Early Bank Fraud Essay Paper


  1. Introduction
  2. Money laundering as one of the early bank frauds
  3. Definition of money laundering
  4. Historical background of development of money laundering
  5. The current situation with money laundering
  6. Al Capone and his money laundering
  7. Al Capone’s empire and his real incomes
  8. The legal position of Al Capone – Al Capone’s paradox
  9. Al Capone’s tax evasion
  10. Conclusion
  11. Bibliography


Bank frauds have a long history. Nowadays there are a variety of types of bank frauds among which money laundering is considered to be one of the most important and dangerous one. It is not a secret that money laundering as well as other bank frauds have its own history of development. Remarkably, initially it was even not clearly defined as a crime since it was unprecedented fraud that naturally puzzled not only legislators but also other specialists working in the field of jurisprudence. At the same time, money laundering is traditionally characterized as a very sophisticated and cunning fraud which is basically applied by criminals of the top level. In this respect, it is worthy to note that one of the first criminals that started to use money laundering was the notorious criminal well known in the US in 1920s-1930s, Al Capone, whose criminal activity and bank fraud were so complicated and legally unarguable that it was practically impossible to imprison him for the crimes he actually committed. Nonetheless, his fate perfectly demonstrates that money laundering as well as all other crimes cannot remain unpunished and eventually it is because of his financial fraud he had got his sentence.

Money laundering as one of the early bank frauds

  1. a.  Definition of money laundering

Obviously, money laundering is one of the most widely spread bank frauds nowadays in different countries of the world but its first traces may be found in the early 20th century when this type of bank frauds was not even clearly defined and was an absolutely new phenomenon which, to a significant extent, was closely related to exorbitant wealth some representatives of the criminal worlds possessed in the result of their illegal activities, especially in the epoch of prohibition.

Nonetheless, before analyzing this phenomenon in details at the early stages of its development, it is necessary to clearly define what money laundering actually is. Basically, nowadays money laundering is defined as a method used to ”˜wash’ away the ”˜paper trail’ or illegally obtained funds in order to conceal the true ownership and source of the funds (Kobler 2003). In other words this is a kind of fraud which serves to legalize money which are earned in illegal way or, to put it more precisely, when the origin and the real owner of the money tend to remain hidden but still amply use them in his/her own interests.

  1. b.  Historical background of the development of money laundering

In fact, money laundering was initially implemented by criminals who wanted to put the distance between their profits from illegal activities and themselves. Actually, this was firstly observed on the dawn of organized crime and in the US it was basically associated with the epoch of prohibition that in general referred to 1920s-1930s. This period may be considered the beginning of money laundering since organized crime became particularly strong at that epoch and great sums of money accumulated in the illegal underworld needed to be legalized. As a result, money laundering became the most efficient way to achieve this goal and prevent many criminals from legal responsibility for their crimes.

Practically, money laundering was realized by means of investment of criminal capital into legal businesses. For instance, criminals, like AL Capone, could establish front businesses, such as laundries, as a way to legitimize and disguise money they obtained from the illegal sale of alcohol and other illegal activities such as gambling (Kobler 2003). In this respect, it is worthy to note that since illegal activities such as gambling usually generated payment in coins, businesses such as laundries created a legitimate explanation for the funds obtained through illegal activities. Actually, this is exactly what the term ”˜money laundering’ originates from.

  1. c.  The current situation with money laundering

Naturally, being initiated by organized crime headed by such notorious criminals as Al Capone, money laundering could not fail to stop its further progress and nowadays it is a really serious problem which is, by the way, closely connected to such notion as terrorism. In such a way, in the current situation the concept of money laundering have already surpassed national borders and went beyond the criminal world to the extent that after the tragic events of September 11, and further terror attacks the struggle against money laundering became one of the top priorities of the US and other nations worldwide.

The main reason for such a high attention to money laundering as a product of organized crime of 1920s-1930s is explained by the fact that often it is associated with terrorism since money laundering is one of the way terrorists finance their activities. This is why it is hardly possible to underestimate the effects of the invention of such criminals as Al Capone that dates back to the early 20th century.

Al Capone and his money laundering

  1. a.  Al Capone’s empire and his real income

Naturally, in such a situation it is necessary to carefully analyze the contribution of Al Capone as probably the major, or at least, the most notorious criminal millionaire of 1920s-1930s, if not to say of the 20th century whose name became a synonym of a rich criminal whose image is often romanticized. Nonetheless, not many people really know that he was one of the first criminals who started to use money laundering even though there was not such a term in American legal system of that epoch that only underlines the importance of his role in the development of such type of bank fraud.

Taking into consideration the definition of money laundering and its basic concepts, it is necessary to start with the analysis of Al Capone real position. In fact, it is not a secret that he was quite a wealthy individual. Moreover, it is even estimated that he was an extremely rich person. On analyzing Al Capone’s ”˜business’ in details, it should be pointed out that since 1925 he had been controlling practically all Chicago’s vice industry until 1930. Practically, it means that he controlled speakeasies, book joints, gambling houses, brothels, horse and race tracks, nightclubs distilleries and breweries (Pasley 2004). Not surprisingly that having such an impact on all these illegal activities in Chicago of late 1920s his reported income was estimated about $100.000.000 a year (Pasley 2004). In such a way, it is obvious that real incomes of Al Capone were really great and his empire was really powerful to the extent that he attempted to influence the mayor of Chicago.

  1. b.  The legal position of Al Capone ”“ Al Capone’s paradox

Naturally, in such a situation Al Capone could not help from attempting to legalize his enormous income and make his underworld empire legal. The only logical solution of the problem of legalization of illegal money was their investment in legal business. Not surprisingly that Al Capone attempted to acquire a sizable interest in the largest cleaning and dyeing plant chain in Chicago. Later he pretended to be an antique dealer and a doctor to front his headquarters. He also tended to make similar acquisition in order to receive a legal source of income or at least the legal coverage for his incomes.

At the same time, he in person remained strikingly poor person who formally possessed nothing. Even the mansion he lived in was formally the property of his wife while he signed no bills. In fact, there was not a single document that indicated that he paid for anything or possessed some property that could bring him some income. As a result, there was a paradox: on the one hand, he was one of the richest people of the US, on the other hand, formally he had nothing in possession and did not pay for anything. This was the result of a perfect scheme of money laundering in the result of which Al Capone managed to hide his illegal incomes and live only due to his nearest relatives and friends whose position was legally unarguable. He did all his business through his front men

  1. c.  Al Capone’s tax evasion

Nonetheless, such a situation could not last for a long time and eventually the 1927 Sullivan ruling claimed that illegal profits were in fact taxable and in the result, the government attempted to indict Al Capone for income tax evasion. In the result of a long investigation and following trial Al Capone finally went to prison. Ironically, the formal pretext revealing his hidden income was a cash receipts ledger found by investigators that not only showed the operation’s net profit for a gambling house but also contained Capone’s name.


Thus, Al Capone was one of the first notorious criminals whose bank fraud, notably money laundering were revealed but paradoxically, in his epoch there was not even such a notion as money laundering and he could not be imprisoned for this crime. As a result, he was pled guilty for tax evasion but soon after his crimes were revealed money laundering became a serious crime which unfortunately persist till the present moment and still is a serious threat for society.

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