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Wells Fargo, Wachovia, B of A Involved with Mexico Drug Cartel Operations

Com­ment: It is no secret that major finan­cial insti­tu­tions, Amer­i­can and for­eign, are deeply involved with laun­der­ing drugs for major smug­gling oper­a­tions.  A recent arti­cle notes the involve­ment of B of A and Wachovia (now owned by Wells Far­go) in an oper­a­tion that result­ed  in the bust of a DC‑9 car­ry­ing 5.7 tons of cocaine. (Daniel Hop­sick­er has writ­ten of this arrest).

Note that no major U.S. bank has ever been pros­e­cut­ed for fail­ure to report trans­fers of $10,000.00 or more, as required by law. The think­ing is that such an act would pro­duce a domi­no effect that would dev­as­tate the finan­cial sys­tem, so depen­dent is it on drug mon­ey.

“Banks Financ­ing Mex­i­can Gangs Admit­ted in Wells Far­go Deal” by Michael Smith; bloomberg.com; 6/29/2010.

Excerpt: Just before sun­set on April 10, 2006, a DC‑9 jet land­ed at the inter­na­tion­al air­port in the port city of Ciu­dad del Car­men, 500 miles east of Mex­i­co City. As sol­diers on the ground approached the plane, the crew tried to shoo them away, say­ing there was a dan­ger­ous oil leak. So the troops grew sus­pi­cious and searched the jet.

They found 128 black suit­cas­es, packed with 5.7 tons of cocaine, val­ued at $100 mil­lion. The stash was sup­posed to have been deliv­ered from Cara­cas to drug traf­fick­ers in Tolu­ca, near Mex­i­co City, Mex­i­can pros­e­cu­tors lat­er found. Law enforce­ment offi­cials also dis­cov­ered some­thing else.

The smug­glers had bought the DC‑9 with laun­dered funds they trans­ferred through two of the biggest banks in the U.S.:Wachovia Corp. and Bank of Amer­i­ca Corp., Bloomberg Mar­kets mag­a­zine reports in its August 2010 issue.

This was no iso­lat­ed inci­dent. Wachovia, it turns out, had made a habit of help­ing move mon­ey for Mex­i­can drug smugglers.Wells Far­go & Co., which bought Wachovia in 2008, has admit­ted in court that its unit failed to mon­i­tor and report sus­pect­ed mon­ey laun­der­ing by nar­cotics traf­fick­ers — includ­ing the cash used to buy four planes that shipped a total of 22 tons of cocaine.

The admis­sion came in an agree­ment that Char­lotte, North Car­oli­na-based Wachovia struck with fed­er­al pros­e­cu­tors in March, and it sheds light on the large­ly undoc­u­ment­ed role of U.S. banks in con­tribut­ing to the vio­lent drug trade that has con­vulsed Mex­i­co for the past four years.

‘Bla­tant Dis­re­gard’

Wachovia admit­ted it didn’t do enough to spot illic­it funds in han­dling $378.4 bil­lion for Mex­i­can-cur­ren­cy-exchange hous­es from 2004 to 2007. That’s the largest vio­la­tion of the Bank Secre­cy Act, an anti-mon­ey-laun­der­ing law, in U.S. his­to­ry — a sum equal to one-third of Mexico’s cur­rent gross domes­tic prod­uct.

“Wachovia’s bla­tant dis­re­gard for our bank­ing laws gave inter­na­tion­al cocaine car­tels a vir­tu­al carte blanche to finance their oper­a­tions,” says Jef­frey Slo­man, the fed­er­al pros­e­cu­tor who han­dled the case.

Since 2006, more than 22,000 peo­ple have been killed in drug-relat­ed bat­tles that have raged most­ly along the 2,000-mile (3,200-kilometer) bor­der that Mex­i­co shares with the U.S. In the Mex­i­can city of Ciu­dad Juarez, just across the bor­der from El Paso, Texas, 700 peo­ple had been mur­dered this year as of mid- June. Six Juarez police offi­cers were slaugh­tered by auto­mat­ic weapons fire in a mid­day ambush in April.

Ron­dol­fo Torre, the lead­ing can­di­date for gov­er­nor in the Mex­i­can bor­der state of Tamauli­pas, was gunned down yes­ter­day, less than a week before elec­tions in which vio­lence relat­ed to drug traf­fick­ing was a cen­tral issue.

45,000 Troops

Mex­i­can Pres­i­dent Felipe Calderon vowed to crush the drug car­tels when he took office in Decem­ber 2006, and he’s since deployed 45,000 troops to fight the car­tels. They’ve had lit­tle suc­cess.

Among the dead are police, sol­diers, jour­nal­ists and ordi­nary cit­i­zens. The U.S. has pledged Mex­i­co $1.1 bil­lion in the past two years to aid in the fight against nar­cotics car­tels.

In May, Pres­i­dent Barack Oba­ma said he’d send 1,200 Nation­al Guard troops, adding to the 17,400 agents on the U.S. side of the bor­der to help stem drug traf­fic and ille­gal immi­gra­tion.

Behind the car­nage in Mex­i­co is an indus­try that sup­plies hun­dreds of tons of cocaine, hero­in, mar­i­jua­na and metham­phet­a­mines to Amer­i­cans. The car­tels have built a net­work of deal­ers in 231 U.S. cities from coast to coast, tak­ing in about $39 bil­lion in sales annu­al­ly, accord­ing to the Jus­tice Depart­ment.

‘You’re Miss­ing the Point’

Twen­ty mil­lion peo­ple in the U.S. reg­u­lar­ly use ille­gal drugs, spurring street crime and wreck­ing fam­i­lies. Nar­cotics cost the U.S. econ­o­my $215 bil­lion a year — enough to cov­er health care for 30.9 mil­lion Amer­i­cans — in over­bur­dened courts, pris­ons and hos­pi­tals and lost pro­duc­tiv­i­ty, the depart­ment says.

“It’s the banks laun­der­ing mon­ey for the car­tels that finances the tragedy,” says Mar­tin Woods, direc­tor of Wachovia’s anti-mon­ey-laun­der­ing unit in Lon­don from 2006 to 2009. Woods says he quit the bank in dis­gust after exec­u­tives ignored his doc­u­men­ta­tion that drug deal­ers were fun­nel­ing mon­ey through Wachovia’s branch net­work.

“If you don’t see the cor­re­la­tion between the mon­ey laun­der­ing by banks and the 22,000 peo­ple killed in Mex­i­co, you’re miss­ing the point,” Woods says.

Cleans­ing Dirty Cash

Wachovia is just one of the U.S. and Euro­pean banks that have been used for drug mon­ey laun­der­ing. For the past two decades, Latin Amer­i­can drug traf­fick­ers have gone to U.S. banks to cleanse their dirty cash, says Paul Cam­po, head of the U.S. Drug Enforce­ment Administration’s finan­cial crimes unit.

Mia­mi-based Amer­i­can Express Bank Inter­na­tion­al paid fines in both 1994 and 2007 after admit­ting it had failed to spot and report drug deal­ers laun­der­ing mon­ey through its accounts. Drug traf­fick­ers used accounts at Bank of Amer­i­ca in Okla­homa City to buy three planes that car­ried 10 tons of cocaine, accord­ing to Mex­i­can court fil­ings.

Fed­er­al agents caught peo­ple who work for Mex­i­can car­tels deposit­ing illic­it funds in Bank of Amer­i­ca accounts in Atlanta, Chica­go and Brownsville, Texas, from 2002 to 2009. Mex­i­can drug deal­ers used shell com­pa­nies to open accounts at Lon­don-based HSBC Hold­ings Plc, Europe’s biggest bank by assets, an inves­ti­ga­tion by the Mex­i­can Finance Min­istry found.

Fol­low­ing Rules

Those two banks weren’t accused of wrong­do­ing. Bank of Amer­i­ca spokes­woman Shirley Nor­ton and HSBC spokesman Roy Caple say laws bar them from dis­cussing spe­cif­ic clients. They say their banks strict­ly fol­low the gov­ern­ment rules.

“Bank of Amer­i­ca takes its anti-mon­ey-laun­der­ing respon­si­bil­i­ties very seri­ous­ly,” Nor­ton says.

A Mex­i­can judge on Jan. 22 accused the own­ers of six cen­tros cam­biar­ios, or mon­ey chang­ers, in Culi­a­can and Tijua­na of laun­der­ing drug funds through their accounts at the Mex­i­can units of Ban­co San­tander SA, Cit­i­group Inc. and HSBC, accord­ing to court doc­u­ments filed in the case.

The mon­ey chang­ers are in jail while being tried. Cit­i­group, HSBC and San­tander, which is the largest Span­ish bank by assets, weren’t accused of any wrong­do­ing. The three banks say Mex­i­can law bars them from com­ment­ing on the case, adding that they each care­ful­ly enforce anti-mon­ey-laun­der­ing pro­grams.

HSBC has stopped accept­ing dol­lar deposits in Mex­i­co, and Cit­i­group no longer allows non­cus­tomers to change dol­lars there. Cit­i­group detect­ed sus­pi­cious activ­i­ty in the Tijua­na accounts, report­ed it to reg­u­la­tors and closed the accounts, Cit­i­group spokesman Paulo Car­renosays.

Crim­i­nal Empires

On June 15, the Mex­i­can Finance Min­istry announced it would set lim­its for banks on cash deposits in dol­lars.

Mexico’s drug car­tels have become multi­na­tion­al crim­i­nal enter­pris­es.

Some of the gangs have delved into oth­er ille­gal activ­i­ties such as gun­run­ning, kid­nap­ping and smug­gling peo­ple across the bor­der, as well as into seem­ing­ly legit­i­mate areas such as truck­ing, trav­el ser­vices and air car­go trans­port, accord­ing to the Jus­tice Department’s Nation­al Drug Intel­li­gence Cen­ter.

These crim­i­nal empires have no choice but to use the glob­al bank­ing sys­tem to finance their busi­ness­es, Mex­i­can Sen­a­tor Felipe Gon­za­lez says.

“With so much cash, the only way to move this mon­ey is through the banks,” says Gon­za­lez, who rep­re­sents a cen­tral Mex­i­can state and chairs the sen­ate pub­lic safe­ty com­mit­tee.

Gon­za­lez, a mem­ber of Calderon’s Nation­al Action Par­ty, car­ries a .38 revolver for per­son­al pro­tec­tion.

“I know this won’t stop the nar­cos when they come through that door with machine guns,” he says, point­ing to the entrance to his office. “But at least I’ll take one with me.”

Sub­prime Loss­es

No bank has been more close­ly con­nect­ed with Mex­i­can mon­ey laun­der­ing than Wachovia. Found­ed in 1879, Wachovia became the largest bank by assets in the south­east­ern U.S. by 1900. After the Great Depres­sion, some peo­ple in North Car­oli­na called the bank “Walk-Over-Ya” because it had fore­closed on farms in the region.

By 2008, Wachovia was the sixth-largest U.S. lender, and it faced $26 bil­lion in loss­es from sub­prime mort­gage loans. That cost Wachovia Chief Exec­u­tive Offi­cer Kennedy Thomp­son his job in June 2008.

Six months lat­er, San Fran­cis­co-based Wells Far­go, which dates from 1852, bought Wachovia for $12.7 bil­lion, cre­at­ing the largest net­work of bank branch­es in the U.S. Thomp­son, who now works for pri­vate-equi­ty firm Aquiline Cap­i­tal Part­ners LLC in New York, declined to com­ment.

As Wachovia’s bal­ance sheet was bleed­ing, its legal woes were mount­ing. In the three years lead­ing up to Wachovia’s agree­ment with the Jus­tice Depart­ment, grand juries served the bank with 6,700 sub­poe­nas request­ing infor­ma­tion.

Not Quick Enough

The bank didn’t react quick­ly enough to the pros­e­cu­tors’ requests and failed to hire enough inves­ti­ga­tors, the U.S. Trea­sury Depart­ment said in March. After a 22-month inves­ti­ga­tion, the Jus­tice Depart­ment on March 12 charged Wachovia with vio­lat­ing the Bank Secre­cy Act by fail­ing to run an effec­tive anti-mon­ey-laun­der­ing pro­gram.

Five days lat­er, Wells Far­go promised in a Mia­mi fed­er­al court­room to revamp its detec­tion sys­tems. Wachovia’s new own­er paid $160 mil­lion in fines and penal­ties, less than 2 per­cent of its $12.3 bil­lion prof­it in 2009.

If Wells Far­go keeps its pledge, the U.S. gov­ern­ment will, accord­ing to the agree­ment, drop all charges against the bank in March 2011.

Wells Far­go regrets that some of Wachovia’s for­mer anti- mon­ey-laun­der­ing efforts fell short, spokes­woman Mary Eshet says. Wells Far­go has invest­ed $42 mil­lion in the past three years to improve its anti-mon­ey-laun­der­ing pro­gram and has been work­ing with reg­u­la­tors, she says.

‘Sig­nif­i­cant­ly Upgrad­ed’

“We have sub­stan­tial­ly increased the cal­iber and num­ber of staff in our inter­na­tion­al inves­ti­ga­tions group, and we also sig­nif­i­cant­ly upgrad­ed the mon­i­tor­ing soft­ware,” Eshet says. The agree­ment bars the bank from con­test­ing or con­tra­dict­ing the facts in its admis­sion.

The bank declined to answer spe­cif­ic ques­tions, includ­ing how much it made by han­dling $378.4 bil­lion — includ­ing $4 bil­lion of cash-from Mex­i­can exchange com­pa­nies.

The 1970 Bank Secre­cy Act requires banks to report all cash trans­ac­tions above $10,000 to reg­u­la­tors and to tell the gov­ern­ment about oth­er sus­pect­ed mon­ey-laun­der­ing activ­i­ty. Big banks employ hun­dreds of inves­ti­ga­tors and spend mil­lions of dol­lars on soft­ware pro­grams to scour accounts.

No big U.S. bank — Wells Far­go includ­ed — has ever been indict­ed for vio­lat­ing the Bank Secre­cy Act or any oth­er fed­er­al law. Instead, the Jus­tice Depart­ment set­tles crim­i­nal charges by using deferred-pros­e­cu­tion agree­ments, in which a bank pays a fine and promis­es not to break the law again. . . .


4 comments for “Wells Fargo, Wachovia, B of A Involved with Mexico Drug Cartel Operations”

  1. Here’s anoth­er bonus effect from the euro­zone finan­cial cri­sis:

    Orga­nized Crime Now ‘Italy’s No.1 Bank’: Report
    Pub­lished: Tues­day, 10 Jan 2012 | 5:11 PM ET

    Organ­ised crime has tight­ened its grip on the Ital­ian econ­o­my dur­ing the eco­nom­ic cri­sis, mak­ing the Mafia the coun­try’s biggest “bank” and squeez­ing the life out of thou­sands of small firms, accord­ing to a report on Tues­day.

    Extor­tion­ate lend­ing by crim­i­nal groups had become a “nation­al emer­gency,” said the report by anti-crime group SOS Impre­sa.

    Organ­ised crime now gen­er­at­ed annu­al turnover of about 140 bil­lion euros ($178.89 bil­lion) and prof­its of more than 100 bil­lion euros, it added.

    “With 65 bil­lion euros in liq­uid­i­ty, the Mafia is Italy’s num­ber one bank,” said a state­ment from the group, which was set up in Paler­mo a decade ago to oppose extor­tion rack­ets against small busi­ness.

    Organ­ised crime groups like the Sicil­ian Cosa Nos­tra, the Naples Camor­ra or the Cal­abri­an ‘Ndrangheta have long had a stran­gle­hold on the Ital­ian econ­o­my, gen­er­at­ing prof­its equiv­a­lent to about 7 per­cent of nation­al out­put.

    Extor­tion­ate lend­ing had become an increas­ing­ly sophis­ti­cat­ed and lucra­tive source of income, along­side drug traf­fick­ing, arms smug­gling, pros­ti­tu­tion, gam­bling and rack­e­teer­ing, the report said.

    “The clas­sic neigh­bour­hood or street loan shark is on the way out, giv­ing way to organ­ised loan-shark­ing that is well con­nect­ed with pro­fes­sion­al cir­cles and oper­ates with the con­nivance of high-lev­el pro­fes­sion­als,” the report said.

    It esti­mat­ed about 200,000 busi­ness­es were tied to extor­tion­ate lenders and tens of thou­sands of jobs had been lost as a result.

    Extor­tion With A Clean Face

    Old style gang­sters hand­ing out cash in bars and pool halls had been replaced by appar­ent­ly respectable bankers, lawyers or notaries, the report said.


    Small busi­ness­es, who have strug­gled to get hold of cred­it dur­ing the eco­nom­ic slow­down, may have been increas­ing­ly tempt­ed to turn to the mafia, said the report.

    Typ­i­cal vic­tims of extor­tion­ate lend­ing were mid­dle-aged shop­keep­ers and small busi­ness­men who would strug­gle to find a new job and who were ready to try any­thing to avoid bank­rupt­cy, it added.


    And the line between the mafia and high finance gets a lit­tle blur­ri­er (it’s real­ly less a line and more a vague smudge at this point)...

    Posted by Pterrafractyl | January 12, 2012, 7:48 am
  2. Woah, Hop­sick­er had quite a bomb­shell in his recent update on the shoot­ing of two US embassy offi­cials by Mex­i­can police offi­cers. After being tak­en to the hos­pi­tal, one of the shot Amer­i­cans list­ed as his home address the very same address noto­ri­ous­ly used as a secret prison by the CIA for extra­or­di­nary ren­di­tions. Plus some oth­er stuff:

    Amer­i­can agents wound­ed in Mex­i­co linked to CIA drug planes
    Post­ed on August 31, 2012 by Daniel Hop­sick­er

    In a vio­lent inci­dent whose expla­na­tion dai­ly grows more murky the two “U.S. embassy offi­cials” wound­ed by Mex­i­can Fed­er­al Police offi­cers in an attack out­side Cuer­nava­ca were revealed to be CIA agents by major Mex­i­can news orga­ni­za­tions ear­li­er this week.

    What has remained undis­closed —until now —is ths: one of the agents is linked to the drug traf­fick­ing oper­a­tion out of St Peters­burg Flori­da in which two CIA-con­nect­ed air­planes were seized—in sep­a­rate inci­dents in 2006 and 2007—on Mex­i­co’s Yucatan Penin­su­la car­ry­ing a total of ten tons of cocaine.

    The wound­ed agents con­nec­tion to ear­li­er CIA oper­a­tions was first dis­cov­ered by Mex­i­co City news­pa­per La Jor­na­da, which not­ed that one of the agents, after being tak­en to a hos­pi­tal for treat­ment of his wounds, list­ed his home address as a Post Office Box in Dunn Lor­ing, Vir­ginia.

    In a major embar­rass­ment for the CIA, that same address, incred­i­bly, had ear­li­er been used in a CIA oper­a­tion that received max­i­mum world­wide pub­lic expo­sure: the extra­or­di­nary ren­di­tion of Al Qae­da pris­on­ers to secret pris­ons around the world, after the attacks of Sep­tem­ber 11, 2001, on a fleet of secret­ly-owned CIA air­planes.

    “Slop­py trade­craft” a con­tin­u­ing prob­lem

    In the Mex­i­can press, where the words “CIA” and “drug smug­gling” occur togeth­er almost as often as “cook­ies” and “milk,’ the CIA’s fail­ure to invest in a new P.O. Box as part of the two wound­ed agents ‘cov­er’ was viewed with some sur­prise.

    In fact, how­ev­er, the gaffe, while extra­or­di­nary, was hard­ly unique.

    What intel­li­gence cir­cles call “slop­py trade­craft” was one of the hall­marks of the ren­di­tion-linked drug traf­fick­ing oper­a­tion, which escaped becom­ing a major scan­dal in the US only through the efforts (or non-efforts, or col­lu­sion) of America’s major media.

    For exam­ple, one of the CIA planes fre­quent­ly used in the ren­di­tion oper­a­tion, a Gulf­stream II (reg­is­tra­tion num­ber N987SA) did dou­ble duty run­ning drugs. It crashed with max­i­mum pub­lic­i­ty in the Yucatan in Sep­tem­ber of 2007, split­ting apart and spilling 3.7 tons of cocaine across a rur­al area 30 miles from Meri­da, the Yucatan State cap­i­tal.

    Even worse, the downed CIA drug plane shared inter­lock­ing own­er­ship with a sec­ond Amer­i­can-reg­is­tered plane from St Peters­burg, FL, a DC‑9, that had also made head­lines in Mex­i­co when it too was bust­ed on the Yucatan Penin­su­la car­ry­ing a mas­sive 5.5 tons of cocaine.

    Occur­ing almost back-to-back, the two well-pub­li­cized inci­dents proved to be a major turn­ing point, and an inves­ti­ga­tion by the Mex­i­can Attor­rney General’s Office led to the dis­cov­ery of a mas­sive mon­ey laun­der­ing effort by major US banks.

    One result was the col­lapse and forced sale in 2008 of Wachovia Bank, then America’s 4th largest.

    Anoth­er has been play­ing out cur­rent­ly, as fed­er­al pros­e­cu­tors con­tem­plate unprece­dent­ed crim­i­nal sanc­tions against the world’s fifth largest bank, Great Britian’s HBSC, for its mas­sive involve­ment in mon­ey laun­der­ing for Mex­i­can drug car­tels.


    Bel­tran-Ley­va dis­cov­er mean­ing of “car­tel du jour”

    Con­trary to ini­tial asser­tions that it was an acci­dent, last Fri­day’s attack on the Amer­i­can agents on a moun­tain road between Mex­i­co City and Cuer­nav­ca was a well-planned ambush by a squad of as many as two dozen men from the Mex­i­can Fed­er­al Police (PFP), in which they blocked the Amer­i­can’s SUV before unleash­ing a bar­rage of point-blank rounds direct­ly into the vehi­cle.

    The two Amer­i­cans, as well as a Cap­tain in the Mex­i­can Marines, the only force trust­ed by Amer­i­can offi­cials, were trav­el­ing in a heav­i­ly-armored SUV, which saved their lives dur­ing the attack as the vehi­cle took hun­dreds of rounds fired at close range.

    A plau­si­ble rea­son for the attack, cit­ed first by Mex­i­co City news­pa­per Pro­ce­so, is that the men were hunt­ing fugi­tive Mex­i­can drug car­tel king­pin Hec­tor Bel­tran-Ley­va, thought by secu­ri­ty experts to be at large some­where near­by.


    Yikes? So a CIA agent that appears to be relat­ed to the same group that worked on extra­or­di­nary ren­di­tion assign­ments using planes that would lat­er be found in use by Mex­i­can drug car­tels just got ambushed by two dozen Mex­i­can police offi­cers in what appears to be a car­tel-relat­ed hit. This sounds like the kind of stuff that the Depart­ment of Jus­tice inves­ti­ga­tors look­ing into the CIA’s inter­ro­ga­tion abus­es might find inter­est­ing.

    Actu­al­ly, prob­a­bly, not.

    Posted by Pterrafractyl | September 2, 2012, 7:53 pm
  3. So it was all just option­al?

    Chica­go Tri­bune
    Most major loan ser­vicers not com­ply­ing with mort­gage set­tle­ment

    By Mary Ellen Pod­mo­lik Tri­bune staff reporter

    2:20 p.m. CDT, June 19, 2013

    Four of the five largest mort­gage ser­vicers are fail­ing to com­ply with key aspects of a nation­al set­tle­ment designed to improve how strug­gling bor­row­ers are treat­ed, a report released Wednes­day shows.

    The most egre­gious mis­takes involved ser­vicers fail­ing to adhere to time­lines set to decide on loan mod­i­fi­ca­tion appli­ca­tions and oth­er noti­fi­ca­tions sent to bor­row­ers, accord­ing to a com­pli­ance report from the inde­pen­dent mon­i­tor of the nation­al set­tle­ment. that was nego­ti­at­ed between the Oba­ma admin­is­tra­tion, attor­neys gen­er­al and five com­pa­nies in Feb­ru­ary 2012. As a result of the short­com­ings found in the report, which gov­ern­ment offi­cials likened to a pub­lic report card some affect­ed bor­row­ers may receive finan­cial com­pen­sa­tion.

    The com­pa­nies’ results were bet­ter dur­ing the sec­ond half of last year, before all 29 of the tests that mea­sure per­for­mance on 304 mort­gage ser­vic­ing stan­dards, were phased in. Dur­ing the first three months of 2013, four com­pa­nies self-report­ed vio­la­tions, and the mon­i­tor is review­ing them.

    “While it is still ear­ly in the com­pli­ance mon­i­tor­ing process, it is clear to me the set­tle­ment has allowed us to uncov­er issues with the ser­vicers’ activ­i­ties that need to be rec­ti­fied,” Joseph A. Smith Jr., the set­tle­men­t’s inde­pen­dent mon­i­tor, said in a let­ter attached to his report.

    Bank of Amer­i­ca told the mon­i­tor that dur­ing 2013’s first quar­ter, it failed to pro­vide accu­rate infor­ma­tion to home­own­ers in a let­ter that mort­gage ser­vicers are required to send to home­own­ers before ini­ti­at­ing fore­clo­sure pro­ceed­ings. It also did not noti­fy bor­row­ers with­in five days of receiv­ing a loan appli­ca­tion mod­i­fi­ca­tion if there were miss­ing doc­u­ments.

    JPMor­gan Chase said in the first quar­ter it failed a test to fol­low the time­line for mak­ing a deci­sion on a bor­row­er’s loan mod­i­fi­ca­tion appli­ca­tion and telling the cus­tomer an appli­ca­tion had been denied. Smith said he is con­sid­er­ing requir­ing Chase to pro­vide some finan­cial relief to affect­ed bor­row­ers. Chase already refund­ed pre­mi­ums to 2,000 bor­row­ers for an ear­li­er error relat­ed to forced-placed insur­ance cov­er­age.

    Citi­Mort­gage failed dur­ing 2012’s final quar­ter to noti­fy bor­row­ers prompt­ly of miss­ing doc­u­ments in a loan mod­i­fi­ca­tion appli­ca­tion and because the mis­take was wide­spread, Smith said any bor­row­er harmed will be “appro­pri­ate­ly com­pen­sat­ed.” Citi­Mort­gage also said that dur­ing the first three months of this year, it failed a test relat­ed to the let­ter sent to bor­row­ers before a fore­clo­sure action is filed against a bor­row­er, and also did not noti­fy bor­row­ers with­in 30 days if there were miss­ing doc­u­ments con­nect­ed with a short sale.

    Wells Far­go & Co. fell short in 2012’s fourth quar­ter of a require­ment to noti­fy bor­row­ers of miss­ing doc­u­ments in a loan mod­i­fi­ca­tion appli­ca­tion with­in five days of receiv­ing it, accord­ing to the report.

    Ser­vicers who fail a test are required to devise a way to cor­rect their prac­tices. If they fail the same test with­in six months of seem­ing­ly cor­rect­ing it, Smith can take enforce­ment action through the courts and seek penal­ties of up to $5 mil­lion.

    In a call with reporters, Shaun Dono­van, sec­re­tary of the Depart­ment of Hous­ing and Urban Devel­op­ment, said it was under­stood that the “deep and per­va­sive prob­lems in ser­vic­ing” were not going to be cor­rect­ed in one year but the progress by banks to date is not enough.
    “This is unac­cept­able and today I want to send a sim­ple mes­sage to these banks,” he said. “Today is time to live up to the deal.”


    Note that when Bank of Amer­i­ca admit­ted to fail­ing to pro­vide accu­rate infor­ma­tion to home­own­ers before ini­ti­at­ing fore­clo­sure pro­ceed­ing there’s a lot more under that rock...

    Posted by Pterrafractyl | June 21, 2013, 6:57 am
  4. Well look at that: Wells Far­go, one of the big banks found guilty of set­ting up “robo-sign­ing” oper­a­tions to process fore­clo­sures, often when bor­row­ers weren’t behind on their mort­gage at all, just laid off 5,300 employ­ees. 5,300 employ­ees who some­how got the impres­sion that man­age­ment was total­ly cool with them meet­ing their sales quo­tas by secret­ly open­ing and clos­ing cred­it card and sav­ings accounts in the name of unwit­ting cus­tomers. Now where did they get that idea?

    The New York Times

    Wells Far­go Fined for Fraud­u­lent­ly Open­ing Accounts for Cus­tomers

    SEPT. 8, 2016

    For years, Wells Far­go employ­ees secret­ly issued cred­it cards with­out a customer’s con­sent. They cre­at­ed fake email accounts to sign up cus­tomers for online bank­ing ser­vices. They set up sham accounts that cus­tomers learned about only after they start­ed accu­mu­lat­ing fees.

    On Thurs­day, these ille­gal bank­ing prac­tices cost Wells Far­go $185 mil­lion in fines, includ­ing a $100 mil­lion penal­ty from the Con­sumer Finan­cial Pro­tec­tion Bureau, the largest such penal­ty the agency has issued.

    Fed­er­al bank­ing reg­u­la­tors said the prac­tices, which date back to 2011, reflect­ed seri­ous flaws in the inter­nal cul­ture and over­sight at Wells Far­go, one of the nation’s largest banks. The bank has fired at least 5,300 employ­ees who were involved.

    In all, Wells Far­go employ­ees opened rough­ly 1.5 mil­lion bank accounts and applied for 565,000 cred­it cards that may not have been autho­rized by cus­tomers, the reg­u­la­tors said in a news con­fer­ence. The bank has 40 mil­lion retail cus­tomers.

    Some cus­tomers noticed the decep­tion when they were charged unex­pect­ed fees, received cred­it or deb­it cards in the mail that they did not request, or start­ed hear­ing from debt col­lec­tors about accounts they did not rec­og­nize. But most of the sham accounts went unno­ticed, as employ­ees would rou­tine­ly close them short­ly after open­ing them. Wells has agreed to refund about $2.6 mil­lion in fees that may have been inap­pro­pri­ate­ly charged.

    Wells Far­go is famous for its cul­ture of cross-sell­ing prod­ucts to cus­tomers — rou­tine­ly ask­ing, say, a check­ing account hold­er if she would like to take out a cred­it card. Reg­u­la­tors said the bank’s employ­ees had been moti­vat­ed to open the unau­tho­rized accounts by com­pen­sa­tion poli­cies that reward­ed them for open­ing new accounts; many cur­rent and for­mer Wells employ­ees told reg­u­la­tors they had felt extreme pres­sure to open as many accounts as pos­si­ble.

    “Unchecked incen­tives can lead to seri­ous con­sumer harm, and that is what hap­pened here,” said Richard Cor­dray, direc­tor of the Con­sumer Finan­cial Pro­tec­tion Bureau.

    Wells said the employ­ees who were ter­mi­nat­ed includ­ed man­agers and oth­er work­ers. A bank spokes­woman declined to say whether any senior exec­u­tives had been rep­ri­mand­ed or fired in the scan­dal.

    “Wells Far­go is com­mit­ted to putting our cus­tomers’ inter­ests first 100 per­cent of the time, and we regret and take respon­si­bil­i­ty for any instances where cus­tomers may have received a prod­uct that they did not request,” the bank said in a state­ment.

    One Wells cus­tomer in North­ern Cal­i­for­nia, Shahri­ar Jab­bari, had sev­en addi­tion­al accounts that he did not con­sent to, accord­ing to a law­suit he filed against the bank last year in fed­er­al court.

    When Mr. Jab­bari called the bank ask­ing what he should do with three new deb­it cards he did not autho­rize, a bank employ­ee told him to dis­pose of them, accord­ing to the law­suit.

    Mr. Jab­bari said in the law­suit that his cred­it score had suf­fered because unpaid fees on the unau­tho­rized accounts had been sent to a debt col­lec­tor.

    Bank­ing reg­u­la­tors said the wide­spread nature of the ille­gal behav­ior showed that the bank lacked the nec­es­sary con­trols and over­sight of its employ­ees. Ensur­ing that large banks have tight con­trols has been one of the cen­tral pre­oc­cu­pa­tions of bank­ing reg­u­la­tors after the mort­gage cri­sis.

    Such per­va­sive prob­lems at Wells Far­go, which has head­quar­ters in San Fran­cis­co, stand out giv­en all of the scruti­ny that has been heaped on large, sys­tem­i­cal­ly impor­tant banks since 2008.

    “If the man­agers are say­ing, ‘We want growth; we don’t care how you get there,’ what do you expect those employ­ees to do?” said Dan Ami­ram, an asso­ciate busi­ness pro­fes­sor at Colum­bia Uni­ver­si­ty.

    It is a par­tic­u­lar­ly ugly moment for Wells, one of the few large Amer­i­can banks that have man­aged to pro­duce con­sis­tent prof­it increas­es since the finan­cial cri­sis. Wells has earned a rep­u­ta­tion on Wall Street as a tight­ly run ship that avoid­ed many of the mis­steps of the mort­gage cri­sis because it took few­er risks than many of its com­peti­tors. At the same time, Wells has man­aged to be enor­mous­ly prof­itable, as oth­er large banks con­tin­ued to stum­ble because of tighter reg­u­la­tions and a chop­py econ­o­my.

    Ana­lysts have mar­veled at the bank’s abil­i­ty to cross-sell mort­gages, cred­it cards and auto loans to cus­tomers. The strat­e­gy is at the core of mod­ern-day bank­ing: Rather than spend too much time and mon­ey recruit­ing new cus­tomers, sell exist­ing cus­tomers on new prod­ucts.

    Wells Far­go mar­kets itself as the quin­tes­sen­tial Main Street lender, stress­ing the val­ue of cre­at­ing long-term rela­tion­ships with cus­tomers over earn­ing a quick buck.

    But that apple-pie approach was under­cut, reg­u­la­tors say, by a com­pen­sa­tion pro­gram that encour­aged employ­ees to push the lim­its.

    “It is way out of char­ac­ter for one of the clean­est banks around,” said Mike Mayo, a bank­ing ana­lyst at CLSA. “It’s a head-scratch­er why so many employ­ees felt com­fort­able cross­ing the line.”

    In many cas­es, cus­tomers took notice only when they received a let­ter in the mail con­grat­u­lat­ing them on open­ing a new account.

    Many of the ques­tion­able accounts were cre­at­ed by mov­ing a small amount of mon­ey from the customer’s cur­rent account to open the new one.

    Short­ly after open­ing the sham account, the bank employ­ee closed it down and moved the mon­ey back, accord­ing to reg­u­la­tors.

    But Wells employ­ees were still most like­ly able to get cred­it for open­ing new accounts in meet­ing their sales goals, the reg­u­la­tors said.

    In addi­tion to the fine from the con­sumer pro­tec­tion bureau, Wells paid $35 mil­lion to the Office of the Comp­trol­ler of the Cur­ren­cy and $50 mil­lion to the City and Coun­ty of Los Ange­les. The Los Ange­les city attor­ney worked with bank­ing reg­u­la­tors on the case.


    Even reg­u­la­tors con­cede that the finan­cial harm to con­sumers was not large. But the more trou­bling aspect, they said, was how the behav­ior reflect­ed a broad­er cul­ture inside Wells’s retail oper­a­tions.

    “Con­sumers must be able to trust their banks,” said Mike Feuer, the Los Ange­les city attor­ney. “Con­sumers must nev­er be tak­en advan­tage of by their banks.”


    Wells said the employ­ees who were ter­mi­nat­ed includ­ed man­agers and oth­er work­ers. A bank spokes­woman declined to say whether any senior exec­u­tives had been rep­ri­mand­ed or fired in the scan­dal.

    LOL! Yeah, those senior exec­u­tives must be super scared.

    At the same time, con­sid­er­ing that Well Far­go was basi­cal­ly scam­ming itself into pay­ing its sales staff more bonus­es, it’s going to be real­ly inter­est­ing to learn why exact­ly a senior exec­u­tive would have want­ed to cre­ate the kind of cor­po­rate cul­ture where this kind of scam was basi­cal­ly expect­ed. Wells Far­go clear­ly has a cor­po­rate cul­ture that endorsed ‘any­thing goes’ behav­ior when it came to mak­ing the bank mon­ey. But in this case we had tem­po­rary accounts cre­at­ed, small amounts of mon­ey trans­ferred to those accounts, then the mon­ey was trans­ferred back and the account was closed. So what was the incen­tive for the bank’s bot­tom line here? Was the bank earn­ing extra mon­ey from the cred­it card com­pa­nies for open­ing all those accounts? Is this a way to pay the sales staff a liv­able wage with­out actu­al­ly giv­ing them raise? Or maybe all these tem­po­rary accounts with small sums of cash trans­ferred back and forth part of some sort of inter­nal mon­ey-laun­der­ing scheme? What’s the incen­tive here?

    If it turns out senior exec­u­tives knew about this, and it cer­tain­ly looks extreme­ly pos­si­ble giv­en the bank’s recent his­to­ry, it’s going to be very inter­est­ing to hear their expla­na­tion for why this was tol­er­at­ed. Of course, since this is a major bank we’re talk­ing about here, and major banks almost nev­er admit wrong­do­ing even when they’re forced to pay a fine, there’s a good chance the ulti­mate motive here is going to remain a bit of a mys­tery, in which case we can add this to the ever-grow­ing mys­tery of why the pub­lic agrees to allow the finan­cial giants to mys­te­ri­ous­ly get away with just about every­thing.

    But hey, at least we can cel­e­brate one nice aspect of this sto­ry: The Con­sumer Finan­cial Pro­tec­tion Bureau, one of the most promis­ing new safe­guards to emerge after the finan­cial cri­sis, seems to be actu­al­ly pro­tect­ing con­sumers. So that’s at least a some­what com­fort­ing.

    Don’t get too com­fort­able.

    Posted by Pterrafractyl | September 8, 2016, 8:24 pm

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