Banks Financing Mexico Gangs Admitted in Wells Fargo Deal
By Michael Smith - Jun 28, 2010 9:00 PM PT
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.
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.
It's the Banks
"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.
DEA On Bank Role Cleansing Drug 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.
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.
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.
Banks Not Accused
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
Banks Essential To Cartels
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.
No Charges But Fines
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.
No Bank Indicted
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.
To Big To Indict
Indicting a big bank could trigger a mad dash by investors to dump shares and cause panic in financial markets, says Jack Blum, a U.S. Senate investigator for 14 years and a consultant to international banks and brokerage firms on money laundering.
The theory is like a get-out-of-jail-free card for big banks, Blum says.
Drug Business Needs Banks To Work
To make their criminal enterprises work, the drug cartels of Mexico need to move billions of dollars across borders. That's how they finance the purchase of drugs, planes, weapons and safe houses, Senator Gonzalez says.
"They are multinational businesses, after all," says Gonzalez, as he slowly loads his revolver at his desk in his Mexico City office. "And they cannot work without a bank."