Banks Got Punished for Missing Money Laundering. Now They Get Punished for Catching It
Capital One paid $390 million for missing suspicious transactions, then got sued for closing accounts when its monitors caught something. The trap banks now face reveals a regulatory system working against itself.
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American banks are caught between two kinds of punishment. If they miss dirty money, regulators fine them. If they flag it and close the account, they get sued for debanking. Capital One (NYSE:COF | COF Price Prediction) has paid on both sides, and its record shows which way the pressure is moving.
Federal law requires banks to run anti-money-laundering programs that monitor for suspicious transactions. When flagged, banks file a suspicious activity report to the Treasury’s Financial Crimes Enforcement Network (FinCEN). Closing an account over that suspicion can trigger debanking lawsuits.
Cost of Missing It
According to Moneywise, FinCEN hit Capital One with a $390,000,000 penalty on Jan. 15, 2021, for willfully failing to maintain an effective anti-money-laundering program. Moneywise reports that the bank admitted it failed to file thousands of suspicious activity reports from 2008 through 2014 tied to its Check Cashing Group. The money involved was linked to organized crime, tax evasion and fraud.
Cost of Catching It
Moneywise reports that Capital One closed 385 accounts associated with Donald Trump in 2021 after flagging activity characteristic of money laundering. The closures became public through a lawsuit filed by Trump’s trust, his companies and Eric Trump.
The suit says the bank acted for political reasons after the Jan. 6 backlash. The accounts covered a winery, a bottled-water company and a golf course developer. Moneywise says Capital One’s lawyers wrote in a July 31 filing that the closures “were the result of months of analysis and a careful review by Capital One’s AML team in accordance with bank policies and regulatory guidance.”
The filing also says the bank can close any account at any time, for any reason or none, without notice. Trump has also sued JPMorgan Chase (NYSE:JPM), which says it closes accounts that create legal or regulatory risk.
A bank already punished for missing too much has every reason to flag too much. The screening system regulators demand will sometimes catch someone powerful, and then the bank gets sued.
Debanking Data Most People Never See
According to Moneywise, a Reuters review of 8,361 account closure complaints filed with the Consumer Financial Protection Bureau over 13 years found that fewer than 1% alleged political or religious discrimination. A Cato Institute study found most debanking stems from government pressure. Moneywise reports the FDIC privately asked more than 20 institutions in 2022 and 2023 to pause crypto activity. Operation Choke Point in 2013 started with fraudulent businesses and spread to payday lenders, gun shops and licensed cannabis dispensaries, according to Moneywise.
Washington Just Changed Direction
FinCEN filed notices Monday pulling two proposed crypto reporting rules. One reverses the agency’s 2023 finding that international crypto mixing is a primary money laundering concern, according to Unchained. The notices will be published in the Federal Register on Oct. 6, according to Unchained. FinCEN cited commenters’ warnings that the rules would chill legitimate activity and create heavy reporting loads.
What to Do If Your Bank Shows You the Door
Automated systems flag patterns like structuring (splitting deposits to avoid the $10,000 reporting threshold). Banks cannot disclose whether they filed a suspicious activity report. The CFPB says companies typically cite suspicious account activity when closing accounts. If it happens to you, request written closure, get your balance by check, pull your ChexSystems report and file a CFPB complaint.
Where the Pressure Goes Next
Policy is shifting toward more account access and less surveillance, but the 2021 penalty remains, so compliance teams will stay cautious, according to Moneywise. The key question is how courts rule on Capital One’s claim that it can close any account at will. If the Trump suit proceeds, banks face real costs from both directions. Capital One shares are down 20.53% year to date.
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Joel South covers large-cap stocks, dividend investing, and major market trends, with a focus on earnings analysis, valuation, and turning complex data into actionable insights for investors.
He brings more than 15 years of experience as an investor and financial journalist, including 12 years at The Motley Fool, where he served as an investment analyst, Bureau Chief, and later led the Fool.com investing news desk. He has also co-hosted an investing podcast and appeared across TV and radio discussing market trends.
