Big Banks Are Knee-Deep in the Dirty Money-Laundering Business

While the bank helps move money around the world via its tax haven subsidiaries, JPMorgan's international private banking network attracts large deposits to the U.S. from rich customers in Latin America and other regions. Much of this money isn't reported to tax authorities in the depositors' home countries, according to a  study last year by James S. Henry, former chief economist at McKinsey & Company and a board member of Tax Justice Network, an advocacy group that favors tighter regulation of the offshore system.

The study estimates JPMorgan's private banking operations  boosted their assets under management from $187 billion in 2005 to $284 billion in late 2010 — ranking it among an elite group of giant private banking institutions whose mission, the report claims, is to "entice the elites of rich and poor countries alike to shelter their wealth tax-free offshore."

Rich history

JPMorgan Chase is an amalgam of America's two most storied banks. Historian Ron Chernow called the Morgan banking dynasty perhaps "the most formidable financial combine in history." Chase Manhattan traced its roots to 1799 and claimed Aaron Burr, the nation's third vice president, as its founder.

Before the mega-merger that brought the Morgan and Chase empires together at the turn of this century, both played roles in the emergence of tax havens — and in the controversies that grew out of the offshore system's rise.

Chase and Morgan were early players, in the 1960s, in the growth of the Bahamas as an overseas financial center. Chase was one of the banks of choice for Philippine President Ferdinand Marcos and the Shah of Iran, strongmen who looted their countries' treasuries during their decades in power. Relations between Chase officials and the Shah were so close in the 1960s and '70s, Henry says, that Chase Chairman David Rockefeller was essentially "the Shah's private banker."

Chase played a cameo role in an offshore money-laundering thread of the Watergate scandal, serving as a conduit for an illegal $55,000 contribution that American Airlines laundered through a foreign source and funneled into President Nixon's re-election campaign. Federal authorities fined the airline, but apparently took no action against Chase.

In 1973, a mobster turned informer told a congressional committee that Chase and other firms helped him cook up bogus covers for illegal transactions in stolen and counterfeit securities that had been laundered through Switzerland and Belgium and then brought back to the U.S. The witness testified Chase bankers accepted the "flimsiest of proof" as to his identity when they signed off on documents that made his transactions possible.

In another case, the infamous "Pizza Connection" heroin ring used Chase to channel cash overseas, according to an account in  The Money Launderers, a book by former U.S. Treasury enforcement official Robert E. Powis. In July 1980, a bagman for the ring entered Chase Manhattan's headquarters with four leather bags stuffed with $550,000 in fives, tens and twenties. The bank accepted the money, counted it, then transferred it to a Swiss account, according to Powis.

In June 1985, the Treasury Department fined Chase and other New York banks for ignoring one of the government's basic safeguards against financial chicanery — the federal Bank Secrecy Act's requirement that banks report any transactions involving $10,000 or more in cash. Chase paid a then-record fine of $360,000, based on 1,442 unreported transactions totaling $853 million.

"Some clerical people did not file reports here and there," a Chase spokesman told The Washington Post at the time. "There was nothing willful about this thing."

Fallen angel

Along with handling money involved in drug smuggling and other underworld activities, big U.S. banks have also attracted deposits from Third World elites who want to hide their wealth from tax collectors. For decades, anti-corruption advocates say,  U.S. banks have encouraged this process by dispatching armies of private bankers to solicit flight capital from developing nations.