Federal and state authorities are investigating a handful of major U.S. banks for failing to monitor cash transactions in and out of their branches, a lapse that may have enabled drug dealers and terrorists to launder tainted money, according to officials who spoke on the condition of anonymity.
These officials say they are beginning one of the most aggressive crackdowns on money-laundering in decades, intended to send a signal to the nation’s biggest banks that weak compliance is unacceptable.
Regulators, led by the Office of the Comptroller of the Currency, are close to taking action against JPMorgan Chase for insufficient safeguards, the officials said. The agency is also scrutinizing several other Wall Street giants, including Bank of America.
The comptroller’s office could issue a cease-and-desist order to JPMorgan in coming months, an action that would force the bank to plug any gaps in oversight, according to several people knowledgeable about the matter.
But the agency, which oversees the nation’s biggest banks, has not yet completed its case.
JPMorgan is in the spotlight partly because federal authorities accused the bank last year of transferring money in violation of U.S. sanctions against Cuba and Iran.
In addition to the comptroller, prosecutors from the Justice Department and the Manhattan district attorney’s office are investigating several U.S. financial institutions, according to several law enforcement officials.
The surge in investigations, compliance experts say, is coming now because authorities were previously inundated with problems stemming from the 2008 financial turmoil.
“These issues may have been put on hold during the financial crisis, and now regulators can go back to focus on money-laundering and other compliance problems,” said Alma Angotti, a director at Navigant, a consulting firm that advises banks on complying with anti-money-laundering rules.
Until now, investigators have primarily focused on financial transactions at European banks, most recently Standard Chartered. The authorities accused several foreign banks of flouting U.S. law by transferring billions of dollars on behalf of sanctioned nations.
As the investigation shifts to U.S. shores, the Justice Department and the Manhattan district attorney’s office are moving beyond those violations to focus on money-laundering, in which criminals around the globe try to hide illicit funds in U.S. bank accounts. If these new cases follow the pattern of previous ones, prosecutors could follow up on regulatory actions with their own complaints.
Despite shortcomings, banks spend millions of dollars a year to guard against money-laundering. Compliance experts argue that violations are typically unintentional and often harmless because they aren’t always exploited by criminals. Banks also say that they are not the ones with lapses, pointing to check cashers and money transfer companies.
Still, prosecutors and regulators have spotted gulfs in the way financial institutions oversee suspicious cash transfers, according to the federal and state officials.
Under the Bank Secrecy Act, financial institutions like banks and check-cashers must report any cash transaction of more than $10,000 and bring any dubious activity to the attention of regulators. The federal law also requires banks to have complex controls in place to detect any criminal activity.
The comptroller’s office, JPMorgan and Bank of America declined to comment.
The investigations are gaining momentum as concern is growing in Washington that illicit money is coursing through the U.S. financial system.
In July, the Senate Permanent Subcommittee on Investigations accused HSBC of exposing “the U.S. financial system to money-laundering and terrorist financing risks” between 2001 and 2010.
The British bank, which is also under investigation by federal and state prosecutors, is suspected of funneling cash for Saudi Arabian banks with ties to terrorists, according to federal authorities with direct knowledge of the investigations.