Banks behaving badly

News has broken alleging that some of the world’s biggest banks have been allowing criminals and fraudsters to move trillions of dirty dollars around the world.

According to files obtained by BuzzFeed News and shared with the International Consortium of Investigative Journalists (ICIJ), major banks are routinely processing transactions without knowing the source or final destination of the money, casting doubts on their money laundering efforts.

Five global banks appeared most often in these FinCEN documents — HSBC, JPMorgan Chase, Deutsche Bank, Standard Chartered and Bank of New York Mellon – and they have all denied doing anything wrong.

However, the market has responded badly to the revelations, with shares in the accused banks all plummeting in response – but what does this mean for investors in the long term? 

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HSBC has been accused of moving funds to accounts in Hong Kong even after the bank was warned a Ponzi scheme could be involved.

The bank allowed $80m to be moved to its Hong Kong accounts in 2013 and 2014 via its US business, despite investigations warning the bank it was a scam.

The Ponzi scheme in question was called WCM777 and started by Chinese national Ming Xu, who lived in Los Angeles. Acting as a pastor at evangelical churches, he promised investors 100% returns in 100 days through the sale of cloud computing software.

The scheme targeted poor communities and used Christian imagery to help trick those with Asian and Latino backgrounds.

The scam went further than financial ruin, however. Investor Reynaldo Pacheco was kidnapped and murdered by men who were hired by someone he recruited and also lost money in the scheme.

The scam started soon after HSBC was fined $1.9bn over money laundering in the US and promised to clean up its act.

HSBC said: “Starting in 2012, HSBC embarked on a multi-year journey to overhaul its ability to combat financial crime across more than 60 jurisdictions… HSBC is a much safer institution than it was in 2012.”

As trading opened in London on Monday (Sept 21), shares in the UK’s largest listed bank plummeted to a 25-year low, falling 4.5% to 290.2p. However, with a global reach – especially into growing emerging market economies – investors may want to keep an eye on how this latest scandal impacts this financial titan’s reputation, as it may not be long-lived.

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The leaked documents revealed that JPMorgan, the largest bank in the US, processed funds for potentially corrupt individuals and companies in Venezuela, Ukraine and Malaysia.

Between 1999 and 2017, internal compliance officers identified $514bn in JPMorgan transactions as possible money laundering or other criminal activity.

Interestingly, the documents show JPMorgan processed more than $50m in payments over a decade for Paul Manafort, the former campaign manager for US President Donald Trump. Manafort resigned from the 2016 campaign after allegations of money laundering and corruption from his work with a pro-Russian political party in Ukraine.

The bank also moved more than $1bn for the fugitive financier behind Malaysia’s 1MDB scandal, and over $2m for an energy mogul’s company accused of cheating Venezuela’s government and causing blackouts across the country.

JPMorgan Chase said: “We report suspicious activity to the government so that law enforcement can combat financial crime, and have thousands of people and hundreds of millions of dollars dedicated to this important work.

“We have played a leadership role in anti-money laundering reform that will modernise how the government and law enforcement combat money laundering, terrorism financing and other financial crimes.”

Shares in JPMorgan fell by around 4% in response to the news. Yet, as the US’ largest bank, with an unrivalled reputation on Wall Street and network of retail branches, it might take more than bad press to pull it down for long.

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Deutsche Bank
Deutsche Bank appears to have been involved in more than half of the $2tn of suspicious transactions revealed in the FinCEN report. The investigation revealed that Deutsche Bank moved money for launderers connected to gangsters, drug traffickers and terrorists.

In recent years, Deutsche Bank has been embroiled in scandal after scandal and it is not the first time either the bank has been implicated in suspicious money transfers.

In 2015 it agreed to a $258m fine for violating US sanctions with countries including Iran, Syria, Libya, Sudan and Myanmar. The bank was accused of carrying out transactions for its customers using “non-transparent methods and practices” to disguise its actions.

Worryingly, bank officials kept moving illicit funds after this settlement even after receiving warnings from US officials. The documents show two warnings sent to committees that included Paul Achleitner, Deutsche’s chair, and one sent to the bank’s supervisory board.

Deutsche Bank said in a statement that incidents in the leaked documents “have already been investigated and led to regulatory resolutions”.

“We have devoted significant resources to strengthening our controls and we are very focused on meeting our responsibilities and obligations,” the bank said.

Shares in the German bank dropped more than 8%, their biggest one-day fall since April – but investors have seen Deutsche bounce back time and time again… will this time be any different?

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