Some people credit Al Capone, the most notorious gangster of the 20th century, with inventing the term “money laundering.” According to legend, Capone hid the profits from his criminal empire by operating a series of laundromats. These businesses made a lot of small cash transactions that were hard for law enforcement officials to trace.
This intriguing story is most likely a myth. But it’s true that Capone concealed his ill-gotten gains through money laundering — moving money from illegal businesses into the legitimate financial system. And in the modern era, crime lords continue to follow his example.
However, money laundering is itself a financial crime. If a financial institution knowingly helps conceal the profits of illegal activity, it’s just as much a criminal organization as Capone’s legendary laundromats. Sadly, a lot of major banks today fall into that category — some of them infamously so.
Famous Money-Laundering Examples
Many large banks — and at least one national government — have been involved in money-laundering cases. This list covers some of the most significant cases of the last 50 years: the actors involved, the criminal activities they shielded, and the consequences they faced.
1. BCCI
The Bank of Credit and Commerce International, or BCCI, was a truly international bank. Founded by a Pakistani businessman, it had its headquarters in Belgium but did most business out of the United Kingdom. And in 1990, it faced charges of money laundering in the U.S.
Throughout the 1980s, BCCI did business with criminals all over the world. According to U.S. intelligence documents, its clients included dictators Saddam Hussein and Manuel Noriega as well as members of Pablo Escobar’s notorious Mexican drug cartel. The bank provided financing for prostitution, terrorism, and arms dealing, including nuclear weapons.
The illegal funds totaled billions of dollars, and BCCI used various methods to conceal them. It passed them through shell companies, legal entities that exist only on paper. It operated extensively in bank secrecy havens. It also bribed officials and intimidated witnesses.
These crimes came to light during a 1990 financial audit by Price Waterhouse (now PricewaterhouseCoopers). An informant at BCCI tipped off the auditors that the accounts they were examining were fake. Price Waterhouse passed on this report to the Bank of England, the U.K.’s central bank. In 1991, international authorities shut down all the bank’s branches and seized its assets.
When the bank collapsed, it was about $20 billion in debt. It took liquidators over 20 years to recover about 90% of that. More than 60 individuals tied to BCCI were charged with crimes, and one businessman received a 14-year jail sentence.
2. Nauru
The BCCI case was huge, involving an entire financial institution devoted chiefly to money laundering. But it pales in comparison to the case of Nauru, a country with an entire economy based on it.
The tiny island nation of Nauru lies in the central Pacific Ocean. During the 20th century, mining operations stripped the island of its rich phosphate deposits, leaving it mostly barren. After its government squandered most of the mining profits, the country desperately needed a new source of income. It found it in wholesale money laundering.
Throughout the 1990s, the country handled money for multiple bad actors on the world stage, including the Russian mafia and the terrorist group Al-Qaeda. The money filtered through offshore shell banks that didn’t keep records. At one point, more than 400 such banks had their “offices” in a single 1,000-square-foot structure.
For years, the U.S. government knew about Nauru’s money laundering but could do little to stop it. That changed with the passage of the USA Patriot Act in 2001. It gave the government new powers to go after countries involved in money laundering or financing terrorism.
In 2002, the U.S. Treasury imposed tough sanctions against Nauru. The Financial Action Task Force, a global organization that fights money laundering, helped the country clean up its banking system. By 2004, it had adopted anti-money-laundering laws and eliminated its offshore banks.
Unfortunately, that left the country without a source of income once again. It has made some money by serving as an offshore detention center for refugees seeking asylum in Australia. But it’s pinning its hopes for the future on deep-sea mining for metals like nickel, cobalt, and manganese. These elements play a crucial role in the clean energy industry.
3. Wachovia
Neither BCCI nor the shell banks of Nauru were ever legitimate financial institutions. However, their stories aren’t typical. Most cases involve legitimate banks getting caught up in money-laundering activities. One example is Wachovia.
In the early 2000s, Wachovia was one of the largest banks in the U.S. Along with its many legitimate customers, it did plenty of business for Mexican and Colombian drug cartels. Reuters reports that the bank processed at least $110 billion in drug money from 2004 to 2007.
The money-laundering scheme was a multistage process. Drug dealers smuggled cash from U.S. drug sales over the Mexican border, then laundered it through currency exchanges known as “casas de cambio” (exchange houses). They deposited the cash in bank accounts in Mexico, which had less strict disclosure rules.
Later, they sent the money back to the U.S. They transmitted some into Wachovia accounts via wire transfer. They also used traveler’s checks and bulk cash shipments through a service provided by Wachovia. Contrary to the law, the bank never checked or reported any of these transactions as suspicious.
An investigation by the U.S. Drug Enforcement Agency exposed these crimes. After detecting narcotics aboard a plane in 2005, the agency started tracing the money used to buy it. The agency received help from Martin Woods, a whistleblower in Wachovia’s London office.
After a 22-month investigation, the U.S. government charged Wachovia with money laundering. However, by that time, Wells Fargo had acquired the bank. The new parent bank cooperated with investigators and settled the case in 2010.
In the end, Wells Fargo paid just $110 million in penalties — a tiny fraction of the amount Wachovia had laundered. It also promised to improve its anti-money-laundering measures. None of the individuals responsible ever faced criminal charges.
4. HSBC
In 2012, the U.S. Department of Justice charged the international bank HSBC with four felonies related to money laundering. It said HSBC had processed funds for two groups of bad actors: rogue nations and drug cartels.
Beginning in the mid-1990s, various HSBC banks accepted transactions from countries under international sanctions, including Iran, Cuba, Sudan, Libya, and Burma. The banks concealed the origin of the funds and crafted payment messages to evade anti-money-laundering filters. HSBC Group learned of the practice in 2000 but let it continue until 2006.
That same year, HSBC made major cutbacks to its anti-money-laundering program. That left it unable to monitor suspicious transactions from Mexico, allowing it to become the bank of choice for drug cartels.
Over the next four years, HSBC processed at least $881 million from drug traffickers in Mexico and Colombia through wire transfers and currency exchanges.
In 2009, a special task force of Homeland Security Investigations uncovered several HSBC Mexico accounts linked to the Black Market Peso Exchange, a complex system for laundering drug money. That triggered an investigation that uncovered the sanctions violations as well.
HSBC confessed to the charges and received a deferred prosecution agreement, allowing the bank to avoid criminal penalties with a fine and probation period. HSBC paid over $1.9 billion in penalties and agreed to five years of independent monitoring.
However, this agreement was a sham. As a subsequent case dubbed the FinCEN Files revealed, HSBC continued to accept shady transactions, even while under probation. In a 2017 report to shareholders, the bank admitted it was “not yet adequately managing financial crime risk.”
Despite the violations, the bank faced no additional penalties from U.S. regulators. However, British regulators were stricter. According to Reuters, they fined HSBC another 63.9 million pounds sterling (US$85 million) in 2021 for failing to meet its anti-money-laundering obligations.
5. Standard Chartered Bank
Another company that failed to learn its lesson after one money-laundering case was the U.K.-based Standard Chartered Bank. It first got into trouble over its poor anti-money-laundering practices in 2004. That year, it promised the Federal Reserve and New York State regulators it would fully address the problems.
But Standard Chartered did just the opposite. Throughout 2005 and 2006, its New York branch continued to make transactions with Iran in spite of sanctions. In 2012, the Fed found the bank in violation of its agreement. The bank paid a total of $670 million in fines to U.S. and foreign regulators.
Apparently, this penalty had little effect. A 2019 New York State Department of Financial Services report found that Standard Chartered had once again broken its promises. From 2008 to 2014, it processed over $600 million in illegal transactions from Iran, Libya, Sudan, Burma, and Cuba.
This time, Standard Chartered paid over $1.1 billion in fines to both U.S. and British regulators. However, the only individual charged with a crime was a former employee in the bank’s Dubai branch. Most of its executives got off scot-free.
6. Liberty Reserve
In 2006, a financial company called Liberty Reserve opened in Costa Rica. Its business allowed people to send and receive payments anonymously using a virtual currency also called Liberty Reserves, or LRs. They could then convert LRs to cash anywhere in the world.
Like modern cryptocurrency, LRs had legitimate users. But the service’s anonymity and low fees also appealed to criminals as a way to hide the proceeds of their crimes. Profits from investment fraud, credit card fraud, identity theft, and computer hacking all passed through Liberty Reserve.
In 2013, U.S. regulators went after Liberty Reserve. They seized the company and shut down its operations, which had grown to over 5 million accounts worldwide. In 2015, authorities in Spain, Costa Rica, and New York arrested the site’s founder, Arthur Budovsky, and four employees.
Budovsky pleaded guilty to laundering over $250 million. He was sentenced to 20 years in prison, and the other employees received lesser sentences. However, it took the government another four years to recover the company’s funds and begin returning them to lawful users.
7. Westpac
Westpac is one of the largest banks in Australia. In 2020, it paid the largest corporate fine in that country’s history — AU$1.3 million, or US$920 million — for more than 23 million violations of money-laundering and terrorism-financing laws.
In its settlement, Westpac admitted to millions of failures in reporting and record-keeping on international transfers. But the most shocking part of the case was the origin of some of those transactions. According to financial regulator AUSTRAC (Australian Transaction Reports and Analysis Centre), they showed possible links to child exploitation — which typically means pornography or sex trafficking — in southeast Asia.
In the wake of the scandal, Westpac’s CEO resigned — but with a whole year’s salary as severance. The bank’s chairman also retired early. No one at the bank was charged with a crime.
8. Danske Bank
Danske Bank, the largest lender in Denmark, has branches across Europe and New York. Its trouble arose from dealings at its only Estonian branch. It acquired this branch with its takeover of Finland’s Sampo Bank in 2007.
Within months after the purchase, Russia’s central bank sent warnings to Danish and Estonian authorities about suspicious transactions at the branch. It pointed to transfers from Russian shell companies that were most likely concealing money laundering or tax evasion. However, its warnings went unheeded for several years.
In 2013, a whistleblower reported to the head office that many of the Estonian branch’s British clients were fake shell companies. It ignored the report, but over the next few years, the press began to take notice. After five years, Danske Bank finally began an investigation.
Its findings were shocking. Nearly 100% of the clients at the branch were suspicious. Over six or seven years, it had handled $230 billion in dirty money from Russia and other ex-Soviet countries.
The bank’s CEO resigned in 2018. Danish authorities launched an investigation and charged several executives with crimes. Danske Bank’s stock price plummeted. In April 2022, Bloomberg reported that the bank could pay up to $2.4 billion in fines to U.S. and Danish authorities.
9. FinCEN Files
The Financial Crimes Enforcement Network (FinCEN) is a bureau within the U.S. Treasury Department tasked with fighting money laundering. Part of its job is looking into suspicious activity reports filed by banks and other financial institutions.
In 2019, someone at FinCEN leaked over 2,100 of these reports to BuzzFeed News. The files spanned 18 years, from 1999 to 2017. They covered over $2 trillion in transactions flagged as suspicious by the banks’ compliance officers.
BuzzFeed dubbed these reports the FinCEN Files. They became the seed of a 16-month investigation among BuzzFeed, the International Consortium of Investigative Journalists, and over 100 other media partners worldwide.
The journalists uncovered money laundering within at least a dozen financial institutions. Five of these were global banks that had already paid high fines in previous money-laundering cases: HSBC, JPMorgan Chase, Standard Chartered, Deutsche Bank, and Bank of New York Mellon.
These banks made transactions for clients they couldn’t identify. They took years to report suspicious transactions. They even continued to do business with clients known to be involved in fraud and corruption cases.
The dirty money came from criminal gangs and corrupt regimes all over the world. It was linked to a wide range of crimes, including corruption, embezzlement, sanctions evasion, fraud, drug trafficking, and terrorism.
To take just one example, JPMorgan Chase moved over $1 billion in public funds embezzled from Malaysia. It also processed transactions for people and companies tied to the theft of public money in Venezuela and Ukraine. This from a bank that had promised not once, not twice, but three times to improve its anti-money-laundering measures in settlements with U.S. authorities.
When the FinCEN Files story broke in 2020, world governments took notice. The U.K. began a formal inquiry into bank oversight. Members of the European Parliament called for stronger anti-money-laundering laws. Investigations launched in countries from Liberia to Thailand.
In the U.S., the story helped secure bipartisan passage of the Corporate Transparency Act. This law breaks open shell companies by requiring businesses to disclose who owns them and who benefits from them. This law was Included in the National Defense Authorization Act of 2021 and passed over a veto from then-President Donald Trump. It will take full effect in 2023.
The FinCEN Files investigation was a finalist for a Pulitzer Prize in 2021. That same year, the International Consortium of Investigative Journalists was nominated for a Nobel Peace Prize for its work exposing corruption.
Final Word
These cases were some of the biggest money-laundering scandals in history. However, they weren’t the first, and they surely won’t be the last. As long as banks can profit by taking money from criminals, they’ll continue to do it.
As the FinCEN Files case revealed, fines aren’t enough to deter banks from laundering money. Several of the banks involved had paid millions or even billions in fines for their previous financial crimes. But these sums were trivial compared to their profits from processing the suspicious transactions. The banks could simply treat them as a cost of doing business.
The Corporate Transparency Act will make it easier to catch banks involved in money laundering. But catching them does no good if they face no serious consequences. As long as they know they risk nothing worse than a fine, they have no incentive not to do it again.
If regulators in the U.S. and around the world really want to stop money laundering, they need to get serious about punishing it. One option is to make fines heavy enough to outweigh the profits of money laundering. Another is to start issuing criminal penalties. Breaking up the banks, seizing their assets, and sending their leaders to prison will make other banks think twice about doing the same thing.
