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

[1]

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. [2] (The flash dri­ve includes the anti-fas­cist books avail­able on this site.)

Lis­ten:
MP3 One Seg­ment [3]


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 [4], that oper­a­tion was inex­tri­ca­bly linked with the intel­li­gence/­drug-smug­gling/ter­ror­ist milieu inves­ti­gat­ed by the hero­ic Daniel Hop­sick­er [5].

[6]

Mon­ey to Burn

Draw­ing on a mag­nif­i­cent arti­cle [7] 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 [4], that oper­a­tion was inex­tri­ca­bly linked with the intel­li­gence/­drug-smug­gling/ter­ror­ist milieu inves­ti­gat­ed by the hero­ic Daniel Hop­sick­er [5].

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. [7]