Foreign Policy Blogs

Biggest Financial Crime in US History Merits Slap on the Hand: Wachovia Launders Dirty Money

On March 17, 2010, the Office of the United States Attorney, Southern District of Florida responded to the biggest financial crime in the history of the United States by striking a deal with the perpetrator, Wachovia Bank, N.A. (“Wachovia”), one of the largest and most powerful financial institutions in the United States.

It’s a deal that takes Wachovia off the hook for a particularly heinous form of complicity, one responsible not only for undermining the integrity of the global money system, but also for fueling the continuing drug wars in northern Mexico, violence that has claimed more lives so far—22,000 men, women, and children—than U.S. armed forces have lost in Iraq and Afghanistan combined.

Federal prosecutors have charged Wachovia with “willfully failing to maintain an anti-money laundering program from May 2003 through June 2008, in violation of the Bank Secrecy Act (BSA).”

But like a long list of major banks and financial institutions investigated on the same charges over the past two decades (Citibank, Bank of America, Sun Bank, Capital Bank, American Express International) Wachovia will not be prosecuted for violating the Bank Secrecy Act—no U.S. bank has ever been indicted on these charges.

Instead, the feds have offered Wachovia what has become a familiar alternative in the complex universe of international finance. Called a “Deferred Prosecution Agreement,” it is a handy legal mechanism that turns on the fulfillment of a promise by Wachovia to beef up its anti-money laundering regime and abstain from any further violations of anti-money laundering regulations or the Bank Secrecy Act for a twelve-month period. If Wachovia makes good on this pledge, the bank will be in the clear on March 17, 2011.

Wachovia, which took in $378.4 billion (1/3 Mexico’s GDP) from a handful of casa de cambios over a 3 year period ( 2004-2007), and enjoyed a profit of 2.9 billion in 2009, has also been ordered to pay this $160 million in fines and penalties to the General Fund, a sop, and some might say, an unprecedented insult to justice and the American public.

The most common defense–don’t monkey with the financial market–is one that has gained purchase given the global economic downturn over the past two years.

However, during a twenty-year career working for a variety of enforcement organizations and anti-crime and corruption outfits in the United States and Europe, I’ve discovered that  few are enthusiastic when presented with the opportunity to examine the relationship between the world’s financial systems, “legitimate” banking, and the movement of criminal revenues.

There are reasons for this: the one most commonly advanced by the mainstream press is also laid out in an online report recently filed by Bloomberg’s David Voreacos.

Bloomberg quotes money laundering expert  Jack Blum:

Large banks are protected from indictments by a variant of the too-big-to-fail theory. Indicting a big bank could trigger a mad dash by investors to dump shares and cause panic in financial markets, says Jack Blum, a U.S. Senate investigator for 14 years and a consultant to international banks and brokerage firms on money laundering. The theory is like a get-out-of-jail-free card for big banks. . .

The question, of course, is whether the rationale described by Blum offers sufficient explanation for the failure of US and international law enforcement and judiciaries to identify, investigate, pursue, and indict financial institutions that routinely and repeatedly violate the Bank Secrecy Act (or analogous legislation abroad), accepting criminally generated deposits as a means of fattening their own bottom-lines.

The alternative to the “too big to fail” theory is the “too close-to-home to fail” theory, a long-held suspicion in more skeptical quarters, that once so much money, no matter what its origins, falls within the orbit of powerful parties, “legitimate financial institutions” with an eye toward big commissions, its direction onward and upward is guaranteed.

When a nation’s banking system also enjoys strong support from the government and its policymakers, even when banks demonstrate a blatant abuse of power—reference the recent TARP bailout—financial institutions are invariably motivated not just to continue their involvement in money laundering activities, but to actively compete with one another for these criminal accounts.

Platitudinous terms like ‘willful ignorance’ are, in 2010, weak cover for money laundering activity that is growing in scale and conducted with impunity.

In a presentation to an audience at Johns Hopkins-SAIS on June 23, UNODC Executive Director characterized transnational organized crime as a “continuum,” an environment replete with mixed motives, shifting operational strategies, and a wide range of players with different levels of investment at different points in the process.

In the world of money laundering, the ‘degrees of separation’ can be  considerably fewer than the euphemistic six.  Financial investigations frequently uncover links between large, prestigious international institutions and big names: a Customs money laundering investigation focusing on the Bank of Credit and Commerce International, 1986-88, dredged up names of men like Clark Clifford, former Defense Secretary and an advisor to five US Presidents, Robert Altman, a prominent U.S. businessman, former U.S. Senator Stuart Symington and former OMB Director Bert Lance.

In 1998, Operation Casablanca, a five-year undercover investigation run by U.S. Customs, qualified as the largest money-laundering probe in U.S. history–it netted $97 million. Two hundred agents on four different continents made 167 individual arrests. Three Mexican and four Venezuelan Banks were indicted, and Customs agents traced involvement in the laundering scheme to officials at the highest levels of the Mexican government.

The Governments of Mexico and Venezuela were enraged by what they viewed as U.S. intrusion into affairs they considered “central to [their] national sovereignty”—the Mexican Supreme Court went so far as to employ the word “tricked” to describe the actions of U.S. investigators and federal agents Mexico believed had humiliated the country in the eyes of the international community.

Mexico even issued arrest warrants for U.S. agents involved in Operation Casablanca and pressured the U.S. government to allow extradition of those agents back to Mexico to face criminal prosecution (and, most likely, death).

The United States responded to the uproar by short-circuiting the investigation, and by authorizing Attorneys General Janet Reno and Mexico’s Jorge Madrazo Cuellar to draft what is called “The Brownsville Agreement”—a promise on the part of both nations to inform each other about sensitive cross-border law enforcement operations.

The most obvious consequence of the Brownsville Agreement has been to alert Mexico’s criminal community to impending investigations and to offer them an opportunity to shut down any money laundering activities before an investigation gets off the ground.

Again, Operation Casablanca, which involved five years of work for U.S. investigators, two years of planning and three of implementation, netted $97 million–a paltry sum compared to Wachovia’s haul.

The sheer magnitude of those deposits, $420 billion, also tells us something else: experts say it’s too  much money to have been generated by the drug trade alone, even with the amount of cocaine and other drugs traveling out of  Mexico and Colombia into the United States. The money Wachovia has laundered was generated by criminal gangs we know are operating out of the US, and that both logic and experience tells us may also be operating out of Europe, Brazil, and Asia.

$378.4 billion in dirty money moving through 13 casa de cambios (the rest of the $420 billion came from bulk cash and 3rd party instruments), through the Mexican accounts of these casa de cambios, and then into correpondent Wachovia accounts in the United States suggests that Mexico has become an international center for laundering money (reminiscent of the notorious Ciudad del Este), not just drug money, but proceeds from a broad array of crimes, including human trafficking, prostitution, the sale of precursor chemicals by China to Mexican meth labs, arms sales, perhaps even trafficking in human organs.

The deal struck between the U.S. Government and Wachovia Bank, the “Deferred Prosecution Agreement,” has been outlined in a number of media outlets in recent months, but so far, outcry has been muted at best.

The global economy is bad. Politics can be a tricky, ruthless business. NAFTA-generated trade is core to maintaining economic survival among its members. US-Mexico relations are critical to national security, and to the U.S. effort to leverage and protect its interests throughout the rest of Central and South America.

All of this is true.

So writing off the economic rewards garnered by banks involved in the risky business of money laundering, the obscene under and over-the-table commissions, and the links between dirty money and violence in Mexico’s streets may be “just the cost of doing global business” in 2010.

As a former federal agent told me, “Wachovia has committed the perfect crime: the politicians, authorities, governments, and agencies responsible for going after Wachovia, or the other big banks laundering money,  have themselves, in one way or another, too much to lose.”

One thing is certain, the $160 million penalty imposed by the U.S. government on Wachovia will leave the traffickers laughing all the way to the bank.



Kathleen Millar

Kathleen Millar began her career in public affairs working for Lyn Nofziger, White House Communications Director. She has gone on to write about a wide range of enforcement and security issues for DHS, for the US Department of the Treasury (Customs & Border Patrol), for Senator Olympia Snowe (R-ME), then a Member of the Senate Intelligence Committee, and for top law enforcement officials in the United States and abroad.

A Founding Member of the Department of Homeland Security, Millar was also the deputy spokesperson-senior writer for the United Nations Office on Drugs and Crime in Vienna, Austria. She has authored numerous speeches, articles and opeds under her own and client bylines, and her work, focusing on trafficking, terrorism, border and national security, has appeared in both national and international outlets, including The Washington Post, The Washington Times, The International Herald Tribune, The Financial Times, and Vital Speeches of the Day.

Kathleen Millar holds an MA from Georgetown University and was the recipient of a United Nations Fellowship, International Affairs, Oxford. She is a member of the Georgetown University Alumni Association, Women in International Security (GU), the Women’s Foreign Policy Group, and the American News Women’s Club in Washington, DC. Kathleen Millar is currently teaching and writing about efforts to combat transnational organized crime.