
In addition, the bank has been accused of violating US sanctions on Burma, Libya, and Sudan. In 2019, the Federal Reserve decided to stop and give up on Standard Chartered as it continues to fail to implement AML compliance program. and ignores sanctions against Zimbabwe, Burma, Iran, Sudan, Cuba, and Syria. The Financial Conduct Authority (FCA) has also seen serious deficiencies in the bank's AML controls, particularly due to rigorous client-related controls in the U.K. Thereupon, both the U.K. and U.S. authorities fined Standard Chartered a total of $1.1 billion.
Danske Bank's history dates back to 1871. The bank grew and merged with banks in the Nordic region, continually expanding its presence. As a financial institution with a rich legacy, Danske Bank established itself as a strong Scandinavian player with local roots and global connections. However, its journey took a troubling turn when it embarked on an ill-fated acquisition of Sampo Bank in Estonia in 2007, setting the stage for a series of major problems. The acquisition marked the inception of challenges that would later underscore the critical importance of a robust AML compliance program. Within a short span, the Estonian branch of Danske Bank fell under the scrutiny of authorities. Disturbing signs emerged as the Estonian finance minister assumed control, and the Russian central bank flagged suspiciously large transactions flowing through the branch.
In the subsequent years, Danske Bank's journey took a concerning trajectory. By 2010, the bank's board of directors acknowledged the influx of substantial deposits from Russia, yet remained surprisingly unperturbed by the unfolding situation. Even as the bank continued to accept these deposits, some with limited intervention, the gravity of the issue seemed insufficiently recognized. The year 2013 marked a pivotal juncture when a report surfaced, bringing the matter to the attention of senior executives. Regrettably, this concern was debated without decisive action. Notably, Danske Bank persisted in conducting business with non-residents until 2016, and it wasn't until 2017 that the issue garnered significant public attention. Eventually, the bank had no recourse but to cease operations in Estonia, a move that culminated in Danish authorities imposing substantial fines, amounting to $2 million, and attributing blame to several managers.
Consequently, Danske Bank, once a stalwart of the Danish financial landscape, found itself at the epicenter of a sweeping scandal. This episode underscored the pivotal role of a robust AML compliance program, as Danske Bank's Estonian branch allegedly became a conduit for thousands of suspicious customers, exploiting weak controls to orchestrate illicit transactions totaling approximately $228 billion between 2007 and 2015. The European Commission's subsequent money-laundering lawsuit, seeking $228 billion, cast a shadow over Danske Bank, serving as a stark reminder of the critical need for vigilance, transparency, and an unwavering commitment to an effective AML compliance program.
Nauru is located in Australia and is known as the smallest island country in the world. Nauru is famous for mining and has received a large payment from Australia for its profits from mining, making it one of the richest nations in the world. In the 1990s, due to a corrupt government, Nauru transformed itself into a tax haven. Russian criminals took advantage of this situation and started laundering money through shell banks. Nauru did not authenticate banking customers and did not pursue the necessary questions.
As a result, Nauru helped Russian criminals launder an estimated $ 70 billion in 1998. In 2002, the U.S. treasury designated Nauru as a money-laundering state and imposed harsh sanctions to rival those settled in Iraq. Until 2005, Nauru passed AML and tax haven laws with the help of the Financial Action Task Force (FATF).
Bank of Credit and Commerce International (BCCI)
Established in 1972 in Luxembourg by Pakistani businessman Agha Hassan Abedi, BCCI Banka embarked on a trajectory that would soon take a disconcerting turn. Despite founding its headquarters in Belgium, the bank swiftly expanded its global footprint, operating predominantly beyond the confines of the U.K. Yet, beneath its outward growth, a shadowy underbelly of fraud and money laundering activities, totaling a staggering sum of up to U.S. $23 billion, began to emerge. The year 1990 marked a turning point as allegations surfaced, triggered by an investigative effort by Price Waterhouse. Revelations unveiled a pattern of falsified transactions within BCCI, casting a spotlight on large, unregistered deposits that had found their way into the bank. The tendrils of suspicion extended further, with individuals implicated in money laundering activities tied to BCCI.
The narrative deepened as revelations exposed the bank's purported utilization of an array of sophisticated techniques, including shell companies, privacy havens, commissions, and bribery, strategically designed to circumvent regulatory oversight. Consequently, BCCI's tumultuous journey culminated in its closure in 1991, orchestrated by the Bank of England not only in the U.K. but also elsewhere. In response, legal actions ensued, with BCCI launching a lawsuit against the Bank of England, alleging a reckless oversight of BCCI's regulatory adherence and asserting the negligence in identifying early warning signs. This legal battle ultimately reached its conclusion.
This chapter in history serves as a stark reminder that money-laundering scandals, whether intentional or inadvertent, have plagued numerous financial institutions over time. Despite the weight of stringent regulations imposed by regulators to prevent such illicit activities, it remains evident that gaps persist in achieving optimal compliance with these measures. The BCCI saga underscores the pressing need for unwavering diligence and proactive implementation of comprehensive AML compliance frameworks, particularly robust AML compliance programs, to safeguard the integrity of the global financial system. The history of BCCI stands as a testament to the pivotal role AML compliance programs play in fortifying financial institutions against the insidious threat of money laundering.