US Treasury fines BofA as money-laundering scrutiny and penalties intensify across the financial sector
Illicit money-laundering methods diversify through underground banks, virtual assets and sham trade
China also mobilizes to stem capital outflows, strengthening financial crime enforcement and developing detection technology

The US Treasury Department imposed a substantial fine on Bank of America (BofA). As scrutiny of money laundering in the US financial sector intensifies, financial institutions that fail to adequately detect and report suspicious transactions are facing a succession of penalties. Similar regulatory trends are increasingly evident in other major countries. In China in particular, authorities are steadily stepping up enforcement and monitoring to prevent capital outflows through underground banks, virtual assets and fraudulent trade transactions.

US Government Rolls Out Penalties Against Financial Institutions

According to a Financial Times (FT) report on the 13th (all dates hereafter are local time), the US Treasury Department's Financial Crimes Enforcement Network (FinCEN) announced that day that it had imposed a fine of USD 1.2 billion (approximately USD 1.23 billion) on BofA for violating its anti-money-laundering obligations. The action followed BofA's failure to adequately flag more than USD 5 billion (approximately USD 5.14 billion) in suspicious transactions linked to suspected Chinese money-laundering networks and illicit finance along the southern US border. Treasury Secretary Scott Bessent said, "Financial institutions are on the front lines of economic and national security," adding, "When a bank of this size neglects its anti-money-laundering obligations, the consequences expose the entire US financial system to serious illicit finance risks."

The FT noted that the regulators' decision was an extension of the sustained, broad-based pressure on the US financial sector. On the 8th, the Treasury Department had also imposed a fine of USD 350 million (approximately USD 360 million) on American Express National Bank, American Express's banking subsidiary, through its Office of the Comptroller of the Currency (OCC). According to authorities, the bank failed to identify, assess or adequately report in a timely manner USD 13 billion (approximately USD 13.4 billion) in suspected trade-based money-laundering transactions over roughly 11 years, from June 2014 through May last year. A key problem identified was the bank's concentration of monitoring resources on its relatively small deposit account operations rather than its core credit card and charge card businesses.

Virtual Asset Exchanges Also Affected

The US government also imposed sanctions to curb money laundering in August. At the time, the Treasury Department's Office of Foreign Assets Control (OFAC) added virtual asset exchanges including Shellbit and AbanTether to its sanctions list for allegedly supporting fundraising and illicit financial transactions for Iran's Islamic Revolutionary Guard Corps (IRGC). The Treasury Department said Iran-linked individuals had used inadequately regulated virtual asset trading platforms, networks of shell companies spanning multiple countries and online gambling operations to conceal the origins of illicit funds and access the international financial system. In particular, indications were found that Shellbit, a Georgia-registered exchange operated by Iranian businessman Siavash Keyvanpour, had conducted virtual asset transactions directly with the IRGC.

According to OFAC, more than USD 1 million (approximately USD 1 million) in virtual assets flowed from IRGC-owned virtual asset wallets to Shellbit, while funds transferred from Shellbit to IRGC wallets exceeded USD 2 million (approximately USD 2.08 million). Wallets owned or controlled by Keyvanpour also sent more than USD 2 million to Nobitex, an Iranian virtual asset exchange already under US sanctions. Shellbit additionally provided financial services to a network of Persian-language online gambling sites operated by two Iranian influencers living abroad, and tens of millions of USD in virtual assets associated with those gambling operations were found to have been laundered through Shellbit. AbanTether, an Iran-based exchange, was found to have processed millions of USD in transactions with already sanctioned exchanges including Nobitex, Wallex, Bitpin and Ramzinex.

Table 1. Examples of US Money-Laundering-Related Sanctions

Increasingly Sophisticated Money-Laundering Methods

Last month, FinCEN and the Financial Action Task Force (FATF) issued successive warnings, revealing money-laundering methods that exploit informal financial networks and virtual assets. In a report released on the 3rd of last month, FinCEN said financial institutions had submitted a total of 33,904 suspicious activity reports (SARs) related to digital asset investment fraud between September 2023 and December last year, involving USD 12.7 billion (approximately USD 13.1 billion) in financial activity. In particular, it warned that so-called "pig butchering" investment scams—in which perpetrators build trust with victims online before stealing their money by recommending supposedly high-return investments such as virtual assets—were spreading through organized criminal networks. Criminal groups were found to use complex money-laundering methods, including deploying money mules operating under others' names and shell companies to evade tracing, and converting criminal proceeds into stablecoins before transferring them to overseas virtual asset exchanges.

The FATF likewise noted that professional money launderers were moving criminal proceeds across borders through underground banking and informal financial networks such as hawala. Hawala transfers funds on the basis of trust between intermediaries rather than through traditional bank transfer networks, allowing obligations to be settled through cash or trade transactions without cash physically crossing borders. An FATF analysis of data collected from more than 50 countries and jurisdictions found that over 80% of those surveyed identified underground banking, hawala and similar services as a major professional money-laundering channel or method. Meanwhile, 70% said they had observed these informal financial networks integrating with new technologies such as virtual assets and fintech.

China Also Grapples With Similar Problems

Vigilance against such money laundering is also increasing in China, a strategic competitor of the United States. The Chinese government enforces strict capital controls, including an annual limit of USD 50,000 (approximately USD 51,385) on individuals' foreign exchange purchases. Nevertheless, attempts to move funds by wealthy individuals unsettled by the economic slowdown and President Xi Jinping's "common prosperity" policy have persisted. According to the Institute of International Finance (IIF), capital outflows from China reached a record high of approximately USD 807 billion (approximately USD 829 billion) last year. A prominent method of moving funds is so-called "smurfing," which splits transfers among multiple individuals using their foreign exchange allowances. Brokers recruit people who have not used their annual USD 50,000 foreign exchange purchase allowance, then divide and transfer funds in their names. Organized schemes involving underground banks and fraudulent trade transactions are also widespread. Under these arrangements, customers in China pay yuan to underground banks, while overseas intermediaries deliver the equivalent amounts to the customers' offshore accounts.

Companies also siphon funds overseas by inflating import payments or fabricating nonexistent transactions. Companies in Wenzhou and Shenzhen were caught transferring USD 9 million (approximately USD 9.23 million) and USD 18 million (approximately USD 18.5 million), respectively, overseas through fraudulent commercial transactions. More recently, attempts to circumvent restrictions using virtual assets have also increased. According to blockchain analytics firm Chainalysis, Chinese-language money-laundering networks processed an estimated USD 16.1 billion (approximately USD 16.5 billion) in illicit virtual asset transactions last year.

Government Crackdown Intensifies, With Efforts to Apply Advanced Technology

Chinese authorities are tightening regulations and enforcement to block these illicit fund transfers. According to China's Supreme People's Procuratorate, 3,259 people were prosecuted last year on charges of laundering money through virtual assets, underground banks and other channels. Actual punishments have also emerged recently, including prison sentences handed down by a Shanghai court to five members of a group that illegally transferred more than CNY 200 million (approximately USD 30.8 million) overseas using virtual assets. China's State Administration of Foreign Exchange (SAFE) also said it had investigated and handled more than 300 cases of illegal foreign exchange transactions, including underground banking, in the first half of this year, with related confiscations and fines exceeding CNY 400 million (approximately USD 61.5 million) in total.

Related research is also continuing in Chinese academia. For example, Hong Kong's South China Morning Post (SCMP) reported in August that researchers at the People's Public Security University of China (PPSUC), China's police university, had developed an artificial intelligence (AI) framework capable of detecting illicit cryptocurrency transactions with approximately 90% accuracy. In a paper published in the Chinese academic journal Journal of Intelligence, corresponding author Dr. Sun Jingchao said the findings "provide an accurate, generalizable and interpretable solution for detecting illicit cryptocurrency transactions," adding, "These findings will offer an innovative approach that enables regulators to tackle illicit cryptocurrency transactions and economic crime."