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Getting dirty money clean

He and Woods agree the penalties in the system don’t work as a deterrent.

“This deferred prosecution allows bankers a free play at the roulette table with somebody else’s money, and if they make a profit, they share in profits,” said Woods. “If they lose, they rub their hands and walk away and are not held accountable or responsible for their actions.”

“If a series of bank officers were carted away, if the public were to hear the facts that cause them to become guilty and if they were to receive lengthy prison sentences, putting those two on a scale I think the $160 million fine is much lighter,” said Mazur.

So where are the government watchdogs?

Compliance departments in national and foreign banks in the U.S. are supposed to be regulated by the Office of the Comptroller of the Currency (OCC), a division of the Treasury Department. But Woods says the OCC is failing at its job.

“The OCC gave Wachovia Bank a satisfactory rating for its compliance program for anti-money laundering in correspondent banking, including the Mexican casas de cambio, for five, six, seven, eight, however many consecutive years they gave that a satisfactory rating,” Woods said, “and all the while, as it subsequently transpires, the bank was processing billions of dollars with inadequate controls.”

The OCC, Woods says, can’t spot the problem even when it is on the scene.

“The OCC actually have their own physical office in Wachovia Bank’s headquarters,” he said. “It’s not as though they were removed from it; they were actually part of the fabric of Wachovia Bank’s corporate headquarters. Why do I find the things they do not find?”

Woods is not alone in his criticism. In 2004 a Senate report found the OCC had done a “poor job” of compelling Riggs Bank to comply with money laundering laws.

In 2006 the Treasury Department’s inspector general found that the OCC had “sent the wrong message to the banking industry” by failing to take formal enforcement action against Wells Fargo.

Writing in 2007, Manhattan District Attorney Robert Morgenthau said “the Comptroller has shown itself to be a timid regulator even in the face of flagrant wrong doing.”

Need to Know tried repeatedly to get someone from the OCC, a public agency, to speak with us on camera, and they repeatedly declined.

In a four-page statement, the OCC defended its record saying it “diligently supervises more than 1,500 banks … and [takes] appropriate supervisory and enforcement actions.” But it acknowledged that “in hindsight our experiences with Wachovia highlight opportunities to improve our supervision.” It has drafted new procedures.

“It’s a perverse thing, five years the … OCC don’t do their job and net $50 million,” said Woods. “I come along, I do my job and their job and I got canned.”

In March, the OCC, which took in a $50 million fine from Wachovia, thanked Woods for providing information that was “indicative of broader problems” at the bank.

Where there’s a will there’s a way

Four years after filing his first suspicious activity reports, Woods’ suspicions were vindicated when Wachovia settled with U.S. prosecutors. But by then he had left his job. He says the stress and isolation of being a whistleblower finally wore him down.

“It’s David against Goliath. And Goliath has $800-dollar-an-hour lawyers coming out their ears,” Woods said. “The stakes are very, very high. And if you lose, you have lost your job; you’ve lost your livelihood. And you look at your wife and your three kids and you feel that I’ve let you down so, so bad. If I’d a kept my mouth shut, everything would be going along fine.”

Woods, now a consultant, is still fighting for reform. In Miami, at a financial conference earlier this month, Woods shared his ideas for fixing the system.

“Compliance officers should not be part of a bank’s bonus regime,” he said at the conference.

Woods suggests a wall between those whose job it is to investigate suspicious activity in the banks and those whose job it is to bring in the money.

“We have to seriously look at taking the support functions out of the bonus culture. Pay them more money but stop them being compromised,” Woods said.

He encouraged the compliance officers in the audience to stand up for what’s right.

“There is a way to do something about stopping some of this money laundering that will undoubtedly have an impact upon the whole crime business,” he said. “It will stop some of the murders, because it will stop the purchase of some of the weapons. There is a way; the question for all of us is, is there a will?”

Co-produced by Bob Reiss

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