More than 2 trillion in tainted dollars have flowed through major banks for decades, defying money laundering crackdowns, hollow promises and inadequate penalties.
Five global banks — JP Morgan, HSBC, Standard Chartered Bank, Deutsche Bank and Bank of New York Mellon — kept profiting from powerful and dangerous players even after U.S. authorities fined these financial institutions for earlier failures to stem flows of dirty money.
Deutsche’s problems were so striking they prompted Bank of America to file a confidential alert known as a suspicious activity report or SAR, to the US government. Bank of America employees had visited Deutsche’s London office to discuss worries about Russian money laundering. They were stonewalled when a Deutsche manager interrupted their meeting and asked them to leave the building. A top Deutsche executive, Christian Sewing, ran the audit division when one of its teams gave the Moscow office a clean bill of health, despite evidence that it could not even produce a list of its clients, let alone verify that they were who they said they were. Sewing is now Deutsche’s CEO. And of course, Deutsche has been under scrutiny for lending Trump hundreds of millions of dollars despite his history of defaulting on loans.
What is "money laundering"?
Money laundering is essential for criminal organizations or despots that wish to use illegally obtained money effectively. Dealing in large amounts of illegal cash is inefficient and dangerous.
Criminals need a way to deposit the money in legitimate financial institutions, yet they can only do so if it appears to come from legitimate sources.
The process of laundering money typically involves three steps: placement, layering, and integration.
Placement puts the "dirty money" into the legitimate financial system.
Layering conceals the source of the money through a series of transactions and bookkeeping tricks.
In the final step, integration, the now-laundered money is withdrawn from the legitimate account to be used for whatever purposes the criminals have in mind for it.
Examples include
Use a legitimate, cash-based business owned by a criminal organization (like the laundry owned by the protagonist in "The Accountant")
Break up large chunks of cash into multiple small deposits (below the reporting threshold); often spreading them over many different accounts, to avoid detection.
Investing in commodities such as gems and gold that can easily be moved to other jurisdictions
Using shell companies (inactive companies or corporations that essentially exist on paper only).
Online banking institutions, anonymous online payment services and peer-to-peer (P2P) transfers with mobile phones
One of the techniques used by North Korea is called "ATM Cash out", hacking tens of thousands of ATMs, and using money mules to grab the cash. N Korea has tried to steal nearly $2B since 2015.
Some schemes get quite sophisticated. The $10 billion "mirror trading scheme" remains one of Deutsche’s nightmares. At its heart was a group of money launderers who controlled a network of anonymous companies around the world, and used FX to obfuscate its dealings.
They would buy shares in Russia and sell the stock to one of the European shell companies they owned. As the network pinged money across the globe, it turned the rubles into dollars and other currencies. The system allowed criminals to move and hide their ill-gotten gains undetected.
To make it all happen, the perpetrators needed a Western bank to work with them. They found one in Deutsche. It wasn’t the only bank that was involved, but prosecutors said traders in its Moscow office were motivated by “greed and corruption” and that one supervisor had apparently been bribed to facilitate the trades. An internal review focusing on know-your-customer protocols in the Moscow office found that bankers there failed to properly vet clients, even neglecting to determine if they were known criminals.
In the end, it's pretty clear that banks internal systems failed, and regulators failed or punished with too light a touch - so for decades, despots and criminals prospered. It's only because of some intrepid independent journalists who collaborated to share data and break the story that we know of these crimes. It will be interesting to see if US and EU banking regulators find a spine and inflict heavy penalties and criminal charges against the banks C-suite.
Sources:
https://www.icij.org/investigations/fincen-files/mining-sars-data/
https://www.icij.org/investigations/fincen-files/global-banks-defy-u-s-crackdowns-by-serving-oligarchs-criminals-and-terrorists/