Analysis: When clean money is used for dirty purposes

At the time, Epstein was the subject of a number of allegations within mainstream media publications. In 2008, he was convicted of procuring an underage girl for prostitution. It was later alleged that he continued to pay underaged girls for sex. Notwithstanding all of this, Epstein was able to open accounts and initiate a new relationship with the accommodating Deutsche Bank.

Perhaps the powers that be within Deutsche Bank determined not to apply any moral judgment to Epstein and equally their own profitable, business relationship with him. Earlier this week, the bank agreed to pay a penalty of $150 million for, in part, compliance controls failures related to Epstein’s accounts and payments he made related to his illegal activities.

In this instance, Deutsche Bank has not been accused of laundering dirty money but facilitating the payment of clean money to cover up or pay for Epstein’s criminal conduct and dirty deeds. It is yet another reputational blow to the bank and references a culture in which money trumps morality. All of this is set against a background of Deutsche Bank paying other penalties for anti-money laundering control breaches and remaining the subject of a number of ongoing money laundering investigations.

Thus, in this instance, Robinson’s quote had a twist, in that the dirty customer found the bank that at the time appeared to be offering the least resistance to dirty money from other customers. The case raises certain questions in regard to account activity which, while not related to money laundering, may be related to other serious criminal activity. Just how does a financial crime compliance officer go about reporting suspicious account activity that does not involve terrorist financing, money laundering, or any form of acquisitive crime?

In Australia, financial concern Westpac has accepted allegations the bank helped to fund child-exploitation tourism for 11 customers. While the bank denied the allegations in relation to a 12th customer, a look back at historic transaction activity has identified another 272 customers who appear to have processed similar transactions. Essentially, Westpac has pleaded guilty to allegations the bank processed payments on behalf of 11 customers, which facilitated Australians and Americans going to Asia to accost children.

This number may grow substantially and reference much more suffering for these children and their families. Within a series of advertising campaigns, Westpac previously asserted, “Proudly supporting Australia and Australians for over 200 years,” while unbeknownst to these same Australians, the bank was simultaneously supporting criminals for a number of years.

As with Deutsche Bank and Epstein, Westpac was processing clean money for a repugnant “business.” As the transactions were “international fund transfer instructions” (IFTIs), the bank was legally compelled to disclose them to Australian authorities, but along with close to 23 million other IFTI transactions, the bank failed to do so.

Furthermore, in both instances, the banks appear to have offered the least resistance to these customers and their dirty, criminal business.

In April, police in the United Kingdom reported a significant increase in the number of suspicious activity reports filed by banks relating to registered sex offenders. It would appear the coronavirus lockdown restrictions had an unforeseen impact on the activities of registered sex offenders, whose banks would likely have filed previous suspicious activity reports, pursuant to the terms of the offenders’ release from prison. Specifically in the United Kingdom, there is emphasis upon the need to safeguard individuals, communities, and the banks themselves when reporting suspicious activities undertaken by registered sex offenders. The same safeguards do not apply to the filing of such reports in relation to a customer who is not a registered sex offender.

In many countries, banks have offered considerable support and assistance to law enforcement agencies investigating child sex offenders, but such investigations were initiated by law enforcement agencies, not the banks. So, other than the financing of terrorist activities, how can a bank file a suspicious activity report in relation to clean money being used for criminal activities? Some of you may wish to think there is nothing to stop a bank reporting a suspected child sex offender and to some extent you are correct, but what happens if and when the bank makes a mistake and falsely suspects/alleges a customer to be a child sex offender? Where are the safeguards, which simultaneously protect potential child victims and bankers acting in good faith?

Many of you reading this are parents who are repulsed at the conduct of child sex offenders and any party, including banks, who assist them. You want to do the right thing here; you want to protect children, but can you do so in such a way that protects you from the litigation of irate customers? While closing an account may protect your reputation, it may not protect children, in the event the suspect secures a new banking relationship and continues to use his clean money to facilitate such exploitation.

It has been suggested that Westpac may be fined as much as $1.4 billion, but this may prove to be the lesser of two commercial losses should repulsed customers decide to take their business to a bank that does more to protect children and less to accommodate dirty people with clean money.

There are times when it is a necessary to consider where clean money is going to as much as where dirty money may have come from. In both instances, a bank’s reputation can be seriously damaged.