UPDATE 2-Wachovia pays $160 mln to settle drug money probe

* Bank was accused of laundering Mexican drug money

* Probe began about three years ago (Adds official announcement of agreement, details and U.S. attorney’s comment; previous dateline WASHINGTON)

MIAMI, March 17 (Reuters) - The Wachovia Bank unit of Wells Fargo & Co has agreed to pay $160 million to settle U.S. allegations that it laundered Mexican drug money.

Under the agreement, Wachovia will forfeit $110 million, representing the proceeds of illegal narcotics sales that were laundered through the bank, the U.S. Attorney’s Office in the Southern District of Florida said.

The bank will pay an additional $50 million fine to the U.S. Treasury.

“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,” U.S. Attorney Jeffrey Sloman said on Wednesday.

A deferred prosecution agreement with the U.S. Department of Justice resolved charges that the bank willfully failed to establish a program to guard against money laundering. It also resolved Wachovia’s admitted failure to identify, detect and report suspicious transactions in third-party payment processor accounts.

A Wachovia representative was not immediately available for comment.

The federal prosecutor in Miami began the probe about three years ago, focusing on the alleged role of a Wachovia unit in processing illegal money transfers for Mexican exchange houses that dot the U.S.-Mexican border. The probe predated Wachovia’s takeover by Wells Fargo.

Prior to the settlement, Wachovia said it was cooperating and was “committed to maintaining compliant and effective anti-money laundering policies and practices, and a strong compliance and risk management culture.”

Exchange houses in Mexico are part of the global remittance business that allows immigrants in the United States to send money back to relatives in Latin America. Federal officials say drug traffickers have used the money transfer business as a way to move cash around. (Reporting by Pascal Fletcher; additional reporting by Jeremy Pelofsky in Washington; editing by Lisa Von Ahn and John Wallace)