Mar.18, 2010

Wachovia Bank reached a $160 million settlement with the Justice Department over allegations that a failure in bank controls enabled drug traffickers to launder drug money by transferring money from Mexican currency-exchange houses to the bank.

Under a deferred-prosecution agreement with federal prosecutors in Miami, Wachovia, which is owned by Wells Fargo & Co., "admitted failure to identify, detect, and report suspicious transactions in third-party payment processor accounts," according to the Justice Department. Prosecutors said the bank processed $420 billion in transactions without using proper money-laundering detection.

In a statement, Wachovia said it "has made significant enhancements to its [anti-money laundering] and [Bank Secrecy Act] compliance program that have strengthened its ability to guard against unlawful use of its system by wrongdoers." Wachovia has spent $42 million improving its compliance program, the bank said.

The currency- exchange houses, known as casas de cambio, serve as a legitimate method for immigrants to send money to relatives in Latin America. But authorities in the U.S., Mexico and Colombia have for years warned that drug-traffickers also use these exchange houses to launder the proceeds of their trade.

According to the Justice Department, Wachovia accounts took in at least $373 billion in wire transfers that were made from casas de cambio in Mexico between May 2004 and May 2007. In addition, more than $4 billion in bulk cash was shipped from Mexican casas de cambio to Wachovia accounts, prosecutors allege. Wachovia also operated a "remote deposit capture" service that took in another $47 billion, according to prosecutors.

Some of the money was used to buy planes for trafficking, according to prosecutors. U.S. investigators seized more than 20,000 kilograms of cocaine from the planes.

Miami U.S. Attorney Jeffrey H. Sloman, whose office led the three-year probe said, "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. Corporate citizens, no matter how big or powerful, must be held accountable for their actions."

Under the agreement, Wachovia agreed to forfeit $110 million to the U.S., which the Justice Department said represented proceeds of illegal narcotics sales that were laundered through Wachovia. It will also pay a $50 million fine to the U.S. Treasury.