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.
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. . . .
Fascism and the Dangers of Economic Concentration
Here’s another bonus effect from the eurozone financial crisis:
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)...
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:
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.
So it was all just optional?
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...
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?
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.