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Monday March 22, 2010


Wachovia to Pay $160 Million to End Money Laundering Probe

March 18, 2010, 12:03 AM EDT

By David Voreacos

March 18 (Bloomberg) -- Wells Fargo & Co.’s Wachovia Bank agreed to pay $160 million to resolve a criminal investigation of how drug cartels used the bank to launder money through Mexican exchange houses.

The government agreed to defer prosecution on a criminal charge that Wachovia, once the fourth-largest U.S. bank, failed to set up an effective anti-money laundering program from 2003 to 2008. Wachovia admitted failing to monitor $420 billion in transactions through exchange houses, known as casas de cambio.

Wachovia admitted “serious and systemic” violations of the Bank Secrecy Act that let drug cartels launder at least $110 million through exchange houses. Drug dealers used Wachovia accounts to buy airplanes, and U.S. authorities seized “at least four” of those aircraft with more than 20,000 kilograms in cocaine, Wachovia admitted in U.S. District Court in Miami.

“Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations while laundering at least $110 million in drug proceeds,” Jeffrey Sloman, U.S. attorney for the Southern District of Florida, said yesterday at a Miami news conference.

The violations were the largest ever of the Bank Secrecy Act, which is designed to curb money laundering, authorities said. Wells Fargo, based in San Francisco, bought Charlotte, North Carolina-based Wachovia Corp. at the end of 2008.

“This was a systemic breakdown at Wachovia which allowed approximately $420 billion to go unmonitored,” Sloman said.

Remedial Measure

Wells Fargo has cooperated in the investigation and must take remedial measures before the government will dismiss the criminal charge. The bank will forfeit $110 million and pay a $50 million fine. Prosecutors have “no evidence that Wells Fargo Bank’s anti-money laundering program is deficient,” prosecutors said in court papers.

“Wells Fargo learned about these matters before acquiring Wachovia and established reserves in prior periods that will fully cover the settlement amounts,” the bank said in a news release. Wachovia “exited all relationships with foreign money exchange houses” by early 2008, it said.

The casas de cambio, which are not banks, allow people and businesses in Mexico to exchange or wire transfer the value of currency to bank accounts in the U.S. and other countries, according to Wachovia’s 12-page factual statement entered with the deferred-prosecution agreement.

Bank’s Admission

“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 U.S. banking system,” Wachovia admitted. “Once the drug dollars were placed into CDCs, they were readily wire transferred into bank accounts of CDCs at Wachovia.”

Wachovia admitted offering correspondent banking services to 22 CDCs through three methods: wire-transferring money on behalf of third-party customers; accepting bulk cash transfers made by armored cars and other methods; and accepting checks and traveler’s checks put in pouches or digitally scanned through “remote deposit capture.”

From May 2004 to May 2007, Wachovia processed at least $373 billion in wire transfers on behalf of CDCs, the bank admitted. It processed $4.7 billion in bulk cash and $47 billion in RDC deposits for all correspondent banking customers, including Mexican CDCs, Wachovia admitted.

Wachovia didn’t admit that it knew the $420 billion it failed to monitor were drug proceeds.

Open Door

“When the bank failed to have effective anti-money laundering procedures in place, it allowed these traffickers to use the bank to their will,” said Mark Trouville, special agent in charge of the Drug Enforcement Administration’s office in Miami.

Trouville said Mexican and Colombian drug dealers used the bank to buy planes that moved drugs from South America.

Asked if Wachovia knew it was drug money, Trouville said, “I don’t think I can comment on whether Wachovia knew it was drug money. There were no effective procedures in place to be able to tell them that.”

The investigation began in 2005 when a drug-sniffing dog detected narcotics on a plane at a municipal airport in the Miami area, Sloman said. Investigators then traced the money to buy the plane to a Mexican exchange house, the prosecutor said.

Parts of the drug and money-laundering probe have become public, and some are still going on, Trouville said.

The case is USA v. Wachovia Bank, 10-cr-20165, U.S. District Court, Southern District of Florida (Miami).

--Editors: Charles Carter, Mary Romano

To contact the reporter on this story: David Voreacos in Miami at

To contact the editor responsible for this story: David E. Rovella at

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