Foreign Policy Blogs

Another Bank “Pays to Play”– AML Policies Built to Fail?

Bankers launder criminal dollars; pay civil fines to get off the hook. Photo Credit: tobym, Flickr

Banks don’t launder money—bankers do.

So says a former federal investigator with more than two decades of money laundering investigations behind him. What a corrupt lawyer will do for a dollar, a corrupt banker will do for a dime. The reason?

Volume and repeat business.

Given the criminal billions available to ambitious private wealth handlers inside the world’s biggest banks, the historic willingness of financial institutions to look the other way as well as the paltry repercussions, fines and deferred prosecution for anti-money laundering (AML) non-compliance, it’s clear that powerful incentives continue to drive (and reassure) high-wire account executives ISO under-the-table commissions from traffickers (1-2 percent), and big bonuses from appreciative employers.

For years, the U.S. government, along with Financial Action Task Force (the talking head for the AML community), has told banks the key is to “know your customer.”


The message should be, “Know your banker.”


The easiest way for criminals to launder dirty dollars is simply to pay a banker to do it — someone who manages millions a year for a financial institution that will never look him in the eye and announce, no-punches-pulled, that money laundering is a criminal offense, the kind that can land you in jail.

Today’s headlines are all about HSBC, hit with a 28 million dollar fine for laundering a breath-taking $7 billion in narco dollars (and an additional $19 billion linked to terrorism) during the course of a single year—but the dirty ‘buck’ hardly stops with this single institution.

Wachovia Bank, charged a few years back with AML non-compliance to the tune of roughly $400 billion, cleaned its slate via civil fines (no criminal prosecution) amounting to $160 million.

Bank of America, which used institutional monies ($110 million) transferred to a Bank of America account from Wachovia to purchase a state-of-the-art aircraft for traffickers who needed to transport drugs from Venezuela to Mexico, also escaped criminal charges.

Stories like these should be popping up all over the mainstream media, but the truth is that money-laundering by U.S. banks and institutions around the world has become a media evergreen, a tale recounted so matter-of-factly that the criminal nature of money-laundering – the actors, the audacity, the impact – no longer seems to matter.

Like so many white-collar crimes, money-laundering is viewed, at least by everyone who benefits, as a kind of nasty irregularity, a faux-pas committed by bungling junior bankers (at HSBC, one banker claimed he didn’t know Persia was another name for Iran). Once discovered, banking officials at the top invariably change into their made-for-headline hairshirts, fire the head of compliance, and ante up with the (chump) change the U.S. government says will make it right.

Banks will be banks

Within the U.S. law enforcement community, however, the take on money laundering is not so forgiving.

“Dirty money,” says one expert, “always takes the path of least resistance — and that path is always an eager, willing, and institutionally-supported banker.”

Here’s what that means: The roughly 50 billion in cartel trafficking dollars (a shot-in-the-dark number when you consider that a single U.S. bank, Wachovia, laundered $400 billion in less than 3 years) flowing into U.S. banks each year from Mexico doesn’t get there because the cartels manage somehow to fool straight-up, vigilant bankers in the U.S. It doesn’t arrive via sophisticated black market, broker-peso schemes, or through made-in-Hollywood machinations too complicated for the average Joe to figure out.

Current AML policies built to fail

The U.S., and the world, is awash in bankers who actively compete for criminal accounts, bankers who seek out introductions to gang kingpins, who cut deals anytime and anywhere they can.

And here’s the kicker: It’s no secret our current AML policy is broken. Government leaders, heads of law enforcement agencies, policymakers charged with ensuring compliance — all of them understand that our approach to AML compliance fails to uphold either the spirit or the letter of U.S. law. Even so, there is never a call for reforming AML policies in the U.S., no talk of complicity, not the slightest whisper of collusion between the criminal underworld, Wall Street, and Washington, D.C.

Should there be?

Consider this: It is alleged the U.S. has a more rigorous AML regime in place than any other country in the world, yet there is no AML training program (offered by either the public or the private sector) that opens with this simple and absolutely true statement: “Money laundering is a crime, punishable, for each separate offense, by 20 years in prison and fines equal to the amount of money laundered.”

If any financial system in the world was serious about preventing money laundering, say investigators, it would emphasize the criminality of such behavior — but few bankers in the U.S. or elsewhere can even hazard the legal definition of money-laundering, and that, I am told, is N-O-T an accidental weakness.

Foreign policy trumps law enforcement

The fact, say insiders, is that the enforcement of U.S. money laundering laws has been suborned by the vagaries of foreign policy, the unwillingness of the U.S. administration, for example, to mount investigations whose too-wide nets might haul in high-profile suspects with connections to Mexico’s ruling elite.

This is exactly what happened in 1998, when an international undercover money laundering operation tagged “Casablanca” threatened to expose Mexico’s Minister of Defense as a suspect. Agents running the op say there was evidence General Enrique Cervantes, a key U.S. ally in the drug war, was sending out feelers to U.S. banks who might be interested in laundering 1.15 billion in dirty dollars.

Before the feds could follow up on the request, grab the cash and snag the General, the U.S. administration closed the undercover operation down, citing ‘danger’ to undercover agents — who had been operating, incognito, on the mean streets of Southern California as cartel bagmen for more than two years — as the rationale.

The political blowback from Mexico had other consequences as well: While federal investigators had evidence that virtually every Mexican bank had been involved in laundering drug dollars, the U.S. Attorney chose to limit prosecution to only three financial institutions. And that wasn’t the end of it — under pressure from Mexico’s administration, the White House sent Attorney General Janet Reno to meet with her Mexican counterpart in Brownsville, Texas, and to sign a bilateral treaty prohibiting the U.S. from conducting unilateral undercover money laundering investigations in Mexico from that point on.  There was no hunting for narco-dollars from Mexico without first alerting possible high-profile suspects that the Yanks are coming.

Eventually, the authority over money laundering policy in the U.S. moved from Treasury to the Department of Justice.

Investigators say that Justice, increasingly responsive to the Executive branch, politicized money laundering policy in the U.S. by limiting the duration of investigations to six months, the amount of money undercover investigators can accept at one time to $250,000 (what do you say when the target hands you twice that much?), the total amount laundered to $1 million, and by demanding the identification of specific targets before the operation commences — conditions that clearly preclude the involvement or capture of the kind of “big fish” that caused embarrassment to Mexico in 1998.

Federal investigators argue that this hamstrung approach to money laundering — de-emphasizing its criminal nature and curtailing investigations in ways that prohibit attacks on the deeply-rooted money laundering system, as opposed to a few relatively low-level targets and discrete institutions (off the hook with “deferred prosecutions” and modest fines) — explains the temerity exhibited by HSBC, Wachovia, Bank of America, Citibank, et al.

It also suggests a reluctance on the part of the U.S. government, our leaders, to take on the international money laundering system in any serious way — not after the fact, but by going after the system itself while the criminal activity, the laundering of money, is underway, and rooting out anyone and everyone tied to it. The alternative, which we see at work today, is to lay the ‘blame’ for money laundering on various straw men—via “the kingpin” theory or the “organizational” theory.

Is current money laundering policy in the U.S. a sham?

Advocates for a more rigorous systems-based approach shout “yes” — that what we have now is a DOJ-monitored money laundering policy that, in essence, offers political amnesty to corrupt government officials around the world and ample reassurance to U.S. banks that their own “high net-worth account managers” are free — even encouraged by “willful blindness” at the top — to seek out and manage deposits garnered from the darkest kinds of criminal activity.

No criminal prosecutions.

Negligible (in comparison to profits) fines.

As a result, U.S. banks offer employees a similarly skewed message about money laundering, criminal on its face, but unofficially sanctioned by DOJ’s consistently light-handed response to the violation once it becomes public.

Most of the 7 billion in narco-dollars laundered by HSBC traveled from Mexico to the U.S. as ledger transactions, bank-to-bank exchanges. We’re talking bulk cash loaded onto a plane traveling from Mexico City to HSBC’s cash clearinghouse in Brooklyn. Let’s say the banker who finessed that deal took in 1.5 percent commission — what’s that? About $100 million?

Repeat after me: impunity.

A civil fine in the amount of $28 million, again, against the Mexican subsidiary of HSBC, for laundering in excess of $26 billion linked to cartels (7bn) and terrorist organizations (19bn)?

As one bank executive put it: “just the cost of doing business.”

The AML compliance industry

AML consultants now constitute a thriving satellite business, the “AML compliance industry,” whose end, ostensibly, is to support financial institutions writhing under cease-and-desist orders and desperate to get back into the government’s good graces. AML compliance headhunters, prestigious “Big Four” accounting firms, specialty compliance law firms — it’s a multi-million dollar sideline.

But here’s the catch.

What the people involved won’t tell you, but what almost everyone knows, is that the sort of compliance this team is working to achieve isn’t really the kind that’s going to eliminate money laundering or preclude the future involvement of any financial institution that may have stumbled into a bad situation at some specific point in the past.

What we have going instead is a quick superficial check of the body-financial for obvious moles, warts and blemishes the patient has been told must be removed by a qualified specialist — all in the hope that this ‘minor’ surgery will prevent more serious problems from surfacing in the future.

In other words, no checking for lymph node involvement.

The AML experts the bank brings in to get rid of some sudden stink are expected to do one thing and do it as quickly as possible — get rid of the red flags, “clear the alerts,” and make whatever cease-and-desist orders are slowing down business disappear.

Note: “clearing alerts” is not synonymous with “investigating alerts.”

When the curtain goes up, this is what we see: careful staging, all the players observing the team ethos, heads bent over checklists and “how to recognize AML non-compliance” manuals designed, provided and endorsed by the financial services industry itself. It is, say AML insiders, an exercise in “self-improvement” whose aim is wholly cosmetic.

Law enforcement insiders say even the “filters” that consultants (hired by top-tier firms like Deloitte, or Ernst and Young) are encouraged to share with trainees — the “checklist” banks provide to bankers to “help them flag criminal deposits” — are constructed in ways that offer cover, plausible deniability, to account managers rewarded for the amount, not the origin, of the dollars they capture for their institution. In other words, says one AML expert, the fix is in.

Banks push back

There are reports that HSBC (like Wachovia) was tipped off, repeatedly, by outside consultants, to the suspicious origins of various accounts, but instead of acknowledging these warnings, the bank pushed back, questioning the competence of compliance experts who pointed out the weaknesses in their program.

The same scenario played out at Wachovia, where, from 2004-2006, AML experts alerted company executives to an assortment of red flags, also unappreciated and ignored.

Critics say it’s a frontloaded approach to criminal activity, designed to protect high net-worth trading (or strategic) partners and the powerful banking lobby. It’s not an unusual situation — look at immigration and border security policies that influence the provision of arms to any number of strange bedfellows. In all these cases, politics run neck-to-neck with the law.

But here’s the difference. Criminals work for money. Period. At the end of the long list of criminal trespasses is a single symbol — the dollar sign. And the single most vulnerable point in any underworld scam turns on the criminal’s ability to transform illicit treasure into healthy greenbacks. Eliminate the opportunity to profit from criminal activity and the problem disappears.

Cornerstone crime

That makes money-laundering a cornerstone crime; the most critical transgression in a series of horrors that the world, generally, is not as slow to lament or to condemn.

So there’s a special irony here — the willingness to minimize the criminality of this last and so easily effected step in the process, the violation that finally indemnifies the trafficker, the murderer, the rapist, the thief, the genocidal dictator and violator of human rights, against loss.


First, de-politicize money-laundering policy. Return instead to a system-based approach that allows U.S. law enforcement to focus, not on individual targets or even individual instances of money-laundering, but on the underlying apparatus enabling the crime — disassemble the whole machine, regardless of the time, manpower and operational latitude such a strategy requires.

I know what you’re thinking. A bulldozer approach like this one carries with it a 100 percent chance of roiling the water at Department of State — but anyone who thinks “soft power” is going to keep corrupt bankers and government officials from lining their pockets with big, greasy wads of dirty dollars, especially when they know the U.S. will bend over backwards to keep them out of the soup, is dreaming.

Politics versus the law. Something Congress might take under advisement. And if we go for the law, as opposed to the “selective prosecution” of players DOJ throws to the media and public as evidence of a job well-done, then put the teeth back into our compliance strategies. Let them work.

Get rid of the DOJ-imposed limits on monies laundered on single occasions and during the course of an entire operation, internal guarantees that substitute foreign policy goals for the rule of law. Forget about imposing time limits on money laundering operations and about naming targets in advance of the operation—  remain flexible and adaptive, open to the discovery and apprehension of targets as they are discovered.

Start prosecuting the banks in addition to fining them. U.S. statutes define money laundering as a criminal, not a civil offense. Send bankers who suck dirty accounts into the system to jail, and put their parent banks out of business. According to the Federal Reserve, banks found to be in criminal violation of the money laundering act invoke an automatic “death penalty” — i.e., they not only face criminal charges, but the loss of their operating licenses.

Finally, face the facts: Money-laundering investigations are going to snag corrupt government officials and banking executives in Mexico, in the U.S. and across the world. Under a serious AML regime, big names and big banks are bound to go down. But so will crime — guaranteed — both the laundering of money and the horrific antecedent crimes, trafficking, terrorism and human rights violations, that the media and the public so openly decry.

  • Natalia

    how many policies will teh bank frame to get everything under control……



Kathleen Millar
Kathleen Millar

Kathleen Millar began her career in public affairs working for Lyn Nofziger, White House Communications Director. She has gone on to write about a wide range of enforcement and security issues for DHS, for the US Department of the Treasury (Customs & Border Patrol), for Senator Olympia Snowe (R-ME), then a Member of the Senate Intelligence Committee, and for top law enforcement officials in the United States and abroad.

A Founding Member of the Department of Homeland Security, Millar was also the deputy spokesperson-senior writer for the United Nations Office on Drugs and Crime in Vienna, Austria. She has authored numerous speeches, articles and opeds under her own and client bylines, and her work, focusing on trafficking, terrorism, border and national security, has appeared in both national and international outlets, including The Washington Post, The Washington Times, The International Herald Tribune, The Financial Times, and Vital Speeches of the Day.

Kathleen Millar holds an MA from Georgetown University and was the recipient of a United Nations Fellowship, International Affairs, Oxford. She is a member of the Georgetown University Alumni Association, Women in International Security (GU), the Women’s Foreign Policy Group, and the American News Women’s Club in Washington, DC. Kathleen Millar is currently teaching and writing about efforts to combat transnational organized crime.