Wachovia pays $160 million to settle drug money probe

MIAMI Wed Mar 17, 2010 6:35pm EDT

1 of 2. U.S. Attorney Jeffrey H. Sloman (C) of the Southern District of Florida speaks at a press conference in Miami, Florida March 17, 2010. Sloman announced a settlement that the Wachovia Bank unit of Wells Fargo & Company has agreed to pay $160 million as part of a deal to settle U.S. allegations that it laundered Mexican drug money.

Credit: Reuters/Joe Skipper

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MIAMI (Reuters) - Wachovia Bank has agreed to pay $160 million to settle U.S. charges that it failed to stop more than $100 million of Colombian and Mexican drug traffickers' money being laundered through accounts at the bank, U.S. authorities said on Wednesday.

The deferred prosecution agreement announced in Miami, which included a $50 million fine to be paid to the U.S. Treasury, was the largest penalty ever imposed for a violation of the U.S. Bank Secrecy Act, U.S. Attorney for the Southern District of Florida Jeffrey H. Sloman told reporters.

Sloman said a "systematic" failure by Wachovia, now a unit of Wells Fargo & Co, to maintain effective anti-money laundering (AML) controls had led to more than $400 billion in unmonitored funds being channeled to accounts at the bank between 2004 and 2007 by currency exchange houses in Mexico, mostly through wire transfers

He added this money included millions of dollars that were used by Mexican and Colombian cartels to purchase airplanes in the United States for cross-border drug trafficking operations, according to a U.S. investigation lasting more than four years, which also involved the Drug Enforcement Administration (DEA).

"Wachovia's blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations by laundering at least $110 million in drug proceeds," Sloman said.

"Colombian and Mexican traffickers capitalized on Wachovia's failure to maintain effective anti-money laundering (AML) procedures," Mark Trouville, DEA Special Agent in Charge of the Miami Field Division, said.

The violations occurred before the takeover of Wachovia, one of the largest U.S. banks, by Wells Fargo.

In a statement, Wachovia Bank confirmed it had entered into the deferred prosecution agreement.

"The bank acknowledges that its AML compliance programs were inadequate and agrees to forfeit $110 million and implement certain remedial measures," it said.

It added: "Wells Fargo learned about these matters before acquiring Wachovia and established reserves in prior periods that will fully cover the settlement amounts."

Under the agreement, if in one year Wachovia has complied with all the terms of the agreement, including the remedial measures, the Department of Justice will ask a U.S. court to dismiss all charges against the bank.

INVESTIGATION FOLLOWED MONEY TRAIL

The DEA's Trouville said the investigation was triggered when a drug-sniffer dog at Florida's Opa Locka airport detected narcotics aboard a plane in 2005.

"The money laundering investigation worked backwards" he added, saying investigators then tracked the links between the plane's owners, the funds used to purchase it, the Wachovia accounts and Mexican currency exchange houses.

More than 44,000 pounds (20,000 kg) of cocaine were subsequently seized from traffickers' planes that were confiscated. Mexican authorities closed a number of exchange houses.

"This should send a loud message that the DEA will follow drugs money wherever it leads us," Trouville said.

Investigators said that although Wachovia had been aware since 1996 and through 2004 of the high risk that drugs money was being laundered through the Mexican currency exchange houses, it expanded its business with them, and failed to implement monitoring procedures as required under law.

"We count on banks to be our first line of defense," against money-laundering, fraud and financing for terrorism, said Daniel Auer, Special Agent in Charge in Miami for the Internal Revenue Service (IRS).

Sloman said investigations were continuing but declined to say whether other U.S. banks could face charges.

(Additional reporting by Jeremy Pelofsky in Washington and Joe Rauch in Charlotte; editing by Leslie Gevirtz)

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