Wachovia Paid Trivial Fine for Nearly $400 Billion of Drug Related Money Laundering

too big to fail, too big to jail
-L

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Wachovia Paid Trivial Fine for Nearly $400 Billion of Drug Related  
Money Laundering
If this news story does not prove that banks are effectively above the  
law, I don’t know what does. The Guardian, in an account yet to be  
picked up anywhere in the US media (per Google News as of this  
posting, hat tip readers May S and Swedish Lex) reports that Wachovia  
was at the heart of one of the world’s biggest money laundering  
operations, moving $378.4 billion into dollar-based accounts from  
Mexican casas de cambio, which are currency exchange firms. While  
these transfers took place over a period of years, the article notes  
that it equals 1/3 of Mexican GDP. And the resolution?

Criminal proceedings were brought against Wachovia, though not against  
any individual, but the case never came to court. In March 2010,  
Wachovia settled the biggest action brought under the US bank secrecy  
act, through the US district court in Miami. Now that the year’s  
“deferred prosecution” has expired, the bank is in effect in the  
clear. It paid federal authorities $110m in forfeiture, for allowing  
transactions later proved to be connected to drug smuggling, and  
incurred a $50m fine for failing to monitor cash used to ship 22 tons  
of cocaine.

The operation may have started sooner, but the Wachovia admitted in  
the settlement that as of 2004 it had reason to address the procedures  
used for these transfers and chose not to. Martin Woods, a London- 
based employee and former member of the Metropolitan drug squad, had  
been hired as a senior anti-money laundering officer and started  
tightening up the activities within his reach. In 2006, he identified  
a number of obviously problematic transactions coming out of the casas:

Woods discussed the matter with Wachovia’s global head of anti-money  
laundering for correspondent banking….He then undertook what banks  
call a “look back” at previous transactions and saw fit to submit a  
series of SARs, or suspicious activity reports, to the authorities in  
the UK and his superiors in Charlotte, urging the blocking of named  
parties and large series of sequentially numbered traveller’s cheques  
from Mexico. He issued a number of SARs in 2006, of which 50 related  
to the casas de cambio in Mexico. To his amazement, the response from  
Wachovia’s Miami office, the centre for Latin American business, was  
anything but supportive – he felt it was quite the reverse.

As it turned out, however, Woods was on the right track. Wachovia’s  
business in Mexico was coming under closer and closer scrutiny by US  
federal law enforcement. Wachovia was issued with a number of  
subpoenas for information on its Mexican operation. Woods has  
subsequently been informed that Wachovia had six or seven thousand  
subpoenas. He says this was “An absurd number. So at what point does  
someone at the highest level not get the feeling that something is  
very, very wrong?”

In April and May 2007, Wachovia – as a result of increasing interest  
and pressure from the US attorney’s office – began to close its  
relationship with some of the casas de cambio. But rather than launch  
an internal investigation into Woods’s alerts over Mexico, Woods  
claims Wachovia hung its own money-laundering expert out to dry….

Later in 2007, after the investigation of Wachovia was reported in the  
US financial media, the bank decided to end its remaining  
relationships with the Mexican casas de cambio globally. By this time,  
Woods says, he found his personal situation within the bank untenable…

On 16 June Woods was told by Wachovia’s head of compliance that his  
latest SAR need not have been filed, that he had no legal requirement  
to investigate an overseas case and no right of access to documents  
held overseas from Britain, even if they were held by Wachovia…

Late in 2007, Woods attended a function at Scotland Yard where  
colleagues from the US were being entertained. There, he sought out a  
representative of the Drug Enforcement Administration and told him  
about the casas de cambio, the SARs and his employer’s reaction. The  
Federal Reserve and officials of the office of comptroller of currency  
in Washington DC then “spent a lot of time examining the SARs” that  
had been sent by Woods to Charlotte from London.

The article recounts how the DEA, the criminal division of the  
Internal Revenue Service and the US attorney’s office in southern  
Florida were taking a hard look at wire transfers out of Mexico and  
found that they wound up at the correspondent bank account of the  
casas at Wachovia were supervised by its Miami branch. From the  
Guardian:

“On numerous occasions,” say the court papers, “monies were deposited  
into a CDC by a drug-trafficking organisation. Using false identities,  
the CDC then wired that money through its Wachovia correspondent bank  
accounts for the purchase of airplanes for drug-trafficking  
organisations.” The court settlement of 2010 would detail that “nearly  
$13m went through correspondent bank accounts at Wachovia for the  
purchase of aircraft to be used in the illegal narcotics trade. From  
these aircraft, more than 20,000kg of cocaine were seized.”

The story provides a great deal more detail about the money laundering  
operations and the investigation. It is an excellent job of reporting  
and I urge you to read it in full. It is very clear the US put a lot  
of resources into the investigation. So why did Wachovia get off so  
easy?

At the height of the 2008 banking crisis, Antonio Maria Costa, then  
head of the United Nations office on drugs and crime, said he had  
evidence to suggest the proceeds from drugs and crime were “the only  
liquid investment capital” available to banks on the brink of  
collapse. “Inter-bank loans were funded by money that originated from  
the drugs trade,” he said. “There were signs that some banks were  
rescued that way.”…

[Paul] Mazur [lead infiltrator of the Medellin drug operation] said  
that “a lot of the law enforcement people were disappointed to see a  
settlement” between the administration and Wachovia. “But I know there  
were external circumstances that worked to Wachovia’s benefit, not  
least that the US banking system was on the edge of collapse.”

I suspect you never imagined “too big to fail” and “too big to jail”  
were this intimately connected.





naked capitalism 4/3/11 2:28 AM Yves Smith Banana republic Banking  
industry Currencies Legal Regulations and regulators

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