Wachovia will pay $160M to settle ‘historic’ money laundering case

Banking giant Wachovia Corp. will pay $160 million to settle a federal investigation into laundering of illegal drug profits through Mexican exchange houses in the largest case of its kind ever brought against a U.S. bank, prosecutors said Wednesday.

“This is historic,” acting U.S. Attorney Jeffrey Sloman said. “There is no other case like this one anywhere.”

The probe, which began in 2005 when a Drug Enforcement Administration narcotics dog in Florida detected cocaine traces in an airplane, ultimately uncovered at least $110 million in drug profits laundered from Mexico through Wachovia. The total settlement includes forfeiture in that amount plus a $50 million fine.

“DEA will follow drug money wherever it leads us,” said Mark R. Trouville, chief of the DEA’s Miami office.

The agreement means Wachovia and its executives will avoid criminal prosecution in return for the $160 million payment and significant improvements in its anti-money laundering program. If those and other conditions are met within one year, potential criminal charges for failure to maintain a system to detect money launderers will be dropped.

Wachovia, now a unit of San Francisco-based Wells Fargo & Co., said in a statement that Wells Fargo had already set aside money to pay the settlement. The statement said Wachovia, based in Charlotte, ended its relationships with foreign currency exchange houses in 2008.

“Wachovia Bank has fully cooperated with the federal government throughout the course of its investigation,” the statement said.

The $160 million fine and forfeiture represents the biggest penalty ever imposed under the Bank Secrecy Act, which requires financial institutions to keep close tabs on suspicious transactions that could indicate money is being laundered from criminal enterprises. According to prosecutors, Wachovia’s program was woefully inadequate and bank executives knew it, meaning that numerous red flags were missed over a three-year period.

In fact, officials said Wachovia had no way of checking some $420 billion in transactions from Mexican exchange houses for possible money-laundering activity. That means investigators didn’t get potentially key information on drug cartels, terrorist financing networks and other organized crime enterprises.

“The integrity of our financial system is at stake,” said Charles Steele, deputy director of the Treasury Department’s Financial Crimes Enforcement Network. “It poses a very serious problem, a very serious threat for law enforcement.”

Beginning with that DEA drug-sniffing dog in June 2005, investigators began tracing the source of money for airplanes being used to ferry cocaine in Colombia and Mexico that was ultimately destined for the U.S. Those initial money transfers were overseen by a Wachovia office in Miami.

Ultimately at least $13 million from the Mexican exchanges went through Wachovia for the purchase of aircraft, according to court documents. Four of them were seized by investigators, along with more than 22 tons of cocaine.

From there, investigators from the DEA, Internal Revenue Service and other agencies tracked billions of dollars in wire transfers, bulk cash shipments and other transactions from the Mexican exchanges through Wachovia. Many were considered suspicious, including such tactics as multiple round-number wire transfers on the same day for a single account; deposits of traveler’s checks with sequential numbers that contain unusual markings; and bulk cash transfers up to 50 percent larger than a customer had led Wachovia to expect.

Under the agreement, Wells Fargo cannot use taxpayer money provided under the federal financial bailout program — known as TARP — to pay its fine and forfeiture amounts. A Wachovia spokewoman said Wells Fargo fully repaid its TARP money to the government in late 2009, before the money-laundering settlement was finalized.

Related Topics: Banking