Wachova Bank: Drug Financer to the World

According top Bloomberg, June 29, 2010:

“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 (Banks Financing Mexico Gangs Admitted in Wells Fargo Deal, June 29, 2010. Bloomberg.com, http://www.bloomberg.com/news/2010-06-29/banks-financing-mexico-s-drug-cartels-admitted-in-wells-fargo-s-u-s-deal.html).

These are the same banks that we as taxpayers have bailed out for they are said to be simply “too big to fail”.  Now we know part of the reason why.  The fact is, these banks are up to their neck in the phony war on drugs and the subsequent profits to be made in the illicit drug trade.  Global Economic Analysis reported that:

“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 (Wells Fargo, Wachovia Involved in Numerous Mexican Drug Laundering Schemes July, 3, 2010. http://globaleconomicanalysis.blogspot.com/2010/07/wells-fargo-wachovia-involved-in.html).

In May 2008, the Justice Department sought extradition of the suspects, saying they used shell firms to launder $720 million through U.S. banks.

During the period in which Wachovia admitted to moving money out of Mexico for Puebla, couriers carrying clear plastic bags stuffed with cash went to the branch Alatorre ran at the Mexico City airport, according to surveillance reports by Mexican police.

Puebla executives used the stolen identities of 74 people to launder money through Wachovia accounts, Mexican prosecutors say in court-filed reports.

Jose Luis Marmolejo, a former head of the Mexican attorney general’s financial crimes unit who is now in private practice, stated:

“Wachovia handled all the transfers, and they never reported any as suspicious.”

I am sure Wachovia knew what was going on,” says Marmolejo, who oversaw the criminal investigation into Wachovia’s customers. “It went on too long and they made too much money not to have known (ibid).

At Wachovia’s anti-money-laundering unit in London, Martin Woods and his colleague Jim DeFazio, in Charlotte, say they suspected that drug dealers were using the bank to move funds.

Martin Woods was the director of Wachovia’s anti-money-laundering unit in London, from 2006 to 2009 and a former Scotland Yard investigator. He spotted illegible signatures and other suspicious markings on traveler’s checks from Mexican exchange companies, he said in a September 2008 letter to the U.K. Financial Services Authority. He sent copies of the letter to the DEA and Treasury Department in the U.S.

Woods, 45, says his bosses instructed him to keep quiet and tried to have him fired, according to his letter to the FSA. In one meeting, a bank official insisted Woods shouldn’t have filed suspicious activity reports to the government, as both U.S. and U.K. laws require.  Woods wrote:

“I was shocked by the content and outcome of the meeting and genuinely traumatized (ibid).

And that’s just one of many stories. There is also the bit about how drug smuggler Oscar Oropeza’s wife and daughter would literally launder their banknotes before depositing stacks of cash at a Bank of America branch on Boca Chica Boulevard in Brownsville, Texas, where everybody knew who they were.  According to an official close to the story:

“I asked the tellers what they were talking about, and they said the money had this sweet smell like Bounce, those sheets you throw into the dryer. They told me that when they opened the vault, the smell of Bounce just poured out” (ibid).

How do the Mexican drug smugglers persuade U.S. banks to turn a blind eye to this kind of thing?  Michael Smith implies that it all comes down to the inherent profitability of the business.  The other best guess is that there are direct kickbacks somewhere along the line, and that bank employees are being paid directly, or threatened, or both, by the drug smugglers.

You can read more about the US, Wachovia and US banks involved in money laundering for the drug cartels from Michael Smith who has the complete story (Banks Financing Mexico Gangs Admitted in Wells Fargo Deal, June 29, 2010. Bloomberg.com. http://www.bloomberg.com/news/2010-06-29/banks-financing-mexico-s-drug-cartels-admitted-in-wells-fargo-s-u-s-deal.html).  You can also see the videos at this site of Wachovia.

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.  According to the US Treasury, the bank admitted in court:

“As early as 2004, Wachovia understood the risk. Despite these warnings, Wachovia remained in the business (ibid).

The fact is that the banks finance and launder the whole drug war mess and have for decades, if not centuries.  What is remarkable is that they come hat in hand to the American public and ask for bail-outs while at the same time they escort drug dealers to fancy hotels and accept suitcases full of cash – billions in cash. 

The phony war on drugs has meant large profits for those selling the drugs and fighting the so-called drug war; we all know this.  What is incredible is the blatant involvement of the same banksters on Wall Street that helped take down the American economy engaged in avid drug laundering.  However, what is incredible is also understandable, as is the banks’ involvement in the lucrative drug trade.  Capitalism turns everything into a commodity and with the insatiable appetite for drugs that North Americans display, the profits are astronomical and the laundry services beyond comprehension.

Drug use in the USA will rise, bank profits will soar

Twenty million people in the U.S. are said to regularly use illegal drugs (ibid) and this figure will increasingly rise as the despair built into the material conditions of capitalism is mirrored in deracinated personal lives of US citizens. Currently, 1.4 million people have tried methamphetamine this year alone. The National Drug Threat Assessment estimates that the cost to the US economy is $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 (Publication Date: February 2010, Document ID: 2010-Q0317-001, U.S. Department of Justice National Drug Intelligence Center, http://www.justice.gov/ndic/pubs38/38661/index.htm).

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 (ibid).

From the point of view of Martin Woods:

“It’s the banks laundering money for the cartels that finances the tragedy.  “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 (Banks Financing Mexico Gangs Admitted in Wells Fargo Deal, June 29, 2010. Bloomberg.com, http://www.bloomberg.com/news/2010-06-29/banks-financing-mexico-s-drug-cartels-admitted-in-wells-fargo-s-u-s-deal.html).

Woods says he quit the bank in disgust after executives ignored his documentation that drug dealers were funneling money through Wachovia’s branch network.

What did Martin Woods’ bosses tell authorities when they were asked why they told him not to report the suspicious activity?  We do not know, so let’s hope Smith continues to report this story. It’s not over yet — not by a long shot. 

Laundered funds not limited to drugs

According to the National Drug Intelligence Center, US Department of Justice, some of the drug 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 (Publication Date: February 2010, Document ID: 2010-Q0317-001, U.S. Department of Justice National Drug Intelligence Center, http://www.justice.gov/ndic/pubs38/38661/index.htm).

Wachovia: Some sordid history of a criminal enterprise “too big to fail”

No bank has been more closely connected with Mexican money laundering than Wachovia. Wachovia was founded in 1879 and it 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.  However the wretched history of the bank’s financing is even more insidious and criminal – Wachovia admitted its involvement in the slave trade. 

Reporter Betsey Piette of the Workers World noted on June 10th, 2005:

“After initially denying ties to slavery in January, executives at Wachovia Bank disclosed in a June 2 report that the bank’s predecessor institutions — the Bank of Charleston, S.C., and the Georgia Railroad and Banking Company — “owned” at least 162 enslaved Africans and accepted 529 more as “collateral” on loans (http://www.ushistory.org/presidentshouse/news/ww061005.htm, Workers World, June 10, 2005).

Wachovia chairman Ken Thompson said in a statement at the time:

“We are deeply saddened by these findings (Wachovia apologizes to black Americans, June 2, 2005, http://www.msnbc.msn.com/id/8076165/)

Thompson said the research revealed two ancestral banks — the Bank of Charleston (S.C.) and the Georgia Railroad and Banking Company — owned slaves.

The bank said incomplete records make it impossible to know how many slaves were owned by either institution, but that specific transactional records show the Georgia bank owned at least 162 slaves and the Bank of Charleston accepted at least 529 slaves as collateral on mortgaged properties or loans.

The Charleston bank acquired an undetermined number of these individuals when customers defaulted on their loans, Wachovia said.

“We apologize to all Americans, and especially to African-Americans and people of African descent,” Thompson said.

“While we can in no way atone for the past, we can learn from it, and we can continue to promote a better understanding of the African-American story, including the unique struggles, triumphs and contributions of African-Americans, and their important role in America’s past and present,” he added.

Recent History: Wells Fargo buys Wachovia with bail-out money from taxpayers

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

San Francisco-based Wells Fargo, which dates from 1852, bought troubled Wachovia for $12.7 billion in 2009, creating the largest network of bank branches in the U.S. and creating the nation’s second-largest bank in terms of deposits. Thompson, who now works for private-equity firm Aquiline Capital Partners LLC in New York, declined to comment.

However, all this might not have happened without the generous support of the federal government and your tax dollars and the neo-liberal economic system that enabled the whole criminal enterprise.

Here’s how the deal went down.

In fall of 2008, in the span of just six days, Wells Fargo flip-flopped: first rejecting then accepting a deal to buy Wachovia.  Then in les than a week the whole thing changed: Wells Fargo agreed to buy the troubled bank.  What had changed?

First, Treasury Secretary Henry Paulson quietly issued a document revising the tax code, giving enormous benefits to some banks that buy other banks. For Wells Fargo, it could be worth up to $25 billion. Then, Congress passed the giant bailout that would provide $25 billion in direct funds to Wells Fargo.
The very same day the bailout passed, Wells Fargo announced the surprise turnaround to investors: It would buy Wachovia after all (Attkisson, S.Following the bailout money to Wells Fargo, CBS Evening News: How a Big Bank Took American Tax Dollars and Went on a Spending Spree February 9, 2009. http://www.cbsnews.com/stories/2009/02/09/eveningnews/main4788018.shtml).

The US Justice Department Grand Juries Serve Subpoenas on Wachovia: Violations of the Bank Secrecy Act

As Wachovia’s balance sheet was hemorrhaging, its legal woes were escalating. 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 about its suspicious banking practices.

But 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. 

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.

Wachovia’s new owner, Wells Fargo, did just that: it paid $160 million in fines and penalties, less than 2 percent of its $12.3 billion profit in 2009 (Banks Financing Mexico Gangs Admitted in Wells Fargo Deal, June 29, 2010. Bloomberg.com, http://www.bloomberg.com/news/2010-06-29/banks-financing-mexico-s-drug-cartels-admitted-in-wells-fargo-s-u-s-deal.html).

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

Spokeswoman for the corporate banking firm, Mary Eshet, expressed that Wells Fargo regrets that some of Wachovia’s former anti- money-laundering efforts fell short and noted that Wells Fargo has invested $42 million in the past three years to improve its anti-money-laundering program and has been working with regulators (ibid).

But that’s not all.  The drug laundering may have kept the banks afloat during the height of the global depression of 2008 and now.

Drug money saved banks in global crisis, claims UN advisor

Drugs money worth billions of dollars kept the financial system afloat at the height of the global crisis, the United Nations‘ drugs and crime tsar has told the Observer.

Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organized crime were “the only liquid investment capital” available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result (Rajeev Syal, Drug money saved banks in global crisis, claims UN, Guardian.co.uk The Observer advisor, n.co.uk/global/2009/dec/13/drug-money-banks-saved-un-cfief-claims).

Speaking from his office in Vienna, Costa said evidence that illegal money was being absorbed into the financial system was first drawn to his attention by intelligence agencies and prosecutors around 18 months ago. Costa stated:

“In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system’s main problem and hence liquid capital became an important factor” (ibid).

Some of the evidence put before his office indicated that gang money was used to save some banks from collapse when lending seized up.

“Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities… There were signs that some banks were rescued that way.

That was the moment [last year] when the system was basically paralysed because of the unwillingness of banks to lend money to one another. The progressive liquidisation to the system and the progressive improvement by some banks of their share values [has meant that] the problem [of illegal money] has become much less serious than it was” (ibid).

Costa, incredibly, refused to identify countries or banks that may have received any drugs money, saying that would be inappropriate because his office is supposed to address the problem, not apportion blame. But he said the money is now a part of the official system and had been effectively laundered.  That means it has now been ‘cleaned’.

Gangs are now believed to make most of their profits from the drugs trade and are estimated to be worth £352bn, the UN says. They have traditionally kept proceeds in cash or moved it offshore to hide it from the authorities. It is understood that evidence that drug money has flowed into banks came from officials in Britain, Switzerland, Italy and the US.