Ex-FBI investigator Ross Gaffney told the Independent on Sunday that the billionaire was part of a joint FBI-Scotland Yard operation targeting "brass plate banks" on the Caribbean island of Montserrat.
Several banks were suspected of laundering cash for the Medellin and Cali drug cartels but no charges were ever brought. The investigation into Sir Allen ended when he voluntarily surrendered his Montserrat banking license and left the island.
However, Mr Gaffney claimed that Sir Allen "remained on the FBI's radar" and the bureau continued to monitor his Antiguan operation - Stanford International Bank - after "intelligence" indicated that it too was involved in money laundering.
Again, no charges were ever brought.
The ex-agent added that the FBI was called in to help the Securities and Exchange Commission when its investigation into the Texas-born businessman's investment operations - which started in 2006 - floundered because of a lack of cooperation from the Antiguan authorities.
Sir Allen was charged last week with orchestrating an $8 billion investment fraud.