An investigation from The Observer reveals that Wachovia, a major bank, laundered billions for Mexican drug cartels:
During a 22-month investigation by agents from the US Drug Enforcement Administration, the Internal Revenue Service and others, it emerged that the cocaine smugglers had bought the plane with money they had laundered through one of the biggest banks in the United States: Wachovia, now part of the giant Wells Fargo.
The authorities uncovered billions of dollars in wire transfers, traveller's cheques and cash shipments through Mexican exchanges into Wachovia accounts. Wachovia was put under immediate investigation for failing to maintain an effective anti-money laundering programme. Of special significance was that the period concerned began in 2004, which coincided with the first escalation of violence along the US-Mexico border that ignited the current drugs war.
Criminal proceedings were brought against Wachovia, though not against any individual, but the case never came to court. In March 2010, Wachovia settled the biggest action brought under the US bank secrecy act, through the US district court in Miami. Now that the year's "deferred prosecution" has expired, the bank is in effect in the clear. It paid federal authorities $110m in forfeiture, for allowing transactions later proved to be connected to drug smuggling, and incurred a $50m fine for failing to monitor cash used to ship 22 tons of cocaine.
More shocking, and more important, the bank was sanctioned for failing to apply the proper anti-laundering strictures to the transfer of $378.4bn – a sum equivalent to one-third of Mexico's gross national product – into dollar accounts from so-called casas de cambio (CDCs) in Mexico, currency exchange houses with which the bank did business.
It gets better, mind you, with Wachovia hanging out the whistleblower who discovered the laundering out to dry. As a case of major financial malfeasance, this is bad enough. But this paragraph in particular struck me:
The conclusion to the case was only the tip of an iceberg, demonstrating the role of the "legal" banking sector in swilling hundreds of billions of dollars – the blood money from the murderous drug trade in Mexico and other places in the world – around their global operations, now bailed out by the taxpayer.
At the height of the 2008 banking crisis, Antonio Maria Costa, then head of the United Nations office on drugs and crime, said he had evidence to suggest the proceeds from drugs and crime were "the only liquid investment capital" available to banks on the brink of collapse. "Inter-bank loans were funded by money that originated from the drugs trade," he said. "There were signs that some banks were rescued that way."
That's big news, revealing the metamorphosis of corporate finance into a creature with enough tentacles in both government and the black market to draw from both in time of crisis. This is not entirely unexpected. Remember how one of the major factors behind the housing bubble was "everyone else is making shit tons of money off it, why don't we?" The black market, after all, is a growth industry that accounts for 15 percent of the world's GDP. For an amoral organization looking for quick profits, it's a natural fit.
The problem of the cartels' drug trade is its own issue, but historically financial entities had to (mostly) stay away from the black market on any massive scale. For all their white collar crimes, banking institutions do rely on legal guarantees to operate, and so are structurally more vulnerable to the law than the "black collar" sector.
Now? The line is fading, and Wachovia escaped with little more than a slap on the wrist. For future joint ventures between the legal and illegal markets, few things could be more auspicious.
P.S. If you happen to have an account at Wachovia, this might be a good time to switch to a credit union. They don't rely on murderous drug gangs and don't treat their customers like shit.
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