The Biggest Financial Scandals Involving Global Banks

 

Financial scandals involving major banks have been making headlines for decades, with billions of dollars in fines levied against these institutions for a range of offenses including money laundering, sanctions violations, fraud, and manipulation of financial benchmarks. These scandals have eroded public trust in the banking system and highlighted the need for stronger regulation and compliance measures.

This post takes a closer look at some of the biggest financial scandals involving global banks in recent years, the offences committed, and the fines imposed.

Danske Bank Money Laundering Scandal

One of the largest money laundering scandals in history involved Danske Bank, Denmark's largest bank. Between 2007 and 2015, over €200 billion in suspicious transactions flowed through the bank's Estonian branch, much of it from Russia and former Soviet states. The scandal exposed major anti-money laundering (AML) control failures at the bank.

In 2018, Danske Bank acknowledged that much of the money flowing through its Estonian branch was suspicious and likely criminal in nature. The bank agreed to pay $2 billion in fines to U.S. and Danish authorities to settle the charges.

Standard Chartered Bank Sanctions Violations

Standard Chartered, a British bank, has been involved in several major scandals in recent years. In 2012, the bank was accused of violating U.S. sanctions by clearing $265 billion in transactions with Iran between 2001 and 2007. The bank was fined $667 million by U.S. authorities.

In 2019, Standard Chartered was fined an additional $1.1 billion by U.S. and U.K. authorities for continued AML failures and sanctions violations, particularly related to transactions with Iran, Syria, Zimbabwe, and Burma. The bank was also found to have deficient AML controls in its U.K. operations.

HSBC Money Laundering for Drug Cartels

In 2012, HSBC, one of the world's largest banks, was fined $1.9 billion by U.S. authorities for allowing Mexican drug cartels to launder billions of dollars through its accounts. The bank was found to have poor AML controls that allowed the cartels to move money through its U.S. affiliate.

HSBC acknowledged that it had failed to monitor $670 billion in wire transfers and more than $9.4 billion in cash transactions from HSBC Mexico. The bank agreed to a deferred prosecution agreement with U.S. authorities and implemented reforms to its AML compliance program.

JPMorgan Chase Mortgage Securities Fraud

JPMorgan Chase, the largest bank in the U.S., paid $13 billion in 2013 to settle claims related to its sale of mortgage-backed securities leading up to the 2008 financial crisis. The bank was accused of misleading investors about the quality of the mortgages underlying the securities.

The $13 billion settlement was the largest ever paid by a single entity in a U.S. Justice Department investigation. JPMorgan Chase acknowledged that it made serious misrepresentations to the public about numerous mortgage securities transactions.

Wells Fargo Fake Accounts Scandal

Wells Fargo, one of the largest banks in the U.S., was fined $185 million by the Consumer Financial Protection Bureau in 2016 for opening millions of unauthorized bank accounts and credit cards in customers' names without their consent. The scandal led to the firing of over 5,000 employees and the resignation of CEO John Stumpf.

An investigation found that Wells Fargo employees opened the fake accounts in order to meet aggressive sales goals and earn bonuses. The bank was accused of a toxic sales culture that prioritized cross-selling products over customer service.

Barclays and UBS Libor Manipulation

In 2012, Barclays and Union Bank of Switzerland (UBS) were fined hundreds of millions of dollars for manipulating the London Interbank Offered Rate (Libor), a key interest rate benchmark used in trillions of dollars of financial contracts.

Barclays was fined £290 million by U.K. and U.S. authorities for submitting false Libor rates in order to profit from its trading positions. UBS was fined $1.5 billion for its role in the scandal, which involved traders colluding to rig Libor rates.

The Libor manipulation scandal highlighted the lack of oversight and potential for abuse in the setting of financial benchmarks. It led to reforms in how Libor and other benchmarks are calculated and supervised.

Deutsche Bank Mirror Trades and Russian Money Laundering

Deutsche Bank, Germany's largest bank, was fined $630 million in 2017 by U.K. and U.S. authorities for allowing $10 billion in suspicious trades between Moscow and London, known as "mirror trades". The trades allowed wealthy Russians to move money out of the country, likely to avoid taxes or hide the origin of the funds.

Deutsche Bank was accused of having inadequate AML controls that allowed the mirror trades to go undetected for years. The bank acknowledged that it had failed to properly monitor the trades and report suspicious activity to authorities.

Wachovia Bank Drug Cartel Money Laundering

In one of the earliest major money laundering scandals, Wachovia Bank, which was acquired by Wells Fargo in 2008, was found to have laundered over $420 billion in drug cartel money from Mexico between 2004 and 2007. The bank paid a $160 million fine to avoid prosecution.

An investigation by U.S. authorities found that Wachovia had failed to monitor and report billions of dollars in cash shipments from Mexican exchange houses, much of which was tied to drug cartels. The bank acknowledged that it had not done enough to prevent money laundering.

Lessons Learned?

These scandals have resulted in billions of dollars in fines and settlements, as well as criminal charges against some bank employees. They have also led to increased regulatory scrutiny and the implementation of stricter AML and compliance measures at many banks.

However, the scandals continue, with new cases emerging regularly. In 2020, HSBC, JPMorgan Chase, Deutsche Bank, Standard Chartered, and Bank of New York Mellon were all accused of moving dirty money for over 20 years, despite being on the radar of U.S. authorities.

The persistence of these scandals highlights the ongoing challenges in combating financial crime and the need for continued vigilance and reform in the banking industry. As the public's trust in banks remains fragile, it is clear that more work needs to be done to ensure that these institutions operate with integrity and transparency.