International Forecaster Weekly

Can Big Bank Money Laundering Be Stopped? And, If So, How?

He warned the two U.S. officials of a "contagion" - with the implication being close one bank and the whole economy could suffer. What happened? Federal prosecutors stood down.


Banks Money Law

Guest Writer | September 26, 2020

By Dave Allen. This is the second of a two-part dive into BuzzFeed News' recent study on money laundering in too-big-to-fail U.S. banks.

Part One, which appeared in Monday's American Survival newsletter, gave an overview of this widespread criminal enterprise and listed examples from the study of how it has infected our financial institutions and the people who run them. Part Two asks the simple questions, can money laundering be stopped? And, if so, how? The answer to at least the first question appears simple and straightforward...

Financial crime experts say if the government really wanted to, it could stop the dirty money that's being cleaned by the big banks and enriching them - and the broad range of criminality and criminals they fund. How to stop it is another story - or stories.

 THE FIX IS IN: One easy fix, BuzzFeed argues, would be to "require companies to disclose their owners to the Treasury Department, rather than allowing people to hide behind a shell company." 

Congress is considering a rare bipartisan bill that could address disclosure for smaller companies. I guess you could call it a start - albeit belated and underachieving.

The National Federation of Independent Business has opposed the bill, saying it raises privacy issues and would increase costs unnecessarily. 

Senator Sherrod Brown of Ohio, a cosponsor of the bill, said, "Congress must act soon because criminals have long been revising, adjusting, and amending their tactics to circumvent our laws."

"Greater public accountability" is another idea BuzzFeed says "could make a difference."

As a prime example, they point to HSBC, which continues to fight to keep hidden from public view the final report by the government inspector responsible for watching over the bank during the years of its deferred prosecution agreement. 

HSBC even took the unusual step of weighing in on a Freedom of Information Act lawsuit, when BuzzFeed News sued the Justice Department to release the FinCEN Files report. 

(As explained in Part One of our story, FinCEN, which is an agency within the U.S. Department of Treasury, stands for Financial Crimes Enforcement Network.)

Knowing that negative reports could be made public and potentially damage reputations and, ultimately, share prices - not to mention send executives to prison - could cause offending banks to clean up their acts.

Others believe the SARs themselves are part of the problem, calling the idea behind them "naïve." 

That's because, in the eyes of one former insider, "the largest money laundering operations occur with the cooperation of the financial institutions, or at least some officers within those institutions."

He says the lack of enforcement has had nothing to do with a lack of evidence of suspicious transactions, but a lack of interest by political and law enforcement leadership to pursue those involved.

FinCEN received more than 2 million suspicious activity reports last year - roughly twice as many were filed a decade ago.

This increase comes, BuzzFeed says, as big banks have faced mounting pressure to file and the volume of international transactions has grown. 

Over the same period of SARs growth, FinCEN's staff has shrunk by more than 10%.  According to FinCEN insiders, most SARs are never even read, let alone acted upon.

The BuzzFeed report authors say the most effective way to fix the problem might be the simplest - "arrest the executives whose banks break the law." 

Paul Pelletier, a former Justice Department lawyer who once led the agency's fraud unit, was more blunt: "The bankers will never learn until you start putting silver bracelets on people."

It does sound simple: do the crime, do the time. In fact, that approach used to be the norm. 

"Back in the 1980s and 90s and even into the early 2000s, the government went after CEOs all the time," according to former U.S. District Judge Jed Rakoff. 

In the past, the CEOs of Enron, WorldCom, and Tyco were all sent to jail for what they did. Rakoff observed, "Now that's deterrence."

But the retired judge, who's known for being critical about lenient sentences for white-collar crimes went further:

"Under U.S. law, a bank that engages in money laundering can literally be forced out of business by the government. And it is kind of surprising that government hasn't taken that step, given the obvious deterrent effect it would have."

Ultimately, BuzzFeed argues, the power to keep ill-gained wads of cash from being laundered through too big to fail banks may not reside in the actions of a bank's compliance office or its computer systems or even its corner office bigwigs.

It may not reside with banking regulators or federal prosecutors or FinCEN. It may not even be just a matter of public policy. 

BuzzFeed suggests that shutting down wayward banks could have an impact on the whole economy - for the U.S., its major trade partners, and beyond. Yet, when other countries find their banks under U.S. scrutiny, they step in.

In 2012, London-based Standard Chartered and HSBC were facing criminal prosecution.

George Osborne, who was the UK's chancellor of the exchequer then, wrote to then-chair of the Fed Ben Bernanke and Treasury Secretary Timothy Geithner to relay his "concerns" that a heavy-handed response could have "unintended consequences." 

He warned the two U.S. officials of a "contagion" - with the implication being close one bank and the whole economy could suffer. What happened? Federal prosecutors stood down.

In short, it looks like money laundering isn't going away anytime soon.