Spitfire List Web site and blog of anti-fascist researcher and radio personality Dave Emory.

For The Record  

FTR #740 Update on the Meltdown Part 6: The Wachovia File

Beached Craft Bonan­za: Run­ning out of Liq­uid­i­ty?

Dave Emory’s entire life­time of work is avail­able on a flash dri­ve that can be obtained here. (The flash dri­ve includes the anti-fas­cist books avail­able on this site.)

Lis­ten:
MP3 One Seg­ment


NB: This Flash stream con­tains both FTRs 740 and 741 in sequence. Each is a 30-minute broad­cast.

Intro­duc­tion: The focal point of the broad­cast is a mon­ey-laun­der­ing oper­a­tion, in which the now-failed Wachovia Bank laun­dered a sum equal to a third of Mex­i­co’s GDP on behalf of Mex­i­can drug smug­gling car­tels. As we see below, the inves­ti­ga­tion of this link was active­ly frus­trat­ed by offi­cials at Wachovia (now tak­en over by Wells Far­go). The Mex­i­can mon­ey pipeline dried up in the sum­mer of 2007, as the finan­cial melt­down was gain­ing steam.

One of the oper­a­tions con­duct­ed under the rubric of this rela­tion­ship was a ship­ment of more than 5.5 tons of cocaine in a DC‑9 that was bust­ed in Mex­i­co. As we have seen in FTR #729, that oper­a­tion was inex­tri­ca­bly linked with the intel­li­gence/­drug-smug­gling/ter­ror­ist milieu inves­ti­gat­ed by the hero­ic Daniel Hop­sick­er.

Mon­ey to Burn

Draw­ing on a mag­nif­i­cent arti­cle from The Guardian’s web­site, the pro­gram high­lights the pro­found rela­tion­ship between the world’s finan­cial indus­try and drug cartels–a mar­riage of the over­world and the under­world.

Not­ing that the finan­cial insti­tu­tions of the world have long processed monies from the world’s major drug-smug­gling inter­ests, the pro­gram sets forth the belief on the part of inves­ti­ga­tors that repeat­ed finan­cial crises have ren­dered those insti­tu­tions depen­dent on the dirty mon­ey.

This depen­den­cy may well explain Wachovia offi­cials’ obvi­ous col­lu­sion with the crim­i­nals whose funds they laun­dered, as well as U.S. reg­u­la­tors’ unwill­ing­ness to slap the Wachovia gang with any­thing more than an eco­nom­ic wrist-slap in levy­ing puni­tive fines.

Pro­gram High­lights Include: Analy­sis of the rela­tion­ship of the drug and finan­cial indus­tries set forth by BCCI inves­ti­ga­tor Robert Mazur; U.N. inves­ti­ga­tor Anto­nio Costa’s belief that the world was res­cued from a worse finan­cial melt­down through the infu­sion of funds from drug-traf­fick­ing syn­di­cates into the glob­al finan­cial sys­tem; the Wachovia oper­a­tion’s involve­ment in pur­chas­ing air­craft used in drug smug­gling; details con­cern­ing the method­ol­o­gy of inves­ti­ga­tor Mar­tin Woods, who uncov­ered the Wachovia/Sinaloa car­tel oper­a­tion; the details of Wachovi­a’s per­se­cu­tion of Woods and the suf­fer­ing he endured as a result; the use of trav­el­er’s checks denom­i­nat­ed in euros for the oper­a­tion.

1. The focal point of the broad­cast is a mon­ey-laun­der­ing oper­a­tion, in which the now-failed Wachovia Bank laun­dered a sum equal to a third of Mex­i­co’s GDP on behalf of Mex­i­can drug smug­gling car­tels. As we see below, the inves­ti­ga­tion of this link was active­ly frus­trat­ed by offi­cials at Wachovia (now tak­en over by Wells Far­go). The Mex­i­can mon­ey pipeline dried up in the sum­mer of 2007, as the finan­cial melt­down was gain­ing steam.

One of the oper­a­tions con­duct­ed under the rubric of this rela­tion­ship was a ship­ment of more than 5.5 tons of cocaine in a DC‑9 that was bust­ed in Mex­i­co. As we have seen in FTR #729, that oper­a­tion was inex­tri­ca­bly linked with the intel­li­gence/­drug-smug­gling/ter­ror­ist milieu inves­ti­gat­ed by the hero­ic Daniel Hop­sick­er.

On 10 April 2006, a DC‑9 jet land­ed in the port city of Ciu­dad del Car­men, on the Gulf of Mex­i­co, as the sun was set­ting. Mex­i­can sol­diers, wait­ing to inter­cept it, found 128 cas­es packed with 5.7 tons of cocaine, val­ued at $100m. But some­thing else – more impor­tant and far-reach­ing – was dis­cov­ered in the paper trail behind the pur­chase of the plane by the Sinaloa nar­co-traf­fick­ing car­tel.

Dur­ing a 22-month inves­ti­ga­tion by agents from the US Drug Enforce­ment Admin­is­tra­tion, the Inter­nal Rev­enue Ser­vice and oth­ers, it emerged that the cocaine smug­glers had bought the plane with mon­ey they had laun­dered through one of the biggest banks in the Unit­ed States: Wachovia, now part of the giant Wells Far­go.

The author­i­ties uncov­ered bil­lions of dol­lars in wire trans­fers, trav­eller’s cheques and cash ship­ments through Mex­i­can exchanges into Wachovia accounts. Wachovia was put under imme­di­ate inves­ti­ga­tion for fail­ing to main­tain an effec­tive anti-mon­ey laun­der­ing pro­gramme. Of spe­cial sig­nif­i­cance was that the peri­od con­cerned began in 2004, which coin­cid­ed with the first esca­la­tion of vio­lence along the US-Mex­i­co bor­der that ignit­ed the cur­rent drugs war.

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.

More shock­ing, and more impor­tant, the bank was sanc­tioned for fail­ing to apply the prop­er anti-laun­der­ing stric­tures to the trans­fer of $378.4bn – a sum equiv­a­lent to one-third of Mex­i­co’s gross nation­al prod­uct – into dol­lar accounts from so-called casas de cam­bio (CDCs) in Mex­i­co, cur­ren­cy exchange hous­es with which the bank did busi­ness.

“Wachovi­a’s bla­tant dis­re­gard for our bank­ing laws gave inter­na­tion­al cocaine car­tels a vir­tu­al carte blanche to finance their oper­a­tions,” said Jef­frey Slo­man, the fed­er­al pros­e­cu­tor. Yet the total fine was less than 2% of the bank’s $12.3bn prof­it for 2009. On 24 March 2010, Wells Far­go stock trad­ed at $30.86 – up 1% on the week of the court set­tle­ment.

The con­clu­sion to the case was only the tip of an ice­berg, demon­strat­ing the role of the “legal” bank­ing sec­tor in swill­ing hun­dreds of bil­lions of dol­lars – the blood mon­ey from the mur­der­ous drug trade in Mex­i­co and oth­er places in the world – around their glob­al oper­a­tions, now bailed out by the tax­pay­er.

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.”

Wachovia was acquired by Wells Far­go dur­ing the 2008 crash, just as Wells Far­go became a ben­e­fi­cia­ry of $25bn in tax­pay­ers’ mon­ey. Wachovi­a’s pros­e­cu­tors were clear, how­ev­er, that there was no sug­ges­tion Wells Far­go had behaved improp­er­ly; it had co-oper­at­ed ful­ly with the inves­ti­ga­tion. Mex­i­co is the US’s third largest inter­na­tion­al trad­ing part­ner and Wachovia was under­stand­ably inter­est­ed in this vol­ume of legit­i­mate trade.

José Luis Mar­mole­jo, who pros­e­cut­ed those run­ning one of the casas de cam­bio at the Mex­i­can end, said: “Wachovia han­dled all the trans­fers. They nev­er report­ed any as sus­pi­cious.”

“As ear­ly as 2004, Wachovia under­stood the risk,” the bank admit­ted in the state­ment of set­tle­ment with the fed­er­al gov­ern­ment, but, “despite these warn­ings, Wachovia remained in the busi­ness”. There is, of course, the legit­i­mate use of CDCs as a way into the His­pan­ic mar­ket. In 2005 the World Bank said that Mex­i­co was receiv­ing $8.1bn in remit­tances.

Dur­ing research into the Wachovia Mex­i­can case, the Observ­er obtained doc­u­ments pre­vi­ous­ly pro­vid­ed to finan­cial reg­u­la­tors. It emerged that the alarm that was ignored came from, among oth­er places, Lon­don, as a result of the dili­gence of one of the most impor­tant whistle­blow­ers of our time. A man who, in a series of inter­views with the Observ­er, adds detail to the doc­u­ments, lay­ing bare the sto­ry of how Wachovia was at the cen­tre of one of the world’s biggest mon­ey-laun­der­ing oper­a­tions.

Mar­tin Woods, a Liv­er­pudlian in his mid-40s, joined the Lon­don office of Wachovia Bank in Feb­ru­ary 2005 as a senior anti-mon­ey laun­der­ing offi­cer. He had pre­vi­ous­ly served with the Met­ro­pol­i­tan police drug squad. As a detec­tive he joined the mon­ey-laun­der­ing inves­ti­ga­tion team of the Nation­al Crime Squad, where he worked on the British end of the Bank of New York mon­ey-laun­der­ing scan­dal in the late 1990s.

Woods talks like a police offi­cer – in the best sense of the word: punc­til­ious, exact, with a rogu­ish humour, but moral at the core. He was an ide­al appoint­ment for any bank eager to oper­ate a dili­gent and effec­tive risk man­age­ment pol­i­cy against the lucra­tive scourge of high finance: laun­der­ing, know­ing or oth­er­wise, the vast pro­ceeds of crim­i­nal­i­ty, tax-eva­sion, and deal­ing in arms and drugs.

Woods had a police offi­cer’s eye and a police offi­cer’s instincts – not those of a banker. And this influ­enced not only his meth­ods, but his men­tal­i­ty. “I think that a lot of things mat­ter more than mon­ey – and that marks you out in a cul­ture which appears to pre­vail in many of the banks in the world,” he says.

Woods was set apart by his modus operan­di. His spe­cial­i­ty, he explains, was his appli­ca­tion of a “know your client”, or KYC, polic­ing strat­e­gy to iden­ti­fy­ing dirty mon­ey. “KYC is a fun­da­men­tal approach to anti-mon­ey laun­der­ing, going after tax eva­sion or counter-ter­ror­ist financ­ing. Who are your clients? Is the doc­u­men­ta­tion right? Good, respon­si­ble bank­ing involved always know­ing your cus­tomer and it still does.”

When he looked at Wachovia, the first thing Woods noticed was a defi­cien­cy in KYC infor­ma­tion. And among his first reports to his supe­ri­ors at the bank’s head­quar­ters in Char­lotte, North Car­oli­na, were obser­va­tions on a short­fall in KYC at Wachovi­a’s oper­a­tion in Lon­don, which he set about cor­rect­ing, while at the same time imple­ment­ing what was known as an enhanced trans­ac­tion mon­i­tor­ing pro­gramme, gath­er­ing more infor­ma­tion on clients whose mon­ey came through the bank’s offices in the City, in ster­ling or euros. By August 2006, Woods had iden­ti­fied a num­ber of sus­pi­cious trans­ac­tions relat­ing to casas de cam­bio cus­tomers in Mex­i­co.

Pri­mar­i­ly, these involved deposits of trav­eller’s cheques in euros. They had sequen­tial num­bers and deposit­ed larg­er amounts of mon­ey than any inno­cent trav­el­ling per­son would need, with inad­e­quate or no KYC infor­ma­tion on them and what seemed to a trained eye to be dubi­ous sig­na­tures. “It was basic work,” he says. “They did­n’t answer the obvi­ous ques­tions: ‘Is the trans­ac­tion real, or does it look syn­thet­ic? Does the trav­eller’s cheque meet the pro­to­cols? Is it all there, and if not, why not?’ ”

Woods dis­cussed the mat­ter with Wachovi­a’s glob­al head of anti-mon­ey laun­der­ing for cor­re­spon­dent bank­ing, who believed the cheques could sig­ni­fy tax eva­sion. 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. The records show that dur­ing 2007 Woods “con­tin­ued to sub­mit more SARs relat­ed to the casas de cam­bio”.

In July 2007, all of Wachovi­a’s remain­ing 10 Mex­i­can casa de cam­bio clients oper­at­ing through Lon­don sud­den­ly stopped doing so. 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; while the bank act­ed on one lev­el to pro­tect itself from the fed­er­al inves­ti­ga­tion into its short­com­ings, on anoth­er, it round­ed on the man who had been among the first to spot them.

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.

Wood­s’s life went into freefall. He went to hos­pi­tal with a pro­lapsed disc, report­ed sick and was told by the bank that he not done so in the appro­pri­ate man­ner, as direct­ed by the employ­ees’ hand­book. He was off work for three weeks, return­ing in August 2007 to find a let­ter from the bank’s com­pli­ance man­ag­ing direc­tor, which was unre­lent­ing in its tone and words of warn­ing.

The let­ter addressed itself to what the man­ag­er called “spe­cif­ic exam­ples of your fail­ure to per­form at an accept­able stan­dard”. Woods, on the edge of a break­down, was put on sick leave by his GP; he was lat­er giv­en psy­chi­atric treat­ment, enrolled on a stress man­age­ment course and put on med­ica­tion.

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.

“They got back in touch with me a while after­wards and we began to put the pieces of the jig­saw togeth­er,” says Woods. What they found was – as Cos­ta says – the tip of the ice­berg of what was hap­pen­ing to drug mon­ey in the bank­ing indus­try, but at least it was vis­i­ble and it had a name: Wachovia.

In June 2005, the DEA, the crim­i­nal divi­sion of the Inter­nal Rev­enue Ser­vice and the US attor­ney’s office in south­ern Flori­da began inves­ti­gat­ing wire trans­fers from Mex­i­co to the US. They were traced back to cor­re­spon­dent bank accounts held by casas de cam­bio at Wachovia. The CDC accounts were super­vised and man­aged by a busi­ness unit of Wachovia in the bank’s Mia­mi offices.

“Through CDCs,” said the court doc­u­ment, “per­sons in Mex­i­co can use hard cur­ren­cy and … wire trans­fer the val­ue of that cur­ren­cy to US bank accounts to pur­chase items in the Unit­ed States or oth­er coun­tries. The nature of the CDC busi­ness allows mon­ey laun­der­ers the oppor­tu­ni­ty to move drug dol­lars that are in Mex­i­co into CDCs and ulti­mate­ly into the US bank­ing sys­tem.

“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.”

All this occurred despite the fact that Wachovi­a’s office was in Mia­mi, des­ig­nat­ed by the US gov­ern­ment as a “high-inten­si­ty mon­ey laun­der­ing and relat­ed finan­cial crime area”, and a “high-inten­si­ty drug traf­fick­ing area”. Since the drug car­tel war began in 2005, Mex­i­co had been des­ig­nat­ed a high-risk source of mon­ey laun­der­ing.

“As ear­ly as 2004,” the court set­tle­ment would read, “Wachovia under­stood the risk that was asso­ci­at­ed with doing busi­ness with the Mex­i­can CDCs. Wachovia was aware of the gen­er­al indus­try warn­ings. As ear­ly as July 2005, Wachovia was aware that oth­er large US banks were exit­ing the CDC busi­ness based on [anti-mon­ey laun­der­ing] con­cerns … despite these warn­ings, Wachovia remained in busi­ness.”

On 16 March 2010, Dou­glas Edwards, senior vice-pres­i­dent of Wachovia Bank, put his sig­na­ture to page 10 of a 25-page set­tle­ment, in which the bank admit­ted its role as out­lined by the pros­e­cu­tors. On page 11, he signed again, as senior vice-pres­i­dent of Wells Far­go. The doc­u­ments show Wachovia pro­vid­ing three ser­vices to 22 CDCs in Mex­i­co: wire trans­fers, a “bulk cash ser­vice” and a “pouch deposit ser­vice”, to accept “deposit items drawn on US banks, eg cheques and trav­eller’s cheques”, as spot­ted by Woods.

“For the time peri­od of 1 May 2004 through 31 May 2007, Wachovia processed at least $$373.6bn in CDCs, $4.7bn in bulk cash” – a total of more than $378.3bn, a sum that dwarfs the bud­gets debat­ed by US state and UK local author­i­ties to pro­vide ser­vices to cit­i­zens.

The doc­u­ment gives a fas­ci­nat­ing insight into how the laun­der­ing of drug mon­ey works. It details how inves­ti­ga­tors “found read­i­ly iden­ti­fi­able evi­dence of red flags of large-scale mon­ey laun­der­ing”. There were “struc­tured wire trans­fers” where­by “it was com­mon­place in the CDC accounts for round-num­ber wire trans­fers to be made on the same day or in close suc­ces­sion, by the same wire senders, for the … same account”.

Over two days, 10 wire trans­fers by four indi­vid­u­als “went though Wachovia for deposit into an air­craft bro­ker’s account. All of the trans­fers were in round num­bers. None of the indi­vid­u­als of busi­ness that wired mon­ey had any con­nec­tion to the air­craft or the enti­ty that alleged­ly owned the air­craft. The inves­ti­ga­tion has fur­ther revealed that the iden­ti­ties of the indi­vid­u­als who sent the mon­ey were false and that the busi­ness was a shell enti­ty. That plane was sub­se­quent­ly seized with approx­i­mate­ly 2,000kg of cocaine on board.”

Many of the sequen­tial­ly num­bered trav­eller’s cheques, of the kind dealt with by Woods, con­tained “unusu­al mark­ings” or “lacked any leg­i­ble sig­na­ture”. Also, “many of the CDCs that used Wachovi­a’s bulk cash ser­vice sent sig­nif­i­cant­ly more cash to Wachovia than what Wachovia had expect­ed. More specif­i­cal­ly, many of the CDCs exceed­ed their month­ly activ­i­ty by at least 50%.”

Recog­nis­ing these “red flags”, the US attor­ney’s office in Mia­mi, the IRS and the DEA began inves­ti­gat­ing Wachovia, lat­er joined by Fin­CEN, one of the US Trea­sury’s agen­cies to fight mon­ey laun­der­ing, while the office of the comp­trol­ler of the cur­ren­cy car­ried out a par­al­lel inves­ti­ga­tion. The vio­la­tions they found were, says the doc­u­ment, “seri­ous and sys­temic and allowed cer­tain Wachovia cus­tomers to laun­der mil­lions of dol­lars of pro­ceeds from the sale of ille­gal nar­cotics through Wachovia accounts over an extend­ed time peri­od. The inves­ti­ga­tion has iden­ti­fied that at least $110m in drug pro­ceeds were fun­nelled through the CDC accounts held at Wachovia.”

The set­tle­ment con­cludes by dis­cussing Wachovi­a’s “con­sid­er­able co-oper­a­tion and reme­di­al actions” since the pros­e­cu­tion was ini­ti­at­ed, after the bank was bought by Wells Far­go. “In con­sid­er­a­tion of Wachovi­a’s reme­di­al actions,” con­cludes the pros­e­cu­tor, “the Unit­ed States shall rec­om­mend to the court … that pros­e­cu­tion of Wachovia on the infor­ma­tion filed … be deferred for a peri­od of 12 months.”

But while the fed­er­al pros­e­cu­tion pro­ceed­ed, Woods had remained out in the cold. On Christ­mas Eve 2008, his lawyers filed tri­bunal pro­ceed­ings against Wachovia for bul­ly­ing and detri­men­tal treat­ment of a whistle­blow­er. The case was set­tled in May 2009, by which time Woods felt as though he was “the most tox­ic per­son in the bank”. Wachovia agreed to pay an undis­closed amount, in return for which Woods left the bank and said he would not make pub­lic the terms of the set­tle­ment.

After years of tribu­la­tion, Woods was final­ly for­mal­ly vin­di­cat­ed, though not by Wachovia: a let­ter arrived from John Dugan, the comp­trol­ler of the cur­ren­cy in Wash­ing­ton DC, dat­ed 19 March 2010 – three days after the set­tle­ment in Mia­mi. Dugan said he was “writ­ing to per­son­al­ly recog­nise and express my appre­ci­a­tion for the role you played in the actions brought against Wachovia Bank for vio­la­tions of the bank secre­cy act … Not only did the infor­ma­tion that you pro­vid­ed facil­i­tate our inves­ti­ga­tion, but you demon­strat­ed great per­son­al courage and integri­ty by speak­ing up. With­out the efforts of indi­vid­u­als like you, actions such as the one tak­en against Wachovia would not be pos­si­ble.”

The so-called “deferred pros­e­cu­tion” detailed in the Mia­mi doc­u­ment is a form of pro­ba­tion where­by if the bank abides by the law for a year, charges are dropped. So this March the bank was in the clear. The week that the deferred pros­e­cu­tion expired, a spokes­woman for Wells Far­go said the par­ent bank had no com­ment to make on the doc­u­men­ta­tion per­tain­ing to Wood­s’s case, or his alle­ga­tions. She added that there was no com­ment on Slo­man’s remarks to the court; a pro­vi­sion in the set­tle­ment stip­u­lat­ed Wachovia was not allowed to issue pub­lic state­ments that con­tra­dict­ed it.

But the set­tle­ment leaves a sour taste in many mouths – and cer­tain­ly in Wood­s’s. The deferred pros­e­cu­tion is part of this “cop-out all round”, he says. “The reg­u­la­to­ry author­i­ties do not have to spend any more time on it, and they don’t have to push it as far as a crim­i­nal tri­al. They just issue crim­i­nal pro­ceed­ings, and set­tle. The law enforce­ment peo­ple do what they are sup­posed to do, but what’s the point? All those peo­ple deal­ing with all that mon­ey from drug-traf­fick­ing and mur­der, and no one goes to jail?”

One of the fore­most fig­ures in the train­ing of anti-mon­ey laun­der­ing offi­cers is Robert Mazur, lead infil­tra­tor for US law enforce­ment of the Colom­bian Medel­lín car­tel dur­ing the epic pros­e­cu­tion and col­lapse of the BCCI bank­ing busi­ness in 1991 (his sto­ry was made famous by his mem­oir, The Infil­tra­tor, which became a movie).

Mazur, whose firm Chase and Asso­ciates works close­ly with law enforce­ment agen­cies and trains offi­cers for bank anti-mon­ey laun­der­ing, cast a keen eye over the case against Wachovia, and he says now that “the only thing that will make the banks prop­er­ly vig­i­lant to what is hap­pen­ing is when they hear the rat­tle of hand­cuffs in the board­room”.

Mazur 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.”

What con­cerns Mazur is that what law enforce­ment agen­cies and politi­cians hope to achieve against the car­tels is lim­it­ed, and falls short of the obvi­ous attack the US could make in its war on drugs: go after the mon­ey. “We’re think­ing way too small,” Mazur says. “I train law enforce­ment offi­cers, thou­sands of them every year, and they say to me that if they tried to do half of what I did, they’d be arrest­ed. But I tell them: ‘You got to think big. The head­lines you will be read­ing in sev­en years’ time will be the result of the work you begin now.’ With BCCI, we had to spend two years set­ting it up, two years doing under­cov­er work, and anoth­er two years get­ting it to tri­al. If they want to do some­thing big, like go after the mon­ey, that’s how long it takes.”

But Mazur warns: “If you look at the career lad­ders of law enforce­ment, there’s no incen­tive to go after the big mon­ey. Peo­ple move every two to three years. The DEA is focused on drug traf­fick­ing rather than mon­ey laun­der­ing. You get a quick­er result that way – they want to get the traf­fick­ers and seize their assets. But this is like treat­ing a sick plant by cut­ting off a few branch­es – it just grows new ones. Going after the big mon­ey is cut­ting down the plant – it’s a hard­er door to knock on, it’s a longer haul, and it won’t get you the short-term rich­es.”

The office of the comp­trol­ler of the cur­ren­cy is still exam­in­ing whether indi­vid­u­als in Wachovia are crim­i­nal­ly liable. Sources at Fin­CEN say that a so-called “look-back” is in process, as direct­ed by the set­tle­ment and agreed to by Wachovia, into the $378.4bn that was not direct­ly asso­ci­at­ed with the air­craft pur­chas­es and cocaine hauls, but nei­ther was it sub­ject to the prop­er anti-laun­der­ing checks. A Fin­CEN source says that $20bn already exam­ined appears to have “sus­pi­cious ori­gins”. But this is just the begin­ning.

Anto­nio Maria Cos­ta, who was exec­u­tive direc­tor of the UN’s office on drugs and crime from May 2002 to August 2010, charts the his­to­ry of the con­t­a­m­i­na­tion of the glob­al bank­ing indus­try by drug and crim­i­nal mon­ey since his first ini­tia­tives to try to curb it from the Euro­pean com­mis­sion dur­ing the 1990s. “The con­nec­tion between organ­ised crime and finan­cial insti­tu­tions start­ed in the late 1970s, ear­ly 1980s,” he says, “when the mafia became glob­alised.”

Until then, crim­i­nal mon­ey had cir­cu­lat­ed large­ly in cash, with the author­i­ties mak­ing the occa­sion­al, spec­tac­u­lar “sting” or haul. Dur­ing Costa’s time as direc­tor for eco­nom­ics and finance at the EC in Brus­sels, from 1987, inroads were made against pen­e­tra­tion of banks by crim­i­nal laun­der­ing, and “crim­i­nal mon­ey start­ed mov­ing back to cash, out of the finan­cial insti­tu­tions and banks. Then two things hap­pened: the finan­cial cri­sis in Rus­sia, after the emer­gence of the Russ­ian mafia, and the crises of 2003 and 2007-08.

“With these crises,” says Cos­ta, “the bank­ing sec­tor was short of liq­uid­i­ty, the banks exposed them­selves to the crim­i­nal syn­di­cates, who had cash in hand.”

Cos­ta ques­tions the readi­ness of gov­ern­ments and their reg­u­la­to­ry struc­tures to chal­lenge this large-scale cor­rup­tion of the glob­al econ­o­my: “Gov­ern­ment reg­u­la­tors showed what they were capa­ble of when the issue sud­den­ly changed to laun­der­ing mon­ey for ter­ror­ism – on that, they sud­den­ly became seri­ous and changed their atti­tude.”

Hard­ly sur­pris­ing, then, that Wachovia does not appear to be the end of the line. In August 2010, it emerged in quar­ter­ly dis­clo­sures by HSBC that the US jus­tice depart­ment was seek­ing to fine it for anti-mon­ey laun­der­ing com­pli­ance prob­lems report­ed to include deal­ings with Mex­i­co.

“Wachovia had my résumé, they knew who I was,” says Woods. “But they did not want to know – their atti­tude was, ‘Why are you doing this?’ They should have been on my side, because they were com­pli­ance peo­ple, not com­mer­cial peo­ple. But real­ly they were com­mer­cial peo­ple all along. We’re talk­ing about hun­dreds of mil­lions of dol­lars. This is the biggest mon­ey-laun­der­ing scan­dal of our time.

“These are the pro­ceeds of mur­der and mis­ery in Mex­i­co, and of drugs sold around the world,” he says. “All the law enforce­ment peo­ple want­ed to see this come to tri­al. But no one goes to jail. “What does the set­tle­ment do to fight the car­tels? Noth­ing – it does­n’t make the job of law enforce­ment eas­i­er and it encour­ages the car­tels and any­one who wants to make mon­ey by laun­der­ing their blood dol­lars. Where’s the risk? There is none.

“Is it in the inter­est of the Amer­i­can peo­ple to encour­age both the drug car­tels and the banks in this way? Is it in the inter­est of the Mex­i­can peo­ple? It’s sim­ple: if you don’t see the cor­re­la­tion between the mon­ey laun­der­ing by banks and the 30,000 peo­ple killed in Mex­i­co, you’re miss­ing the point.”

Woods feels unable to rest on his lau­rels. He tours the world for a con­sul­tan­cy he now runs, Her­mes Foren­sic Solu­tions, coun­selling and speak­ing to banks on the dan­gers of laun­der­ing crim­i­nal mon­ey, and how to spot and stop it. “New York and Lon­don,” says Woods, “have become the world’s two biggest laun­dries of crim­i­nal and drug mon­ey, and off­shore tax havens. Not the Cay­man Islands, not the Isle of Man or Jer­sey. The big laun­der­ing is right through the City of Lon­don and Wall Street.

“After the Wachovia case, no one in the reg­u­la­to­ry com­mu­ni­ty has sat down with me and asked, ‘What hap­pened?’ or ‘What can we do to avoid this hap­pen­ing to oth­er banks?’ They are not inter­est­ed. They are the same peo­ple who attack the whistle­blow­ers and this is a posi­tion the [British] Finan­cial Ser­vices Author­i­ty at least has adopt­ed on legal advice: it has been advised that the con­fi­den­tial­i­ty of bank­ing and bankers takes pri­ma­cy over the pub­lic infor­ma­tion dis­clo­sure act. That is how the pri­or­i­ties work: secre­cy first, pub­lic inter­est sec­ond.

“Mean­while, the drug indus­try has two prod­ucts: mon­ey and suf­fer­ing. On one hand, you have mas­sive prof­its and enrich­ment. On the oth­er, you have mas­sive suf­fer­ing, mis­ery and death. You can­not sep­a­rate one from the oth­er.

“What hap­pened at Wachovia was symp­to­matic of the fail­ure of the entire reg­u­la­to­ry sys­tem to apply the kind of prop­er gov­er­nance and ade­quate risk man­age­ment which would have pre­vent­ed not just the laun­der­ing of blood mon­ey, but the glob­al cri­sis.” [Empha­sis added–D.E.]

“How a Big US Bank Laun­dered Bil­lions from Mex­i­co’s Mur­der­ous Drug Gangs” [Observ­er]; guardian.co.uk; 4/03/2011.

Discussion

11 comments for “FTR #740 Update on the Meltdown Part 6: The Wachovia File”

  1. Con­sent Orders = Gen­tle­men’s Jus­tice
    (the purest kind of jus­tice).

    Inter­na­tion­al banks have aid­ed Mex­i­can drug gangs
    DIRTY MONEY
    Despite strict rules, some banks have failed to ‘know their cus­tomer’ or ask about the source of large amounts of cash, allow­ing bil­lions in dirty mon­ey from Mex­i­co to be laun­dered.

    Novem­ber 27, 2011|By Tra­cy Wilkin­son and Ken Elling­wood, Los Ange­les Times

    ...

    In a sim­i­lar case, anoth­er bank­ing giant, HSBC Bank, is being mon­i­tored by U.S. reg­u­la­tors after a probe last year focused on bulk cash that the bank’s U.S. branch received from Mex­i­can exchange hous­es, mon­ey sus­pect­ed to be drug pro­ceeds.

    One of the reg­u­la­tors, the U.S. Office of the Comp­trol­ler of the Cur­ren­cy, said HSBC had “crit­i­cal defi­cien­cies” in its 2006–2009 report­ing of sus­pi­cious activ­i­ties and its mon­i­tor­ing of bulk-cash trans­fers.

    The OCC issued a cease-and-desist order against HSBC, not­ing, “The bank’s com­pli­ance pro­gram and its imple­men­ta­tion are inef­fec­tive, and accom­pa­nied by aggra­vat­ing fac­tors, such as high­ly sus­pi­cious activ­i­ty cre­at­ing a sig­nif­i­cant poten­tial for unre­port­ed mon­ey-laun­der­ing or ter­ror­ist financ­ing.”

    After U.S. fed­er­al pros­e­cu­tors issued grand jury sub­poe­nas, some believed that reg­u­la­tors might try to use the HSBC case to set an exam­ple and pros­e­cute indi­vid­ual bankers. Instead, HSBC agreed to strength­en its com­pli­ance pro­gram and has said it is coop­er­at­ing with inves­ti­ga­tors, with­out acknowl­edg­ing wrong­do­ing, part of a so-called con­sent order.

    ...

    And who says HSBC did­n’t acknowl­edge any wrong­do­ing?

    ...
    Niall Book­er, chief exec­u­tive offi­cer of HSBC North Amer­i­ca, said today in a con­fer­ence call with reporters that he couldn’t com­ment on “some oth­er inves­ti­ga­tions by var­i­ous U.S. gov­ern­men­tal agen­cies” dis­closed in the fil­ing.

    He said the com­pa­ny is mak­ing its “best endeav­ours” to meet the require­ments of the cease-and-desist orders. “We per­haps didn’t staff the com­pli­ance and par­tic­u­lar­ly the AML, BSA func­tions as vig­or­ous­ly as we should have done,” Book­er said, refer­ring to the Bank Secre­cy Act and anti-mon­ey laun­der­ing.

    Pos­si­ble sub­stan­dard staffing vig­or is a pret­ty seri­ous admis­sion ... when you’re a gen­tle­man.

    At least we can be con­fi­dent that their inter­nal con­trols against cor­rup­tion and bribery are in place. After all, they recent­ly said so:

    HSBC’s Libya links ques­tioned after sec­ond leak
    The leak of a sec­ond doc­u­ment from the Libyan Invest­ment Author­i­ty has again raised ques­tions about HSBC’s links with the North African coun­try’s regime.

    By Har­ry Wil­son, Bank­ing Cor­re­spon­dent

    5:45AM BST 01 Jul 2011

    A doc­u­ment show­ing the hold­ings of the Libyan Invest­ment Author­i­ty (LIA) revealed the regime deposit­ed more than $1.1bn (£685m) with HSBC in the three months to the end of Sep­tem­ber last year, mak­ing the British lender its largest for­eign banker.

    The links between banks and the Libyan gov­ern­ment have become the sub­ject of a US inquiry as pros­e­cu­tors inves­ti­gate whether bribes were paid in rela­tion to trans­ac­tions with sov­er­eign wealth funds.

    Doc­u­ments leaked to pres­sure group Glob­al Wit­ness show the deal­ings of major inter­na­tion­al banks with the LIA, which had assets at the end of Sep­tem­ber of $64bn.

    A sec­ond invest­ment pre­sen­ta­tion released today shows that the LIA increased the amount of mon­ey it held on deposit with HSBC from $293m at the end of June last year to $1.42bn three months lat­er.

    Just over $1bn of Libyan mon­ey was held in an HSBC “liq­uid­i­ty account” as of the end of Sep­tem­ber, while a fur­ther $395m was held by the bank’s Lux­em­bourg branch.
    ...

    A spokesman for HSBC said: “HSBC has strin­gent poli­cies and pro­ce­dures for coun­ter­ing bribery and cor­rup­tion in all the juris­dic­tions in which it oper­ates. These apply to deal­ings with gov­ern­ment enti­ties, pri­vate organ­i­sa­tions and indi­vid­u­als.”

    ...

    Posted by Pterrafractyl | November 29, 2011, 7:31 pm
  2. Hop­sick­er has a new arti­cle on Wachovia, drug mon­ey-laun­der­ing, Art Nadel, and BCCI. Def­i­nite­ly worth a read.

    Posted by Pterrafractyl | February 20, 2012, 8:44 pm
  3. Meet the War on Music: because the War on Drugs just was­n’t stu­pid enough for the Tal­iban’s aes­thet­ic sense of pro­ject­ed pious­ness.

    But don’t wor­ry Drug War, you’re still a real­ly real­ly bad idea.

    Posted by Pterrafractyl | August 27, 2012, 2:18 pm
  4. Here’s one more reminder that the inter­na­tion­al drug trade did­n’t become an inte­gral part of the glob­al finan­cial sys­tem on its own. It’s had some help:

    Busi­ness Insid­er
    The Man Who Infil­trat­ed Pablo Esco­bar’s Car­tel Explains What’s Wrong With The Glob­al Bank­ing Sys­tem
    Michael Kel­ley | Sep. 7, 2012, 12:56 PM

    Robert Mazur, the U.S. Cus­toms spe­cial agent who led one of the most suc­cess­ful under­cov­er oper­a­tions in U.S. law enforce­ment his­to­ry, gave us some insight into inter­na­tion­al mon­ey laun­der­ing and said the Fed­er­al Reserve needs to do more to help.

    In the 1980s Mazur spent five years infil­trat­ing the high­est cir­cles of Colom­bi­a’s drug car­tels as a mon­ey laun­der­er, trans­form­ing more than $34 mil­lion in cocaine cash into trace­able, paper-trailed bank trans­ac­tions under the pseu­do­nym Bob L. Musel­la.

    His book, The Infil­tra­tor: My Secret Life Inside the Dirty Banks Behind Pablo Esco­bar’s Medel­lín Car­tel, explains how “Oper­a­tion C‑Chase” led to the indict­ment of 85 indi­vid­u­als – includ­ing sev­er­al offi­cials affil­i­at­ed with the then-sev­enth largest pri­vate­ly-held bank in the world, the Bank of Cred­it and Com­merce Inter­na­tion­al (BCCI)—and the con­vic­tion of Gen­er­al Manuel Nor­ie­ga.

    Now he is on a mis­sion to “share infor­ma­tion with the pub­lic about how this mon­ey laun­der­ing activ­i­ty has engulfed the will of the finan­cial insti­tu­tions of the world.”

    Mazur says that “the inter­na­tion­al com­mu­ni­ty is today doing the same thing that BCCI and their offi­cers were doing 20 years ago”—citing the HSBC mon­ey-laun­der­ing scan­dal and the tax havens of the super-rich—and told BI that the prob­lem is much larg­er than the esti­mat­ed $2.1 tril­lion that crime gen­er­ates each year.

    “What [the cor­rupt bankers at BCCI] did was mar­ket flight cap­i­tal, and they iden­ti­fied it as basi­cal­ly mon­ey seek­ing secre­cy from gov­ern­ments,” Mazur said. “Yes it does include the items that the $2.1 tril­lion iden­ti­fies but it’s big­ger than that because there are times that you take legal mon­ey and use it for an ille­gal pur­pose, and that mon­ey is as big if not big­ger than the ille­gal mon­ey.”

    He calls the prac­tice “a major mon­ey­mak­er for the bank­ing world” and cites the Stan­dard Char­tered scan­dal, in which bankers “took $250 bil­lion worth of basi­cal­ly legal mon­ey and used tech­niques to hide from gov­ern­ments the fact that the mon­ey was being moved in these oth­er­wise-legal trans­ac­tions on the behalf of sanc­tioned nations, includ­ing Iran.”

    He said the HSBC rul­ing list­ed six or sev­en meth­ods “tra­di­tion­al­ly used by banks in a big way facil­i­tate rela­tion­ships with peo­ple who want to hide mon­ey from gov­ern­ments” and explained that bankers pro­vide these ser­vices “to entice these peo­ple to bank with them” so that the bank is able to increase their deposits.

    ...

    He added that the cur­rent reg­u­la­to­ry process ignores the fun­da­men­tal prob­lem, which is that “there are two brains in a bank—there’s this prof­it brain that’s moti­vat­ed by earn­ing mon­ey ... and then we have a com­pli­ance depart­ment and their whole agen­da has noth­ing to do with prof­it, it has to do with iden­ti­fy­ing risk and min­i­miz­ing it. But when the com­pli­ance and the sales brain meet, upper man­age­ment sides with sales because that’s their gig too—profits. And there has to be a way to try to begin to change that chem­istry of the inter­ac­tion of the two brains.”

    One straight­for­ward ways to do that, accord­ing to Mazur, would be to crack down on bankers who solic­it shady business—like the ones at HSBC—by putting a few “behind bars for a very long peri­od of time” instead of just giv­ing them a fine.

    ...

    A LOT of help.

    Posted by Pterrafractyl | September 28, 2012, 1:09 pm
  5. Yes, that’s quite a pick­le:

    Pot legal­iza­tion puts U.S. bankers in a pick­le

    By Brett Wolf

    Thu Nov 8, 2012 6:05pm EST

    ST. LOUIS, Nov 8 (Thom­son Reuters Accelus) — Col­orado and Wash­ing­ton may have vot­ed to legal­ize recre­ation­al mar­i­jua­na, but it is far from a green light for banks to pro­vide accounts or oth­er ser­vices to the pot indus­try in those states.

    Finan­cial insti­tu­tions across the coun­try still face legal risks if they do busi­ness with mar­i­jua­na shops because pot remains ille­gal under fed­er­al law.

    If finan­cial insti­tu­tions are fed­er­al­ly licensed or insured, they must com­ply with fed­er­al reg­u­la­tions, and those reg­u­la­tions are clear about con­duct­ing finan­cial trans­ac­tions with mon­ey gen­er­at­ed by the sale of nar­cotics,” said Jim Dowl­ing, a for­mer Inter­nal Rev­enue Ser­vice spe­cial agent who also act­ed as an anti-mon­ey laun­der­ing advi­sor to the Office of Nation­al Drug Con­trol Pol­i­cy.

    The bal­lot mea­sures on Tues­day made Col­orado and Wash­ing­ton the first states to per­mit recre­ation­al mar­i­jua­na sale and use. Med­ical-mar­i­jua­na laws have been around in some states for more than a decade.

    Cal­i­for­nia was the first state to legal­ize med­ical mar­i­jua­na in 1996. With the addi­tion of Mass­a­chu­setts, which passed a med­ical-mar­i­jua­na bal­lot ini­tia­tive on Tues­day, 18 states and the Dis­trict of Colum­bia now have such laws on their books.

    The med­ical mar­i­jua­na busi­ness was worth $1.7 bil­lion in 2011 and grow­ing, accord­ing to a study by finan­cial-analy­sis firm See Change Strat­e­gy.

    ...

    Mmmmmm...a $1.7 bil­lion pick­le of pot pro­ceeds. What a won­der­ful appe­tiz­er for the main course:

    Reuters
    Are the big banks win­ning?
    By Charles R. Mor­ris
    Octo­ber 24, 2012

    The Dodd-Frank Act to re-reg­u­late the big banks was inten­tion­al­ly tough. It was passed in the wake of the 2008–2009 finan­cial crash to end cow­boy bank­ing; require far more cap­i­tal and much less lever­age, and rein in the trad­ing-desk genius­es who pumped up ser­i­al bub­bles. Since Con­gress is a poor forum for craft­ing such a com­plex statute, the details were left to the expert reg­u­la­to­ry agen­cies.

    The big banks pay lip-ser­vice to the goals of Dodd-Frank — but they’re mount­ing bit­ter, rear­guard actions in fed­er­al courts to block mean­ing­ful con­straints and reg­u­la­tions on pro­ce­dur­al and oth­er grounds. This is an omi­nous turn of events, since these banks have the legal fire­pow­er to over­whelm bud­get-con­strained U.S. reg­u­la­to­ry agen­cies.

    While Dodd-Frank is aimed at pre­vent­ing anoth­er cycle of bub­ble-and-bust, shrink­ing the finan­cial sec­tor is cru­cial for oth­er rea­sons. One is a mass of evi­dence demon­strat­ing that hyper-finan­cial­ized economies have low­er growth. Anoth­er is the appalling eth­i­cal record of large finan­cial com­pa­nies. The chance of mak­ing huge pay­days by risk­ing oth­er people’s mon­ey, it seems, can some­times derange moral com­pass­es.

    ...

    Drug mon­ey laun­der­ing, how­ev­er, may be the most prof­itable over­all. Wachovia Bank, now part of Wells Far­go, signed a set­tle­ment to avoid crim­i­nal pros­e­cu­tion for improp­er­ly and ille­gal­ly trans­fer­ring at least $398 bil­lion from Mex­i­co, most of it obvi­ous­ly drug car­tel mon­ey. The bank­ing sub­sidiary of Amer­i­can Express engaged in sim­i­lar laun­der­ing on a small­er scale. Anoth­er mon­ey laun­der­ing case, pos­si­bly the biggest, is now under nego­ti­a­tion between HSBC and the U.S. author­i­ties.

    ...

    Achiev­ing the objec­tives of Dodd-Frank, there­fore, is cru­cial. Not just to pre­vent anoth­er bub­ble, but to redi­rect resources to enhance growth rather than feed the Wall Street casi­no. And, per­haps, to save the soul of Amer­i­can cap­i­tal­ism.

    Sec­onds any­one? Thirds? Fourths? Any­one?

    Posted by Pterrafractyl | November 17, 2012, 2:06 am
  6. http://www.guardian.co.uk/world/2012/nov/28/gustl-mollath-hsv-claims-fraud

    Ger­man man locked up over HVB bank alle­ga­tions may have been telling truth

    Gustl Mol­lath was put in a psy­chi­atric unit for claim­ing his wife was involved in mon­ey-laun­der­ing at the Bavar­i­an bank. But sev­en years on evi­dence has emerged that could set him free

    Kate Con­nol­ly in Berlin
    guardian.co.uk, Wednes­day 28 Novem­ber 2012

    A Ger­man man com­mit­ted to a high-secu­ri­ty psy­chi­atric hos­pi­tal after being accused of fab­ri­cat­ing a sto­ry of mon­ey-laun­der­ing activ­i­ties at a major bank is to have his case reviewed after evi­dence has emerged prov­ing the valid­i­ty of his claims.

    In a plot wor­thy of a crime block­buster, Gustl Mol­lath, 56, was sub­mit­ted to the secure unit of a psy­chi­atric hos­pi­tal sev­en years ago after court experts diag­nosed him with para­noid per­son­al­i­ty dis­or­der fol­low­ing his claims that staff at the Hypo Vere­ins­bank (HVB) – includ­ing his wife, then an assets con­sul­tant at HVB – had been ille­gal­ly smug­gling large sums of mon­ey into Switzer­land.

    Mol­lath was tried in 2006 after his ex-wife accused him of caus­ing her phys­i­cal harm. He denied the charges, claim­ing she was try­ing to sul­ly his name in the light of the evi­dence he alleged­ly had against her. He was admit­ted to the clin­ic, where he has remained against his will ever since.

    But recent evi­dence brought to the atten­tion of state pros­e­cu­tors shows that mon­ey-laun­der­ing activ­i­ties were indeed prac­ticed over sev­er­al years by mem­bers of staff at the Munich-based bank, the sixth-largest pri­vate finan­cial insti­tute in Ger­many, as detailed in an inter­nal audit report car­ried out by the bank in 2003. The report, which has now been post­ed online, detailed ille­gal activ­i­ties includ­ing mon­ey-laun­der­ing and aid­ing tax eva­sion. A num­ber of employ­ees, includ­ing Mol­lath’s wife, were sub­se­quent­ly sacked fol­low­ing the bank’s inves­ti­ga­tion.

    The “Mol­lath affair”, as it has been dubbed by the Ger­man media, has tak­en on such polit­i­cal dimen­sions that it now threat­ens to bring down the gov­ern­ment of Bavaria. Under the weight of pub­lic and polit­i­cal pres­sure Horst See­hofer, the prime min­is­ter of the rich south­ern state and a mem­ber of the Chris­t­ian Social Union (CSU) – the sis­ter par­ty to Angela Merkel’s Chris­t­ian Democ­rats – has now called for the case to be reopened, amid charges that Mol­lath was pos­si­bly the vic­tim of a gross mis­car­riage of jus­tice.

    “The judi­cia­ry would be well-advised to reassess the case,” See­hofer said this week. “I want them to con­cen­trate on the ques­tion of whether every­thing has been done cor­rect­ly.”

    His jus­tice min­is­ter, Beate Merk, who has refused repeat­ed calls to resign, said she had no doubt the case had been car­ried out “by the book and quite cor­rect­ly”.

    Mol­lath has been inun­dat­ed with pub­lic sup­port in the form of thou­sands of let­ters and inter­net posts, many com­par­ing his fight to that of David ver­sus Goliath. He said he was delight­ed that what he called the “murky busi­ness of the bank” is now emerg­ing, 10 years after he first made his claims.

    “This is pre­cise­ly what I want­ed to achieve all along,” he told the Süd­deutsche Zeitung, which brought the audit report to light ear­li­er this month. In an inter­view in his sparse­ly fur­nished room in Bayreuth’s hos­pi­tal for psy­chi­a­try, he point­ed out the irony that he had suf­fered the fate he had repeat­ed­ly warned his wife she would face, telling her: ‘Please be care­ful. One day you will end up in hand­cuffs and then you’ll be banged up for a few years’ ”, he said.

    Asked whether it felt any respon­si­bil­i­ty towards Mol­lath, a spokes­woman for HVB told the Guardian: “We don’t recog­nise any con­nec­tion between the results of our audit report and either the crim­i­nal tri­al or the com­mit­ment of Mr Mol­lath.”

    Asked why the bank kept the report to itself and did not approach the author­i­ties, the spokes­woman added: “In 2003 HVB ini­ti­at­ed exten­sive inves­ti­ga­tions via inter­nal audits in response to infor­ma­tion pro­vid­ed by Mr Mol­lath on trans­ac­tions that had tak­en place a long time before … It was deter­mined that employ­ees had act­ed con­trary to their instruc­tions regard­ing Swiss bank­ing trans­ac­tions”.

    But while the find­ings, it said, had result­ed in sack­ings, the audit “did not pro­duce suf­fi­cient evi­dence indi­cat­ing crim­i­nal con­duct … that would have made a crim­i­nal charge seem appro­pri­ate”.

    Posted by R. Wilson | November 29, 2012, 9:04 pm
  7. Posted by Pterrafractyl | December 12, 2012, 12:16 pm
  8. Uh oh, some­one has a slap on the wrist com­ing! It’s legal spank­ing for gen­tle­men:

    JPMor­gan faces U.S. order to improve com­pli­ance: sources

    By Brett Wolf and Car­rick Mol­lenkamp and Emi­ly Flit­ter

    NEW YORK | Fri Jan 11, 2013 10:23am EST

    (Reuters) — U.S. reg­u­la­tors are like­ly to order JPMor­gan Chase & Co to cor­rect laps­es in how it polices sus­pect mon­ey flows, in an action expect­ed as soon as Fri­day, peo­ple famil­iar with the sit­u­a­tion said.

    The order would be the lat­est action that U.S. reg­u­la­tors have tak­en this year to force banks to tight­en their anti mon­ey- laun­der­ing sys­tems, which are sup­posed to flag sus­pect trans­ac­tions from sanc­tioned coun­tries or those from cus­tomers with ties to drug traf­fick­ing or ter­ror­ism.

    The action would be in the form of a cease-and-desist order, which reg­u­la­tors use to force banks to improve com­pli­ance weak­ness­es, the sources said.

    ...

    JPMor­gan will prob­a­bly not have to pay a mon­e­tary penal­ty, accord­ing to one per­son famil­iar with the sit­u­a­tion.

    ...

    Reg­u­la­tors enforc­ing U.S. anti mon­ey-laun­der­ing laws are required to issue cease-and-desist orders when they find a bank is vio­lat­ing the Bank Secre­cy Act by not keep­ing up with the sur­veil­lance pro­gram the law requires. What hap­pens after that, how­ev­er, varies accord­ing to the sever­i­ty of the bank’s vio­la­tions.

    The terms of a cease-and-desist order, in some cas­es, can require a bank to review its pri­or trans­ac­tions to deter­mine whether it missed any sus­pi­cious activ­i­ty it should have report­ed to reg­u­la­tors. If a high-enough num­ber of unre­port­ed sus­pi­cious trans­ac­tions are found, the reg­u­la­tors may decide to issue a civ­il mon­ey penal­ty.

    ...

    Britain-based bank Stan­dard Char­tered Plc agreed to pay a total of $667 mil­lion to U.S. and state reg­u­la­tors to resolve anti-mon­ey laun­der­ing probes, while HSBC Hold­ings Plc, also head­quar­tered in Britain, agreed in Decem­ber to pay $1.9 bil­lion to set­tle a U.S. inquiry.

    In April, the Comp­trol­ler of the Cur­ren­cy iden­ti­fied major laps­es in com­pli­ance sys­tems at U.S. bank Cit­i­group Inc, which did not pay a mon­e­tary penal­ty.

    Posted by Pterrafractyl | January 11, 2013, 3:28 pm
  9. Just the cost of doing busi­ness:

    Top Japan­ese bank to pay $250M to NY reg­u­la­tors for laun­der­ing $100B, vio­lat­ing sanc­tions

    By Asso­ci­at­ed Press, Updat­ed: Thurs­day, June 20, 11:56 AM

    ALBANY, N.Y. — The Bank of Tokyo Mit­subishi-UFJ Ltd. will pay $250 mil­lion to the state of New York for laun­der­ing bil­lions of dol­lars in trans­ac­tions that vio­lat­ed eco­nom­ic sanc­tions against coun­tries includ­ing Iran, Sudan, and Myan­mar, New York finan­cial reg­u­la­tors said Thurs­day.

    The state’s Depart­ment of Finan­cial Ser­vices said the bank agreed to the fine and a year of spe­cial mon­i­tor­ing for han­dling the 28,000 U.S. dol­lar trans­ac­tions total­ing about $100 bil­lion through its New York oper­a­tion between 2002 and 2007.

    BTMU employ­ees rou­tine­ly removed infor­ma­tion from wire trans­fer mes­sages that could have iden­ti­fied the gov­ern­ment and busi­ness enti­ties involved as tar­gets of sanc­tions, the depart­ment said.

    BTMU said Thurs­day it report­ed the vio­la­tions to its reg­u­la­tors and stopped the prac­tice in 2007.

    “Since 2007, BTMU has sig­nif­i­cant­ly improved its com­pli­ance poli­cies and pro­ce­dures,” the bank said. “BTMU is com­mit­ted to con­duct­ing busi­ness with the high­est lev­els of integri­ty and reg­u­la­to­ry com­pli­ance, and to con­tin­u­al­ly improv­ing its poli­cies and pro­ce­dures.”

    It said it will con­tin­ue to coop­er­ate with reg­u­la­tors.

    ...

    Last year, Britain’s Stan­dard Char­tered Bank agreed to pay $340 mil­lion to set­tle New York alle­ga­tions it vio­lat­ed sanc­tions by pro­cess­ing bil­lions of U.S. dol­lar trans­ac­tions for Iran­ian inter­ests.

    Posted by Pterrafractyl | June 20, 2013, 11:45 am
  10. This is some­what fas­ci­nat­ing: the US Jus­tice Depart­ment recent let HSBC off the hook with a record $1.9 bil­lion wrist slap over HSBC’s exten­sive mon­ey-laun­der­ing on behalf of major drug car­tels. And the rea­son no one was pros­e­cut­ed? Fear that crim­i­nal pros­e­cu­tion would top­ple the bank and, in the process, endan­ger the finan­cial sys­tem. So we’re learn­ing about a new perk that comes with being a too-big-to-fail bank: your exec­u­tives are appar­ent­ly too-big-to-jail too:

    Rolling Stone
    Out­ra­geous HSBC Set­tle­ment Proves the Drug War is a Joke

    By Matt Taib­bi
    POSTED: Decem­ber 13, 3:25 PM ET

    If you’ve ever been arrest­ed on a drug charge, if you’ve ever spent even a day in jail for hav­ing a stem of mar­i­jua­na in your pock­et or “drug para­pher­na­lia” in your gym bag, Assis­tant Attor­ney Gen­er­al and long­time Bill Clin­ton pal Lan­ny Breuer has a mes­sage for you: Bite me.

    Breuer this week signed off on a set­tle­ment deal with the British bank­ing giant HSBC that is the ulti­mate insult to every ordi­nary per­son who’s ever had his life altered by a nar­cotics charge. Despite the fact that HSBC admit­ted to laun­der­ing bil­lions of dol­lars for Colom­bian and Mex­i­can drug car­tels (among oth­ers) and vio­lat­ing a host of impor­tant bank­ing laws (from the Bank Secre­cy Act to the Trad­ing With the Ene­my Act), Breuer and his Jus­tice Depart­ment elect­ed not to pur­sue crim­i­nal pros­e­cu­tions of the bank, opt­ing instead for a “record” finan­cial set­tle­ment of $1.9 bil­lion, which as one ana­lyst not­ed is about five weeks of income for the bank.

    The banks’ laun­der­ing trans­ac­tions were so brazen that the NSA prob­a­bly could have spot­ted them from space. Breuer admit­ted that drug deal­ers would some­times come to HSBC’s Mex­i­can branch­es and “deposit hun­dreds of thou­sands of dol­lars in cash, in a sin­gle day, into a sin­gle account, using box­es designed to fit the pre­cise dimen­sions of the teller win­dows.”

    This bears repeat­ing: in order to more effi­cient­ly move as much ille­gal mon­ey as pos­si­ble into the “legit­i­mate” bank­ing insti­tu­tion HSBC, drug deal­ers specif­i­cal­ly designed box­es to fit through the bank’s teller win­dows. Tony Mon­tana’s hench­men march­ing duf­fle­bags of cash into the fic­tion­al “Amer­i­can City Bank” in Mia­mi was actu­al­ly more sub­tle than what the car­tels were doing when they washed their cash through one of Britain’s most sto­ried finan­cial insti­tu­tions.

    Though this was not stat­ed explic­it­ly, the gov­ern­men­t’s ratio­nale in not pur­su­ing crim­i­nal pros­e­cu­tions against the bank was appar­ent­ly root­ed in con­cerns that putting exec­u­tives from a “sys­tem­i­cal­ly impor­tant insti­tu­tion” in jail for drug laun­der­ing would threat­en the sta­bil­i­ty of the finan­cial sys­tem. The New York Times put it this way:

    Fed­er­al and state author­i­ties have cho­sen not to indict HSBC, the Lon­don-based bank, on charges of vast and pro­longed mon­ey laun­der­ing, for fear that crim­i­nal pros­e­cu­tion would top­ple the bank and, in the process, endan­ger the finan­cial sys­tem.

    It does­n’t take a genius to see that the rea­son­ing here is beyond flawed. When you decide not to pros­e­cute bankers for bil­lion-dol­lar crimes con­nect­ed to drug-deal­ing and ter­ror­ism (some of HSBC’s Sau­di and Bangladeshi clients had ter­ror­ist ties, accord­ing to a Sen­ate inves­ti­ga­tion), it does­n’t pro­tect the bank­ing sys­tem, it does exact­ly the oppo­site. It ter­ri­fies investors and depos­i­tors every­where, leav­ing them with the clear impres­sion that even the most “rep­utable” banks may in fact be cap­tured insti­tu­tions whose senior exec­u­tives are in the employ of (this can’t be repeat­ed often enough) mur­der­ers and ter­ror­ists. Even more shock­ing, the Jus­tice Depart­men­t’s response to learn­ing about all of this was to do exact­ly the same thing that the HSBC exec­u­tives did in the first place to get them­selves in trou­ble – they took mon­ey to look the oth­er way.

    And not only did they sell out to drug deal­ers, they sold out cheap. You’ll hear brag­ging this week by the Oba­ma admin­is­tra­tion that they wrest­ed a record penal­ty from HSBC, but it’s a joke. Some of the penal­ties involved will lit­er­al­ly make you laugh out loud. This is from Breuer’s announce­ment:

    As a result of the gov­ern­men­t’s inves­ti­ga­tion, HSBC has . . . “clawed back” deferred com­pen­sa­tion bonus­es giv­en to some of its most senior U.S. anti-mon­ey laun­der­ing and com­pli­ance offi­cers, and agreed to par­tial­ly defer bonus com­pen­sa­tion for its most senior offi­cials dur­ing the five-year peri­od of the deferred pros­e­cu­tion agree­ment.

    Wow. So the exec­u­tives who spent a decade laun­der­ing bil­lions of dol­lars will have to par­tial­ly defer their bonus­es dur­ing the five-year deferred pros­e­cu­tion agree­ment? Are you fuc king kid­ding me? That’s the pun­ish­ment? The gov­ern­men­t’s nego­tia­tors could­n’t hold firm on forc­ing HSBC offi­cials to com­plete­ly wait to receive their ill-got­ten bonus­es? They had to set­tle on mak­ing them “par­tial­ly” wait? Every hon­est pros­e­cu­tor in Amer­i­ca has to be puk­ing his guts out at such bar­gain­ing tac­tics. What was the Jus­tice Depart­men­t’s open­ing offer – ask­ing exec­u­tives to restrict their Caribbean vaca­tion time to nine weeks a year?

    So you might ask, what’s the appro­pri­ate finan­cial penal­ty for a bank in HSBC’s posi­tion? Exact­ly how much mon­ey should one extract from a firm that has been shame­less­ly prof­it­ing from busi­ness with crim­i­nals for years and years? Remem­ber, we’re talk­ing about a com­pa­ny that has admit­ted to a smor­gas­bord of seri­ous bank­ing crimes. If you’re the pros­e­cu­tor, you’ve got this bank by the balls. So how much mon­ey should you take?

    How about all of it? How about every last dol­lar the bank has made since it start­ed its ille­gal activ­i­ty? How about you dive into every bank account of every sin­gle exec­u­tive involved in this mess and take every last bonus dol­lar they’ve ever earned? Then take their hous­es, their cars, the paint­ings they bought at Sothe­by’s auc­tions, the clothes in their clos­ets, the loose change in the jars on their kitchen coun­ters, every last freak­ing thing. Take it all and don’t think twice. And then throw them in jail.

    Sound harsh? It does, does­n’t it? The only prob­lem is, that’s exact­ly what the gov­ern­ment does just about every day to ordi­nary peo­ple involved in ordi­nary drug cas­es.

    ...

    The insti­tu­tion­al bias in the crack sen­tenc­ing guide­lines was a racist out­rage, but this HSBC set­tle­ment blows even that away. By eschew­ing crim­i­nal pros­e­cu­tions of major drug laun­der­ers on the grounds (the patent­ly absurd grounds, inci­den­tal­ly) that their pros­e­cu­tion might imper­il the world finan­cial sys­tem, the gov­ern­ment has now for­mal­ized the dou­ble stan­dard.

    They’re now say­ing that if you’re not an impor­tant cog in the glob­al finan­cial sys­tem, you can’t get away with any­thing, not even sim­ple pos­ses­sion. You will be jailed and what­ev­er cash they find on you they’ll seize on the spot, and con­vert into new cruis­ers or toys for your local SWAT team, which will be deployed to kick in the doors of hous­es where more such inessen­tial eco­nom­ic cogs as you live. If you don’t have a sys­tem­i­cal­ly impor­tant job, in oth­er words, the gov­ern­men­t’s posi­tion is that your assets may be used to finance your own polit­i­cal dis­en­fran­chise­ment.

    On the oth­er hand, if you are an impor­tant per­son, and you work for a big inter­na­tion­al bank, you won’t be pros­e­cut­ed even if you laun­der nine bil­lion dol­lars. Even if you active­ly col­lude with the peo­ple at the very top of the inter­na­tion­al nar­cotics trade, your pun­ish­ment will be far small­er than that of the per­son at the very bot­tom of the world drug pyra­mid. You will be treat­ed with more def­er­ence and sym­pa­thy than a junkie pass­ing out on a sub­way car in Man­hat­tan (using two seats of a sub­way car is a com­mon pros­e­cutable offense in this city). An inter­na­tion­al drug traf­fick­er is a crim­i­nal and usu­al­ly a mur­der­er; the drug addict walk­ing the street is one of his vic­tims. But thanks to Breuer, we’re now in the busi­ness, offi­cial­ly, of jail­ing the vic­tims and enabling the crim­i­nals.

    ...

    This rul­ing also rais­es anoth­er inter­est­ing ques­tion: Giv­en how incred­i­bly depen­dent the big banks have become on pro­ceeds from drug mon­ey laun­der­ing, would end­ing the hor­ri­ble joke known as the War on Drugs, cold-turkey col­lapse the finan­cial sys­tem? Because that would be some pret­ty intense drug-mon­ey-laun­der­ing with­draw­al for the banksters to go through.

    Posted by Pterrafractyl | December 28, 2013, 5:16 pm
  11. It looks like Com­merzbank’s assumed cap­i­tal short­falls ahead of the ECB’s stress tests might be the least of its prob­lems:

    Reuters
    Exclu­sive: NY tar­gets Com­merzbank employ­ees in sanc­tions accord — sources

    Pub­lished: 3:06 AM, Sep­tem­ber 30, 2014
    Updat­ed: 3:26 AM, Sep­tem­ber 30, 2014

    NEW YORK — New York’s finan­cial reg­u­la­tor wants some Com­merzbank AG employ­ees to be fired as part of a set­tle­ment over alle­ga­tions the Ger­man lender improp­er­ly processed trans­ac­tions with Iran and oth­er coun­tries fac­ing U.S. sanc­tions, accord­ing to peo­ple famil­iar with the mat­ter.

    Com­merzbank is near­ing an agree­ment to pay some $650 mil­lion to U.S. author­i­ties over sanc­tions-relat­ed vio­la­tions, with almost half going to the reg­u­la­tor, New York’s Depart­ment of Finan­cial Ser­vices, Reuters has report­ed.

    The bank, which is 17 per­cent owned by the Ger­man gov­ern­ment, would join more than a half dozen for­eign banks that have already set­tled with U.S. author­i­ties for sim­i­lar wrong­do­ing.

    In Commerzbank’s case, the depart­ment direct­ed the bank to take steps to ter­mi­nate a hand­ful of employ­ees who engaged in mis­con­duct, one source said. The source did not reveal the names of exec­u­tives who may face pun­ish­ment.

    It is also unclear whether the employ­ees will be dis­missed or be dis­ci­plined in oth­er ways, sources said, in part due to Ger­many’s strong labor laws and how long ago the alleged mis­deeds took place.

    ...

    The office told anoth­er bank to ter­mi­nate employ­ees ear­li­er this year. As part of the $8.9 bil­lion agree­ment struck in June between U.S. author­i­ties and BNP Paribas over sanc­tions vio­la­tions, 13 peo­ple were fired or sep­a­rat­ed from the French bank at the reg­u­la­tor’s behest, and anoth­er 32 were oth­er­wise dis­ci­plined through demo­tions, com­pen­sa­tion and oth­er sanc­tions, accord­ing to the agency.

    Paribas also plead­ed guilty to con­spir­ing to vio­late U.S. sanc­tions and oth­er charges brought by the Man­hat­tan Dis­trict Attor­ney and U.S. pros­e­cu­tors.

    In its deal, Com­merzbank is expect­ed to enter into deferred pros­e­cu­tion agree­ments with state and fed­er­al pros­e­cu­tors, which would sus­pend crim­i­nal charges, Reuters has report­ed.

    Besides the New York reg­u­la­tor, author­i­ties involved include the U.S. Depart­ment of Jus­tice, the U.S. Attor­ney in Wash­ing­ton, D.C., the Man­hat­tan Dis­trict Attor­ney, the Fed­er­al Reserve and the Trea­sury Depart­ment.

    They all declined to com­ment on nego­ti­a­tions when con­tact­ed by Reuters.

    Author­i­ties had been hop­ing to wrap up the deal by the end of the month, sources said, but that timetable may no longer hold. One recent stick­ing point has been the New York reg­u­la­tor’s demand that an inde­pen­dent mon­i­tor be installed at Com­merzbank to over­see its work.

    Such mon­i­tors have become a sta­ple of the agen­cy’s set­tle­ments, but may car­ry addi­tion­al risk for banks. Stan­dard Char­tered Bank, which set­tled a sim­i­lar sanc­tions probe with U.S. pros­e­cu­tors and reg­u­la­tors two years ago for $667 mil­lion, paid anoth­er $300 mil­lion to New York in August and agreed to sus­pend some busi­ness­es after fail­ing to fix prob­lems required under the 2012 deal.

    Anoth­er pos­si­ble com­pli­ca­tion is that Man­hat­tan U.S. Attor­ney Preet Bharara has begun prob­ing lax anti-mon­ey laun­der­ing con­trols at Com­merzbank, accord­ing to one source.

    Bet­sy Feuer­stein, a spokes­woman for the Man­hat­tan U.S. Attor­ney, declined com­ment.

    In 2012, the Fed­er­al Reserve Bank of New York entered into an agree­ment with Com­merzbank that required its New York branch to improve com­pli­ance with anti-mon­ey laun­der­ing laws and reg­u­la­tions. After find­ing the branch still failed to main­tain ade­quate con­trols, the Fed Reserve issued a cease and desist order last year.

    Posted by Pterrafractyl | September 29, 2014, 2:20 pm

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