Underground banking networks are working with drug cartels to deposit cash from drug sales at bank branches and ATMs, The Wall Street Journal reported Thursday (May 15).
“U.S. banks are a prime candidate for exploitation, and there are vulnerabilities which Chinese money brokers have been able to take advantage of over the course of many years,” said Frank Tarentino, special agent in charge of the Drug Enforcement Administration’s New York office, per the report.
Money launderers open dozens of accounts at multiple banks, masking their identities with phony passports or recruiting local students or business owners, the report said.
In North Carolina, a Chinese network was accused of using shell companies to deposit at least $92 million in cash at Bank of America, Chase and Wells Fargo branches between May 2022 and April 2024, according to the report. None of the banks were accused of wrongdoing.
In a “rare” enforcement action against a bank, TD Bank last year paid $3 billion in penalties for an oversight lapse that allowed a Chinese money-laundering operation based in New York City to move more than $470 million in ill-gotten cash through TD branches in New York, New Jersey and Pennsylvania, the report said.
Meanwhile, the banking industry is calling on the U.S. government to overhaul anti-money laundering (AML) regulations as incidents of fraud increase.
Darrin McLaughlin, executive vice president and chief AML and sanctions officer for Flagstar Bank, told a House subcommittee hearing last month that one-third of American adults had experienced financial fraud in the prior 12 months.
“Bad actors have leveraged cutting-edge technologies, social media and telecommunications to target Americans’ life savings,” he said before the House Financial Services Subcommittee on National Security, Illicit Finance and International Financial Institutions on behalf of the American Bankers Association.
He said a “strategic approach” that includes the banking industry, the government and other stakeholders is needed and that “regulatory reforms let us focus on the real threat.”
As PYMNTS wrote late last year, AML is about “protecting customers, reputations and the ability to innovate.” Banks that “don’t invest in sophisticated AML frameworks can face the risk of falling behind not only in compliance but in their ability to serve customers effectively.”
