In the World of Money Laundering, Cryptocurrencies are a Footnote

One of the oft heard criticisms leveled against the use of cryptocurrencies as a medium of exchange is that the nascent digital asset facilitates money laundering.

And while the arrest of Dread Pirate Roberts (Ross William Ulbright) creator of the dark web digital market place the Silk Road, which allowed users to purchase any and all manner of criminal implements, from drugs to weapons and everything in between brought global attention to the potential of Bitcoin and its ilk to be used to facilitate money laundering, cryptocurrencies are hardly the cornerstone of the money laundering universe.

To be sure, cryptocurrencies can be used for money laundering. But then again so could Rai Stones or the beads that they used to issue at Club Med.

And although dozens of crackdowns since the financial crisis have targeted money launderers, many of the banks, financial institutions, shell companies and offshore entities essential to ply the trade of money laundering continue to exist.

Fines by regulatory authorities on some of the largest and most well-known financial institutions in the globe may have done little to stem the flow of illicit funds. According to one general counsel at a large multinational bank,

“Banks already price in the risk of a fine by the regulator when they consider these type of transactions.”

“As long as the profits from the transaction exceed the fine, it’s more or less good to go.”

According to the United Nations Office on Drugs and Crime, questionable transactions continue to reach as much as US$2 trillion a year, by comparison, the total market cap of cryptocurrencies is barely US$120 billion on a good day.

So while cryptocurrencies get a bad rep for money laundering, perhaps it is time to give proper accord to the real movers and shakers in the global money laundromat.

In no particular order, here is a list of some of the most notable aiders and abettors of some of the biggest money laundering scandals over the past two decades.

1. Standard Chartered (United Kingdom)

In 2012, the bank paid US$667 million in fines for violating U.S. sanctions on doing business with Iran. Two years later and hot on the heels of the record fine, the State of New York fined the bank an additional US$300 million for weak anti-money laundering controls.

2. HSBC (United Kingdom)

The bank was fined a staggering US$1.9 billion for failing to monitor over US$670 billion in wire transfers from Mexico and more than US$9.4 billion in purchases of U.S. dollars, according to a 2012 deferred prosecution agreement with U.S. authorities.

An elaborate system of deposits and money transfers allowed Mexican and Colombian drug cartels to launder their drug money through the bank’s channels. Just another day at the bank one supposes.

3. ING Bank (Holland)

The Dutch bank was fined US$900 million by Dutch regulators in 2018, where the bank acknowledged “serious shortcomings” (that’s one way to put it) in failing to prevent illicit payments by VimpelCom to a company owned by an Uzbek government official.

4. Danske Bank (Denmark)

Last September, the Danish bank admitted that about €200 billion in potentially illegal funds had flowed through its Estonian unit over a period of nine years, despite warning from both whistleblowers and regulators. Investigations are ongoing in Estonia, Denmark and the United States.

5. Deutsche Bank (Germany)

The German bank was fined US$670 million in 2017 by both U.S. and British authorities for a series of mirror trades conducted through its Moscow office. The trades allowed Russians to expatriate billions of dollars by buying stocks with rubles in Russia and selling the same stocks in London for dollars or Euros.

6. Commerzbank (Germany)

Another giant German bank was fined a record US$1.45 billion for processing over US$250 billion in transactions on behalf of Iranian and Sudanese entities between 2002 to 2008.

According to a 2015 consent order with the New York Department of Financial Services, the bank’s ineffective compliance controls failed to share the relevant information with authorities about clients who were subject too U.S. sanctions.

7. JP Morgan Chase (United States)

American banking giant JP Morgan Chase had for 15 years or so, according to a U.S. court settlement from 2014, deliberately ignored the red flags surrounding the dealings of Wall Street financier and Ponzi scheme wizard Bernie Madoff, who used his account with the bank to run the largest ever US$65 billion Ponzi scheme.

8. Citigroup (United States)

The bank was fined US$237 million for processing over US$8.8 billion in transactions with almost zero oversight.

9. Wachovia (United States)

The Charlotte, Virginia-headquartered bank was fined US$160 million when it was discovered that Mexican drug cartels had used accounts at the bank to finance their operations and launder money.

From 2004 through 2007, the bank, which has since been acquired by Wells Fargo, processed no less than US$337 billion in wire transfers from Mexican currency houses, according to a 2010 deferred prosecution agreement with U.S. authorities.

10. Liberty Reserve (Costa Rica)

The digital currency platform was central to a US$6 billion money laundering operation which in 2016, led U.S. authorities to sentence its founder, Arthur Budovsky, to 20 years in prison for running a money laundering enterprise through the Costa Rica-based platform.

Guilty But Undeservedly So

And while these are just some of the more notable money laundering scandals of the past two decades, the list is far from exhaustive.

Those cryptocurrencies can even be considered to rival the extent, pervasiveness and systemic willful blindness of the financial services industry to money laundering should be seen in many ways as a compliment.

For as long as there has been and will continue to be criminal activity, there will continue to remain a demand for financial services to enjoy the proceeds of these illicitly gathered funds.

Cryptocurrencies may no doubt be one option for criminals to launder money, but it is hardly the number one choice, nor is it the only one.


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Data Driven Investor

from confusion to clarity, not insanity

Patrick Tan

Written by

Partner & General Counsel, Compton Hughes, a cryptocurrency quant trading firm. Trading up to 100,000 times a day the way only an algo could.

Data Driven Investor

from confusion to clarity, not insanity