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

Treasury officials found that the bank committed multiple violations of U.S. economic embargoes between March 2005 and March 2011. Among the violations: 1,711 transfers totaling $178.5 million to Cuban citizens and the transfer of 32,000 ounces of gold bullion, worth more than $20 million, to a bank in Iran.

The agency charged that bank managers and supervisors knew about the law-breaking and but did nothing to fix the problem.

After the $88.3 million penalty in the case was announced in August 2011, a JPMorgan spokesman said the matter involved "rare incidents" that were "unrelated and isolated from each other. The firm screens hundreds of millions of transaction and customer records per day and annual error  rates are a tiny fraction of a percent."

Criminal history

That settlement hasn't wiped the slate clean for the bank when it comes to problems over its handling of suspect transactions and clients. Other investigations and lawsuits are still in the works.

In federal court in Minnesota,  JPMorgan faces claims that it allowed corporate financier Thomas Petters to run a $3.7 billion Ponzi scheme that raised money through investment funds based in the Caymans.

Petters moved more than $83 million in Ponzi cash through his JPMorgan accounts between 2002 and 2007, a  court-appointed trustee, Douglas Kelley, claims in a lawsuit. JPMorgan accepted his deposits, loaned him huge sums and worked with him on his $426 million purchase of Polaroid Corp., the suit says, even though it knew or should have known that he had a shady business plan — and a shady backstory.

Petters had a record of convictions for forgery, larceny and fraud and his chief fundraiser in the Ponzi scheme had done time in prison for cocaine dealing and offshore money laundering.

In court records, JPMorgan says Kelley's charges are "long on innuendo" and full of "largely irrelevant allegations." It says it engaged in legitimate, arm's-length transactions with Petters and that Kelley is trying to overcome the facts and the law "by talismanically invoking the term 'Ponzi scheme.' "

Kelley, a former federal prosecutor, said in an interview that his court filings in various lawsuits relating to Petters' frauds are "filled with specific facts" that show that JPMorgan and other banks that did business with Petters "turned their heads aside and didn't ask questions they ought to be asking just because they were making money hand over fist."

"If you're a banker and start to see a number of these red flags crop up," Kelley said, "you have a duty to ask questions — and you have a duty not to accept answers that are not facially candid."