Wachovia Paid trivial Fine for Laundering $400 Billion in Drug Money






Who was it who said  ‘Crime doesn’t pay’??

David Carrera (webdev)
Nov 2012

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 cases:

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.



Preparation in times of uncertainty