Money laundering has an elaborate history. It originated in the 1920s with mob bosses like Al Capone funneling their profits through Chicago laundromats. The revenue generated hid Illicit profits obtained through illegal dealings that were then re-introduced into the system as legitimate revenue. Today, scams are much bigger, more intricate, and extremely inconspicuous.

No bank can escape the risk of money laundering. History is rife with cases of global financial giants paying billions in AML fines. Rapid innovation in the financial sector and communication technology has proven to be a double-edged sword. While it has removed boundaries in the flow of money, fraudsters have continuously exploited its powers. Flawless compliance monitoring and proactive AML measures are the only things that can prevent hefty fines.

But sometimes, the craftiest launderers slip through the cracks. Here are the top five money laundering cases in recent times:

HSBC

HSBC came under fire in 2012 after a US Senate report discovered its involvement in numerous violations of established AML laws. Millions of dollars were laundered through its global branches, including  (approx.) $881 million controlled by Mexican drug gangs like the Sinaloa cartel.

Other violations of AML laws include:

• Offering banking services to clients in Saudi Arabia with known terrorist links.
• Circumventing sanctions preventing transactions to Iran and North Korea. 

HSBC later admitted to having poor measures in place to monitor shady activities. “We accept responsibility for our past mistakes,” said HSBC group chief executive Stuart Gulliver in a public statement. 

Estimates suggest HSBC laundered a total of $8 billion. This lapse in AML procedures resulted in a fine of $1.9 billion for the bank.

BCCI

Now, a long-forgotten name, Bank of Credit and Commerce International (BCCI), is estimated to have laundered almost $23 billion in the black market of arms and drug smuggling.  Founded in 1972, by Agha Hassan Abedi in Luxembourg, the bank received most of its funding from Abu Dhabi and was nicknamed the “Bank of Crooks and Criminals.” 

Its laundering operations included phony loans, hidden losses, and concealed deposits for terrorists, spies, drug runners, and dictators. By 1990, it built an empire of shell companies and layered its corporate structure into obscurity.

BCCI’s uncanny growth and expansion halted in 1988 with its first money-laundering allegation in the US. After a US Senate report called it out, Price Waterhouse was tasked with further investigations. It was dubbed “one of the most complex deceptions in banking history.”

The bank closed shop before investigations were completed. It still owed over £10 billion to creditors. The Bank of England was also sued by liquidators for reckless regulation of the BCCI, highlighting the importance of a proactive compliance monitoring system. 

Nauru

Nauru is a tiny and unassuming Micronesian island, off the coast of Australia. The depletion of its natural resources transformed it into a lucrative destination for criminal shell corporations. It became a favorite of the Russian mafia and global terrorist organizations. Fraudsters laundered approximately $70 billion through the island country.

The situation worsened when al-Qaeda started laundering money through Nauru’s shell banks. The banks did nothing to validate the identities of their customers or the source of funds. No records were maintained of the operations, and the government also sold passports, banking licenses, and diplomatic favors to increase Nauru’s lucrativeness. 

The US Treasury imposed extravagant sanctions on Nauru that exceeded those on Iran. However, by 2005, the island turned things around. It abolished all shell banks and was taken off the FATF ‘blacklist.’ 

Standard Chartered

One of the biggest global banks, Standard Chartered, was accused of helping the Iranian government launder close to $265 billion. The bank put the blame on two former junior employees, who were “aware of certain customers’ Iranian connections and conspired with them to break the law, deceive the group and violate its policies,” in a statement.

The organization paid close to $350 million in fines in 2012 and another $350 million in 2014 for not improving their AML compliance as promised. In 2019, the US Federal Reserve issued a cease and desist to the bank for its failure to effectively implement AML practices. It had also ignored sanctions against Syria, Iran, Zimbabwe, Cuba, Sudan, and Myanmar. The issued fines totaled $1.1 billion.

Wachovia

In 2010, one of the largest fines for AML non-compliance was brought against Wachovia (since merged with Wells Fargo). It is estimated that drug cartels laundered close to $390 billion in Mexico through its branches. It conducted its business with CDCs in Mexico.  (CDCs or casas de cambio are essentially currency exchange houses where one can bring in cash, send it to a bank account, and exchange currency).

Due to lax AML requirements in Mexico, the bank did not conduct due diligence regarding the source of funds. Thus illegal earnings became a part of the legal sector. The fraudulent activities came to light when Martin Woods, a Wachovia money laundering officer turned whistleblower. He had noticed a lack of Know Your Customer (KYC) information collection. Further investigations validated his suspicions, and he reported Wachovia to the US Drug Enforcement Administration (DEA)

Wachovia paid a fine of $160 million and promised to tighten its AML infrastructure.

The Future of AML Compliance

Modern-day money laundering cases are incredibly clandestine and indiscernible. Fraudsters are also figuring out new ways to navigate AML laws. According to the UN, 2–5% of global GDP ($800 billion to $2 trillion) is laundered annually.

Financial watchdog organizations constantly battle laundering cases. The recent $385 million fine on banking giant Swedbank for not meeting AML standards is a prime example of their efforts. However, money laundering and the subsequent penalties only seem to be rising, and a permanent solution is still far. 

Efficient compliance monitoring is the most effective shield from hefty fines. Banks and FIs can take more precautionary measures and ensure their compliance is above par by partnering with an established service provider.

Allsec provides robust compliance monitoring solutions for efficient AML Investigations, KYC/CDD, and SAR Drafting. Reach out to us for more information.