NO BANK MORE CLOSELY LINKED TO MEXICAN DRUG LAUNDERING THAN WACHOVIA
No bank has been more closely connected with Mexican money laundering than Wachovia. Founded in 1879, Wachovia became the largest bank by assets in the southeastern U.S. by 1900. After the Great Depression, some savvy people in North Carolina called the bank "Walk-Over-Ya" because it had foreclosed on farms in the region.
By 2008, Wachovia was the sixth-largest American lender, and it faced $26 billion in losses from subprime mortgage loans. That cost Wachovia Chief Executive Officer Kennedy Thompson his job in June 2008.
Six months later, San Francisco-based Wells Fargo, which dates from 1852, bought Wachovia for $12.7 billion, creating the largest network of bank branches in the U.S. Thompson, who now works for private-equity firm Aquiline Capital Partners LLC in New York, declined to comment.
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As Wachovia's balance sheet was bleeding, its legal woes were mounting. In the three years leading up to Wachovia's agreement with the Justice Department, grand juries served the bank with 6,700 subpoenas requesting information.
WACHOVIA REACTED LETHARGICALLY TO THIS GRAND JURY ONSLAUGHT
The bank didn't react quickly enough to the prosecutors' requests and failed to hire enough investigators, the U.S. Treasury Department said in March. After a 22-month investigation, the Justice Department on March 12 charged Wachovia with violating the Bank Secrecy Act by failing to run an effective anti-money-laundering program.
Five days later, Wells Fargo promised in a Miami federal courtroom to revamp its detection systems. Wachovia's new owner paid $160 million in fines and penalties, less than 2 percent of its $12.3 billion profit in 2009.
If Wells Fargo keeps its pledge, the U.S. government will, according to the agreement, drop all charges against the bank in March 2011. [EDITOR: WHAT A SCANDAL].
Wells Fargo regrets that some of Wachovia's former anti-money-laundering efforts fell short, spokeswoman Mary Eshet says. Wells Fargo has invested $42 million in the past three years to improve its anti-money-laundering program and has been working with regulators, she says.
'AFTER THE HORSES HAVE BOLTED' WHINING
"We have substantially increased the caliber and number of staff in our international investigations group, and we also significantly upgraded the monitoring software", Eshet says. The agreement bars the bank from contesting or contradicting the facts in its admission.
The bank declined to answer specific questions, including how much it made by handling $378.4 billion -- including $4 billion of cash-from Mexican exchange companies. [EDITOR: PROTECTED].
The 1970 Bank Secrecy Act requires banks to report all cash transactions above $10,000 to regulators and to tell the Government about other suspected money-laundering activity.
Big banks employ hundreds of investigators and spend millions of dollars on software programs to scour accounts. [EDITOR: GREAT. BUT HASN'T ADDRESSED THE BANKS' CRIMINALITY].
No big U.S. bank -- Wells Fargo included -- has ever been indicted for violating the Bank Secrecy Act or any other Federal law. Instead, the Justice Department settles criminal charges by using deferred-prosecution agreements, in which a bank pays a fine and promises do it again.
BANKS PROTECTED BY FEARS THAT A BANK COLLAPSE WOULD IMPLODE THE SYSTEM
Large banks are protected from indictments by a variant of the too-big-to-fail theory.
Indicting a big bank could trigger a mad dash by investors to dump shares and cause panic in financial markets, says Jack Blum, a U.S. Senate investigator for 14 years and a consultant to international banks and brokerage firms on money laundering.
The theory is like a get-out-of-jail-free card for big banks, Blum says. [EDITOR: Jack Blum is a highly respected investigator, a man of the highest integrity and calibre].
"There's no capacity to regulate or punish them because they're too big to be threatened with failure", Blum says. "They seem to be willing to do anything that improves their bottom line, until they're caught". [EDITOR: ACCURATE, ACCURATE, ACCURATE, ACCURATE].
Wachovia's run-in with Federal prosecutors hasn't troubled investors. Wells Fargo's stock traded at $30.86 on March 24, up 1 percent in the week after the March 17 agreement was announced.
Moving money is central to the drug trade -- from the cash that people tape to their bodies as they cross the U.S.-Mexican border, to the $100,000 wire transfers they send from Mexican exchange houses to big U.S. banks.
BORDER FENCE DOESN'T STOP ANYONE. A HUGE WALL IS NECESSARY
In Tijuana, 15 miles south of San Diego, Gustavo Rojas has lived for a quarter of a century in a shack in the shadow of the 10-foot-high (3-meter-high) steel border fence that separates the U.S. and Mexico there. He points to holes burrowed under the barrier.
"They go across with drugs and come back with cash," Rojas, 75, says.
"This fence doesn't stop anyone".
Drug money moves back and forth across the border in an endless cycle. In the U.S., couriers take the cash from drug sales to Mexico -- as much as $29 billion a year, according to U.S. Immigration and Customs Enforcement. That would be about 319 tons of $100 bills. [EDITOR: NO. $45 BILLION].
They hide it in cars and trucks to smuggle into Mexico. There, cartels pay people to deposit some of the cash into Mexican banks and branches of international banks. The narcos launder much of what's left through money changers.
DRUG MONEY LAUNDERED THROUGH STREET MONEY TRADERS
Anyone who has been to Mexico is familiar with these street-corner money changers; Mexican regulators say there are at least 3,000 of them from Tijuana to Cancun, usually displaying large signs advertising the day's dollar-peso exchange rate.
Mexican banks are regulated by the National Banking and Securities Commission, which has an anti-money-laundering unit; the money changers are supposedly policed by Mexico's Tax Service Administration, which has no such unit.
By law, the money changers have to demand identification from anyone exchanging more than $500. They also have to report transactions higher than $5,000 to regulators.
The cartels get around these requirements by employing legions of individuals -- including relatives, maids and gardeners -- to convert small amounts of dollars into pesos or to make deposits in local banks. After that, cartels wire the money to a multinational bank.
SMALL MONEY EXCHANGES ARE CALLED SMURFS
The people making the small money exchanges are known as Smurfs, after the cartoon characters.
"They can use an army of people like Smurfs and go through $1 million before lunchtime", says Jerry Robinette, who oversees U.S. Immigration and Customs Enforcement operations along the border in east Texas.
The U.S. Treasury has been warning banks about big Mexican- currency-exchange firms laundering drug money since 1996. By 2004, many U.S. banks had closed their accounts with these companies, which are known as casas de cambio.
Wachovia ignored warnings by regulators and police, per the deferred-prosecution agreement.
"As early as 2004, Wachovia understood the risk", the bank admitted in court. "Despite these warnings, Wachovia remained in the business".
One customer that Wachovia took on in 2004 was Casa de Cambio Puebla SA, a Puebla, Mexico-based currency-exchange company. Pedro Alatorre, who ran a Puebla branch in Mexico City, had created front companies for cartels, according to a pending Mexican criminal case against him.
FEDERAL INDICTMENT IN MIAMI
A Federal Grand Jury in Miami indicted Puebla, Alatorre and three other executives in February 2008 for drug trafficking and money laundering. In May 2008, the Justice Department sought extradition of the suspects, saying they used shell firms to launder $720 million through U.S. banks.
Alatorre has been in a Mexican jail for 2 1/2 years. He denies any wrongdoing, his lawyer Mauricio Moreno says. Alatorre has made no court-filed responses in the U.S.
During the period in which Wachovia admitted to moving money out of Mexico for Puebla, couriers carrying clear plastic bags stuffed with cash went to the branch Alatorre operated at the Mexico City airport, according to surveillance reports by Mexican police.
Alatorre opened accounts at HSBC on behalf of front companies, Mexican investigators found.
Puebla executives used the stolen identities of 74 people to launder money through Wachovia accounts, Mexican prosecutors say in court-filed reports.
WACHOVIA NEVER REPORTED ANY TRANSACTIONS AS SUSPICIOUS
"Wachovia handled all the transfers, and they never reported any as suspicious", says Jose Luis Marmolejo, former head of the Mexican Attorney General's financial crimes, now in private practice.
In November 2005 and January 2006, Wachovia transferred a total of $300,000 from Puebla to a Bank of America account in Oklahoma City, according to information in the Alatorre cases in the United States and Mexico.
Drug smugglers used the funds to buy the DC-9 through Oklahoma City aircraft broker U.S. Aircraft Titles Inc., according to financial records cited in the Mexican criminal case. U.S. Aircraft Titles President Sue White declined to comment.
On April 5, 2006, a pilot flew the plane from St. Petersburg, Florida, to Caracas to pick up the cocaine, according to the DEA. Five days later, troops seized the plane in Ciudad del Carmen and burned the drugs at a nearby army base.
WACHOVIA KNEW PERFECTLY WELL WHAT WAS GOING ON
"I am sure Wachovia knew what was going on", says jJose Marmolejo, who oversaw the criminal investigation into Wachovia's customers.
"It went on too long and they made too much money not to have known".
At Wachovia's anti-money-laundering unit in London, Woods and his colleague Jim DeFazio, in Charlotte, say they suspected that drug dealers were using the bank to move funds.
Woods, a former Scotland Yard investigator, spotted illegible signatures and other suspicious markings on traveler's checks from Mexican exchange companies, he said in a September 2008 letter to the U.K. Financial Services Authority. He sent copies of the letter to the DEA and Treasury Department in the United States.
Woods, 45, says his bosses instructed him to keep quiet and tried to have him fired, according to his letter to the FSA. In one meeting, a bank official insisted Woods shouldn't have filed suspicious activity reports to the Government, as both US and UK laws require.
LONDON WACHOVIA BOSSES TRIES TO SILENCE WHISTLEBLOWER WHO THEN LEFT BANK
"I was shocked by the content and outcome of the meeting, genuinely traumatized", Woods wrote.
In the U.S., DeFazio, a Federal Bureau of Investigation agent for 21 years, says he told bank executives in 2005 that the DEA was probing the transfers through Wachovia to buy the planes.
Bank executives spurned recommendations to close suspicious accounts, DeFazio, 63, says.
"I think they looked at the money and said, 'The hell with it. We're going to bring it in, and look at all the money we'll make'", DeFazio says.
"I didn't want anything from them", he says. "I just wanted to get out".
Woods, who resigned from Wachovia in May 2009, now advises banks on how to combat money laundering. He declined to discuss details of Wachovia's actions.
U.S. Comptroller of the Currency John Dugan told Woods in a March 19 2010 letter that his efforts had helped the United States build its case against Wachovia. He wrote:
"You demonstrated great courage and integrity by speaking up when you saw problems".
It was the Puebla investigation that led U.S. authorities to the broader probe of Wachovia. On May 16, 2007, DEA agents conducted a raid of Wachovia's international banking offices in Miami. They had a court order to seize Puebla's accounts.
U.S. prosecutors and investigators then scrutinized the bank's dealings with Mexican-currency-exchange firms. That led to the March deferred-prosecution agreement.
With Puebla's Wachovia accounts seized, Alatorre and his partners shifted their laundering scheme to HSBC, according to financial documents cited in the Mexican criminal case against Alatorre.
In the three weeks after the DEA raided Wachovia, two of Alatorre's front companies, Grupo ETPB SA and Grupo Rahero SC, made 12 cash deposits totaling $1 million at an HSBC Mexican branch, Mexican investigators found.
DRUG MONEY NOW LAUNDERED THROUGH HSBC TO BUY ANOTHER PLANE
The funds financed a Beechcraft King Air 200 plane that police seized on December 29, 2007, in Cuernavaca, 50 miles south of Mexico City, according to information in the case against Alatorre.
For years, Federal authorities watched as the wife and daughter of Oscar Oropeza, a drug smuggler working for the Matamoros-based Gulf Cartel, deposited stacks of cash at a Bank of America branch on Boca Chica Boulevard in Brownsville, Texas, less than 3 miles from the border.
Investigator Robinette sits in his pickup truck across the street from that branch. It's a one-story, tan stucco building next to a Kentucky Fried Chicken outlet. Robinette discusses the Oropeza case with Tom Salazar, an agent who investigated the family.
"Everybody in there knew who they were -- the tellers, everyone", Salazar says.
"The bank never came to us, though". [EDITOR: COURSE NOT. IT'S A C.I.A. CRIMINAL ENTERPRISE]
MICRO-MONEY LAUNDERING TECHNIQUE
The Oropeza case gives a new, literal meaning to the term money laundering. Oropeza's wife, Tina Marie, and daughter Paulina Marie, deposited stashes of $20 bills several times a day into Bank of America accounts, Salazar says. Bank employees knew the Oropezas by smelling their money.
"I asked the tellers what they were talking about, and they said the money had this sweet smell like Bounce, those sheets you throw into the dryer", Salazar says. "They told me that when they opened the vault, the smell of Bounce just poured out".
Oropeza, 48, was arrested 820 miles from Brownsville, Texas.. On May 31, 2007, police in Saraland, Alabama, stopped him on a traffic violation. Checking his record, they learned of the investigation in Texas. They searched the van and discovered 84 kilograms (185 pounds) of cocaine hidden under a false floor. That allowed Federal agents to freeze Oropeza's bank accounts and search his marble-floored home in Brownsville, Robinette says.
Inside, investigators found a supply of Bounce alongside the clothes dryer.
All three Oropezas pleaded guilty in U.S. District Court in Brownsville, TX, to drug and money-laundering charges in March and April 2008. Oscar Oropeza was sentenced to 15 years in prison; his wife was ordered to serve 10 months and his daughter got 6 months.
Bank of America's Norton says: "We not only fulfilled our regulatory obligation, but we proactively worked with law enforcement on these matters". [EDITOR: NEFARIOUS HUMBUG].
Prosecutors have tried to halt money laundering at American Express Bank International twice. In 1994, the bank, then a subsidiary of New York-based American Express Co., pledged not to allow money laundering again after two employees were convicted in a criminal case involving drug trafficker Juan Garcia Abrego.
In 1994, the bank paid $14 million to settle. Five years later, drug money again flowed through American Express Bank. Between 1999 and 2004, the bank failed to stop clients from laundering $55 million of narcotics funds, the bank admitted in a deferred-prosecution accord in August 2007.
It paid $65 million to the United States and promised not to break the law again. The government dismissed the criminal charge a year later. American Express sold the bank to the London-based Standard Chartered PLC in February 2008 for $823 million.
WESTERN UNION TURNED A BLIND EYE TO DRUG-MONEY LAUNDERING
Banks aren't the only financial institutions that have turned a blind eye to drug cartels in moving illicit funds. Western Union Co., the world's largest money transfer firm, agreed to pay $94 million in February 2010 to settle civil and criminal investigations by the Arizona Attorney General's office.
Undercover state police posing as drug dealers bribed Western Union employees to illegally transfer money, says Cameron Holmes, an assistant Attorney General.
"Their allegiance was to the smugglers", Holmes says. "What they thought about during work was 'How may I please my highest- spending customers the most?'"
Workers in more than 20 Western Union offices allowed the customers to use multiple names, pass fictitious identifications and smudge their fingerprints on documents, court records say.
"In all the time we did undercover operations, we never once had a bribe turned down", says Holmes, citing court affidavits.
Western Union has made significant improvements, it complies with anti-money-laundering laws and works closely with regulators and police, spokesman Tom Fitzgerald says.
For four years, Mexican authorities have been fighting a losing battle against the cartels. The police are often two steps behind the criminals. Near the southeastern corner of Texas, in Matamoros, more than 50 combat troops surround a police station.
US officers take two suspected drug traffickers inside for questioning. Nearby, two young men wearing white T-shirts and baggy pants watch and whisper into radios. These are los halcones (the falcons), whose job is to let the cartel bosses know what the police are doing.
BILLIONS MOVED ACROSS BORDERS ROUTINELY: THERE IS NO CHANGE
While the police are outmaneuvered and outgunned, ordinary Mexicans live in fear. Rojas, the man who lives in the Tijuana slum near the border fence, recalls cowering in his home as smugglers shot it out with the police.
"The only way to survive is to stay out of the way and hope the violence, the bullets, don't come for you," Rojas says.