Mexican and Colombian drug cartels, shady foreign officials, sanctioned regimes such as Iran and Sudan—those are just some of the sources of income for the global banking industry. Wachovia, HSBC, Standard Chartered, and Deutsche Bank have all accepted fines for laundering money from illegal sources. The question is: why take the risk? One would think that even with extraordinary pressure coming from shareholders and fierce competition between corporate rivals, surely taking such money must be an unusual and misguided step.
But in fact what these isolated incidents reveal is that illegal money—the basis of the so called “dark economy”—so thoroughly saturates the world’s businesses that banks and bankers are simply swimming in illegal profits, whether they like it or not.
The now-defunct U.S. bank Wachovia was the first. In 2008 it was investigated for taking in money from Mexican and Columbian drug cartels, and two years later its new parent paid $150 million in fines. HSBC processed drug money, too, at least $881 million of it, and paid fines of $1.9 billion as a result. Elsewhere, corruption has generated the suspect cash. Last year, German authorities settled money-laundering charges brought against four executives of Commerzbank who had been accused of hiding assets on behalf of a Russian minister; and a month before that one of Britain’s oldest and most respectable banks, Coutts and Co., was fined for accepting deposits from politically exposed persons. Most recently, another British bank, Standard Chartered, agreed to pay $327 million to settle charges that it had routinely accepted money from Iran, Sudan, Libya and Burma, in breach of U.S. sanctions; and the moment the headlines from that news had settled, five Deutsche Bank executives were arrested in Frankfurt by prosecutors investigating a large VAT fraud with significant money-laundering elements.
It’s been quite a run. Large, reputable western banks have been involved in criminal scandals before, of course, but the cases have tended to be isolated. The six cases outlined above took place within a four-year period, and four of them within the last year.
Two explanations account for what begins to look like the makings of a trend. The first, more charitable of the two, holds that in each of these institutions, greedy individuals make immoral decisions in order to enrich themselves. For a culture that hardly prizes its bankers, this version is all too credible, but it ignores the nature of this type of offense. These are crimes of omission, of turning a blind eye, and the criminal crux of each case is whether that failure was inadvertent or deliberate. Yet given the number of cases, either that’s a lot of inattention, or there’s some hidden incentive built in to the system that bankers are failing to resist.
This leads to the second, more radical, and unfortunately more accurate interpretation: that there’s now simply too much black business to ignore. The extent of the dark economy is so significant that banks—all of them driven by the need to grow and to please their shareholders—find it impossible not to engage with it.
How all of this black money flows through reputable organizations is something that has fascinated me for years. Before I wrote novels, I investigated for the business intelligence company Kroll. At the heart of any decent case, we tended to find a shadowy caste of middlemen and frontmen, whose job it was to move and hide money on behalf of criminals and corrupt politicians.
They were mainly lawyers and accountants working either in tiny offshore hideaways or in plain view in the financial centers of the world. What distinguished them from their peers was that, without question, they were happy to take illicit funds from one place, divide them into chunks, move them through complex networks of companies, and keep them safe for their owners. And to be paid a fee beyond what their talents would otherwise command. I find these people fascinating, since they sit right at the junction where business, crime, and corrupt politics meet, and for a long time I thought that they were the unsung villains of the criminal world, quietly turning an almost-invisible mechanism.
But perhaps some of this dark mechanism is coming to light. Establishing a figure for the amount of criminal money in our financial system is more or less impossible, for obvious reasons. Nevertheless, some organizations have tried. The International Monetary Fund believes that money laundering transactions make up between 2 percent and 5 percent of global gross domestic product. The United Nations, through its Office of Drugs and Crime, analyzed a number of studies and found that proceeds from criminal activity of all kinds are likely to be some 3.6 percent of GDP, and that more than two thirds of this would need to be laundered each year—a sum of approximately $1.6 trillion.
If this figure is close to being correct, any bank competing fiercely with its rivals will find it extremely difficult to pass up the business generated by that much flowing money. For an international bank, it would be the equivalent of refusing to work with an economy the size of Spain or Australia. No chief executive would target this revenue, or consciously condone his people doing so; but he might fail to take the painful measures necessary to keep it out.
Some clearly have failed. Others are almost certainly failing as I write.