As promised, the Office of the Comptroller of the Currency plans to clamp down on another big bank that has been having trouble staying on the right side of anti-money laundering laws. JPMorgan Chase (JPM -0.96%) is the latest to get in line to have its figurative wrist slapped for lax money controls, much as Citigroup (C -1.89%) did in the spring of last year.
A cease-and-desist order, but no penalty
Like Citi, Reuters reports that JPMorgan will likely be served with a cease-and-desist order, with no monetary penalty attached. This is in stark contrast to the recent HSBC (HSBC 0.71%) case, in which that bank paid nearly $2 billion in fines to U.S. regulators to settle charges of employing controls loose enough to allow nearly $1 billion in drug money to be laundered through the bank and its subsidiaries.
This upcoming sanction was expected as the OCC's investigation moves through the list of banks thought to be a bit too free and easy with the terms of the Bank Secrecy Act. Next to be scrutinized will likely be Bank of America (BAC -1.46%), which was also reported to be under the regulators' gaze.
Still a problem, though not a new one
Banks laundering dirty money is an ongoing problem. A Need to Know production outlined just how prevalent it has become, recounting in detail the case of Wachovia Bank -- which was found to have been cleaning funds from Mexican drug transactions from 2003 to 2008. Although the bank was finally taken to task, a whistleblower noted that the OCC had given Wachovia a green light on compliance for each of those years during which the illegal activity was actually taking place. Wells Fargo (WFC -2.58%) bought Wachovia in 2008, though there is no evidence that Wells is currently under investigation.
U.S. regulators had their collective eyes on HSBC quite some time. A Senate report last summer presented the results of an in-depth examination of the bank and its transactions, showing all manner of shady dealings -- particularly through its private banking unit. As far back as 2003, regulators had sanctioned the bank for failing to adequately scrutinize certain transactions.
The private banking arms of big banks are particularly susceptible to laundering schemes. This fact is apparently well-known, and the subject of testimony given to the U.S. Senate in 1999 by Richard Small, then the Assistant Director of Banking Supervision and Regulation. Small noted that the nature of private banking, such as the heightened confidentiality afforded its clients, can make the sector particularly vulnerable.
One Fool's take
Will U.S. banks eventually be fined, as well? It is possible, considering that HSBC seems to have been sanctioned a few times before the recent settlement. When the order comes through for JPMorgan, this will mark the second time the bank has been reprimanded for breaches of the Act. With regulators being more vigilant, there may be less wiggle room for big banks going forward.
Expect Bank of America to get chastised next, probably without penalties -- even though the bank has been involved in shady dealings with illegal arms dealers and other money brokers in the past.
Will big banks learn their lesson, and cease and desist with dodgy money transactions? Let's hope so, before investors are forced to watch profits flow out of banks -- again -- to pay costs associated with yet another distasteful banking scandal.