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Getting dirty money clean

A Need to Know investigation reveals just how common it is for major U.S. banks to launder money from drug traffickers.

Produced by Catherine Upin

The story of one of the biggest money laundering investigations in recent history began in Miami in 2005. When a drug sniffing DEA dog at the Miami airport hit upon a shipment of cocaine in a private jet, little did DEA and IRS agents suspect that the trail would lead them through the fourth largest bank in the United States — that millions of dollars that paid for drug cartel operations had gone through accounts at Wachovia Bank.

Drug money totaling $110 million, federal prosecutors in Miami announced this March, flowed through Wachovia Bank – the largest criminal violation ever of the Bank Secrecy Act, the federal law that requires banks to prevent money laundering.

“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 at a press conference.

The tale of Wachovia is part of a decades-long pattern, critics say, of the failure of law enforcement, government regulators and certain banks to address a problem that brings in so much cash for the banks. Money laundering, says law enforcement, is what keeps criminal enterprises going.

“Drug trafficking is a cash-driven industry and that cash has to be moved,” said John Arvanitis, head of financial investigations for the Drug Enforcement Administration, the agency that broke the Wachovia case.

He explained how drug cartels launder money through American banks:

The U.S. market for illegal drugs churns out vast quantities of cash that can’t simply be deposited into a U.S. bank. Deposits of more than $10,000 raise red flags. So vehicles filled with drug profits – enormous shipments of bulk cash – head south into Mexico to casas de cambio – licensed currency exchanges where Mexicans and tourists can change currency and transfer money. There the laundering begins. The dirty money in U.S. dollars is changed into clean-looking wire transfers and traveler’s checks to complete the circular journey back into U.S. banks.

“Wachovia Bank willfully failed to establish an anti-money laundering program,” said U.S. Attorney Sloman.

Without a program to detect money laundering, here’s what happened: From 2003 to 2008, $420 billion flowed through Wachovia Bank from Mexico – including all that drug money – with no effective oversight. According to prosecutors, many millions went to purchase aircraft to transport cocaine – 20,000 kilos of it. Wachovia has admitted to all of this.

In fact, Wachovia – along with other U.S. banks – was warned by federal regulators as early as 1996 and again in 2006 to watch out for red flags of money laundering from casas de cambio. Those warning signs included large bulk cash deposits and multiple wire transfers.

Wachovia was also aware that other U.S. banks stopped business with casas de cambio because of these concerns.

But Wachovia wanted the business. Between May 2004 and May 2007, it accepted $373 billion in wire transfers from the casas de cambio – more than $4 billion in bulk cash.

To resolve the charges, Wachovia agreed to pay the government $160 million in fines and forfeitures. In exchange, the Department of Justice agreed to delay prosecution and drop the case in a year if Wachovia paid the fine and improved its anti-money laundering program – a deal known as a “deferred prosecution.”

Several U.S. banks have admitted to violating the Bank Secrecy Act and allowing dirty money to flow through their banks. American Express’s private banking unit, Union Bank of California and Bank Atlantic all paid fines and forfeitures for lax oversight of drug money laundering.

Riggs Bank pleaded guilty to willfully failing to report suspicious transactions by Chilean Dictator Augusto Pinochet. Bank of America also acknowledged not stopping laundered money from illegal South American money brokers. And this past February, Bank of America was reprimanded at a Senate hearing for not flagging accounts of a known illegal arms dealer.

“Nobody is held to account. Machines do not launder money. People launder money,” said Martin Woods, a whistleblower who spent four years as an anti-money laundering officer in Wachovia Bank’s compliance section. Before that, he was a detective and worked 18 years in the British police force.

“Ordinarily in banks, the compliance officers – and it’s a standing joke – are seen as the business prevention officers,” said Woods.

‘Why are you picking on us?’

That’s what happened at Wachovia, according to a lawsuit he settled with the bank last year. In 2006, the suit charges, Woods became suspicious when he noticed lots of sequentially numbered travelers checks coming into the London office from Mexican casas de cambio.

“I could see the context of the transactions in relation to the activities in Mexico,” said Woods. “The dollars coming out of Mexico are conflict dollars. They’re blood dollars. Many of those dollars are stained with the blood of dead people, because that was the outcome of this whole drug trafficking war that’s taking place in Mexico.”

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