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Financial Fraud Law

Wachovia, One Of Nation’s Largest Banks, To Pay $160 Million In Largest BSA Penalty Ever

 Wachovia Bank, N.A., one of the largest banks in the United States, has entered into a deferred prosecution agreement with the U.S. Attorney’s Office in the Southern District of Florida and the Asset Forfeiture and Money Laundering Section of the Criminal Division of the Department of Justice to resolve charges that it willfully failed to establish an anti-money laundering program. The agreement is the result of an investigation into Wachovia’s transactions with Mexican currency exchange houses, commonly known as “casas de cambio” (“CDCs”). The agreement also resolves Wachovia’s admitted failure to identify, detect, and report suspicious transactions in third party payment processor accounts. 

A criminal information charged Wachovia, which will merge into Wells Fargo Bank later this month, with willfully failing to maintain an anti-money laundering program from May 2003 through June 2008, in violation of the Bank Secrecy Act (“BSA”). According to the information and other documents filed with the court, including a detailed Factual Statement and a Deferred Prosecution Agreement (“the Agreement”), Wachovia failed to effectively monitor for potential money laundering activity more than $420 billion in financial transactions with the CDCs.
As part of the Agreement, Wachovia agreed to forfeit $110 million to the United States, which the government contends represents proceeds of illegal narcotics sales that were laundered through Wachovia. FinCEN also assessed a $110 million Civil Money Penalty that is deemed satisfied by the forfeiture to the U.S. government, for serious and systemic BSA violations. Moreover, pursuant to the terms of the Agreement and the OCC’s separate Cease and Desist and Civil Money Penalty Orders, Wachovia has agreed to pay an additional $50 million fine to the U.S. Treasury.
According to the documents filed with the court: Wachovia was aware, as early as 1996 and through 2004, of the high risk that drug money was being of laundered through the CDCs. Wachovia was also aware that other U.S. banks had stopped doing business with the CDCs because of these concerns. Wachovia, however, continued to expand its business with the CDCs. Indeed, from at least May 2004 through December 2007, Wachovia provided correspondent banking services to various Mexican CDCs, including wire transfer, bulk cash, and pouch and remote deposit capture services, among others.
According to the documents: Wachovia allowed CDCs to wire transfer funds through accounts at Wachovia to recipients throughout the world. Wachovia also offered a “bulk cash” service to CDCs, through which the CDCs collected large sums of dollars that would be physically transported to the United States for deposit. In addition, Wachovia offered a “pouch” deposit service and later, a “remote deposit capture” (“RDC”) service, which allowed the CDCs to deposit at Wachovia items drawn on U.S. banks, including checks and traveler's checks, presented by their Mexican customers.
According to the documents: Wachovia did not have an effective anti-money laundering policy or procedure to monitor these transactions to detect and report potential money laundering activity, as required by the BSA. As a result, from May 1, 2004 through May 31, 2007, at least $373 billion in wire transfers were made from the CDCs to Wachovia accounts; more than $4 billion in bulk cash was transported from the CDCs in Mexico to accounts at Wachovia; and approximately $47 billion was deposited at Wachovia accounts through the RDC service. These monies included millions of dollars that were subsequently used to purchase airplanes for narcotics trafficking operations. Ultimately, more than 20,000 kilograms of cocaine were seized from these airplanes.
According to court documents: Wachovia also maintained account relationships with certain third party payment processors for the telemarketing industry from 2003 to 2008. These processors deposited more than $418 million using remotely-created checks into Wachovia accounts on behalf of the telemarketers. Remotely-created checks are created when the holder of a checking account authorizes a payee to draw a check on that account but does not actually sign the check. In place of the account-holder’s signature, the remotely-created check generally bears a statement that the customer authorized the check. These checks were often returned as “unauthorized” resulting in return rates that, in some cases, exceeded 40 percent of the deposited checks. Wachovia admitted that it failed to identify, detect, and report the suspicious transactions in the third-party payment processor accounts, as required by the BSA, due to deficiencies in its anti-money laundering program. Specifically, Wachovia failed to conduct appropriate customer due diligence by delegating most of this responsibility to business units instead of compliance personnel. Wachovia also failed to monitor high return rates for remotely-created checks and report suspicious wire transfer activity from the processors’ accounts.
U.S. Attorney Jeffrey H. Sloman stated, “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." He concluded that the "historic agreement makes it clear that such conduct will not be tolerated and imposes the largest penalty in any BSA case prosecuted to date.”