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

The headline:  EL MORGANGATE.

The issue of flight capital flowing from Latin America to the United States had once again come to the surface. And, once again, JPMorgan was in the middle of the affair, in a case with striking parallels to the Tony Gebauer scandal two decades before.

Hernan Arbizu was a New York-based JPMorgan vice president in charge of some $200 million in accounts belonging to Argentines. Like Gebauer, he was accused of pilfering money from his clients. And as in the Gebauer case, exposure of his wrongdoing was accompanied by questions about his employer's relationships with wealthy, tax-shy Latin Americans.

Arbizu claims he and other private bankers helped customers launder money and evade taxes in their home countries. "I became a fraudster from the minute I started working in private banking, because if you think about it, I was committing fraud against Argentina as a whole through our activities here," he told Bloomberg News in 2009.

JPMorgan sued Arbizu in federal court in New York, accusing him of stealing money from client accounts and violating confidentiality agreements by expropriating JPMorgan documents. The bank eventually won a default judgment against him totaling nearly $3.6 million.

U.S. criminal charges pending against Arbizu may never be prosecuted. He remains out of reach in Argentina, protected from extradition by a government that has used his testimony in various legal actions.

JPMorgan declined to answer questions about Arbizu.

Model effort

In 2010, anti-money laundering specialists at JPMorgan became concerned about a series of multi-million-dollar wire transfers involving a San Antonio, Texas, businessman. When bank officials confronted the businessman, court affidavits say, he told them he was acting as a front for his brother-in-law, the former treasurer of the Mexican border state of Coahuila.

The bank alerted the U.S. Drug Enforcement Administration, helping spark official investigations of the ex-treasurer,  who now stands accused in Mexico of embezzling millions of dollars from his state's treasury.

In 2010 and 2011, anti-money laundering experts at the bank joined the U.S. Department of Homeland Security in the agency's fight against human trafficking.

Homeland Security and JPMorgan officials developed a detailed M.O. for the banking habits of businesses involved in human smuggling for prostitution and other forms of forced labor, according to John Byrne, executive vice president of the Association of Certified Anti-Money Laundering Specialists. One of the red flags: businesses that booked lots of round-number credit card payments — say, $200 — after midnight.

Byrnes' group honored JPMorgan and Homeland Security with its Private-Public Service Award. The collaboration, Byrnes says, was an example of good-faith effort by JPMorgan and other banks to fight corruption and money laundering.

Byrnes acknowledges big banks have made mistakes, but he believes these problems don't add up to a picture of an industry that puts profits above compliance.

The banking industry, he says, "works very, very hard to keep illicit funds out of institutions. The commitment comes from the top — from senior management."

'Rare incidents'

Around the time JPMorgan was helping Homeland Security and the DEA zero in on human smugglers and the former Mexican official, it was under fire from another U.S. agency.

The Department of the Treasury was investigating evidence that JPMorgan had ignored legal bans on doing business with Cuba, Sudan, Liberia and Iran.

After the department subpoenaed information about one suspect transaction, the bank claimed, repeatedly, that it didn't have key documents that in fact it did have, the agency said.  Only after the agency provided a detailed list it had obtained from another financial institution, the agency said, did JPMorgan cough up the documents.