Thursday, February 19, 2009
The Banking Industry’s Dirty Little Secret: Money Laundering For The Drug Cartels
Economics piece by
Dave Gibson
The United Nation’s Office on Drugs and Crime executive director Antonio Maria Costa recently told the Austrian magazine Profil that drug money has been the only thing that has kept many major banks in business.
Costa said: “In many instances, drug money is currently the only liquid investment capital. In the second half of 2008, liquidity was the banking system’s main problem and hence liquid capital became an important factor.”
Costa went on to say that UNODC has discovered that “interbank loans were funded by money that originated from drug trade and other illegal activities.” Incredibly, he said there were “signs that some banks were rescued in that way.”
In the last few years, large banks have been getting into the remittance industry, which sends over $50 billion annually from the U.S. to Latin America. While much of the money is sent from laborers in this country back home to their families, drug traffickers heavily use remittances as a way to send their profits south of the border.
The banks charge very high fees for the service.
In 2008, the Wall Street Journal reported that the U.S. Justice Department has opened an investigation into money transfers conducted by Wachovia bank. It is alleged that Wachovia transferred funds from drug deals in the United States to Mexican and Columbian money-exchange houses, or casas de cambio.
There are countless casas de cambio just inside the Mexican border.
The following is a portion of the report which appeared in the Wall Street Journal on April 26, 2008:
“Wachovia built up its ties to casas de cambio as a way to tap the Hispanic market, which doesn’t always bank through traditional Main Street outlets. Wachovia served as a larger partner, holding the foreign-exchange houses’ deposits and providing back-office services. In 2005, it introduced the Dinero Directo card to facilitate cross-border remittances.”
“The bank pushed into the business despite concerns from U.S. law enforcement that such firms were sometimes used to launder drug money. Wachovia declined to discuss why it pursued this business despite the warnings.”
“Internal emails and documents filed in federal courts in Miami, Chicago and New York describe former ties between Wachovia and money-changing firms. In a case in U.S. court in Miami, federal agents seized more than $11 million in 23 Wachovia accounts belonging to Casa de Cambio Puebla…Mexican police raided Puebla offices last fall, alleging relationships with a major drug cartel.”
However, Wachovia is only one of many U.S. banks to come under investigation for laundering drug cartel profits.
The following is a short list of banks which have resolved cases of money laundering, to avoid federal prosecution (Source: U.S. Justice Dept.):
-2008, Sigue Corp. was alleged to be part of $24.7 million in suspicious funds in processed remittances. They forfeited $15 million and avoided prosecution.
-2007, Union Bank of California was discovered to be laundering drug cartel profits through casas de cambio. The bank forfeited $21.6 million and avoided prosecution.
-2007, American Express International Bank failed to report $55 million passing through the accounts of known drug traffickers. They paid $65 million in fines and avoided prosecution.
-2006, Bank Atlantic paid a $10 million fine to avoid prosecution, when an undercover investigation discovered that drug profits were being laundered through one of their branch locations.
As part of their deferred prosecution, the banks agreed to reform their practices as well as submit to federal oversight.
Of course, this practice involves very large banks and very large amounts of money.
After an investigation of Union Bank of California, the Justice Department claimed that the bank failed “to maintain an effective anti-money-laundering program.”
One case involved two drug traffickers using accounts from Ribadeo Casa de Cambio in order to transfer millions of dollars in drug proceeds. Federal prosecutors discovered $295 million in transfers from several Union Bank accounts back to their account, with only $29 million ever being repaid.
Prosecutors faulted Union Bank not only for failing to corroborate the legitimacy of the transfers, but prosecutors allege, the bank ignored the large volumes of traveler’s checks with sequential numbers, large cash deposits and wire transfers strategically structured below federal reporting limits.
While ignorance may be bliss, it would be difficult for the banks to declare it as a defense. Since the mid-1990s, U.S. bank regulators and drug enforcement investigators have been warning U.S. banks that Mexican casas de cambio pose a great money-laundering risk.
Recently, both U.S. and Mexican authorities have taken a much tougher approach in policing the operations of the foreign-exchange firms. The Mexican Attorney General’s office says some of the casas de cambio are part of an elaborate system which funnels drug money through U.S. banks, on to European banks and then back to the U.S. and Latin America.
This new and vigorous effort is undoubtedly in response to not only the extreme violence taking place in Mexico, as that nation’s powerful drug cartels threaten to topple the government, but to the growing presence the cartels now have in the U.S. as well.
Of course, it is not only the drug traffickers and low-level operatives who transfer drug profits through U.S. banks.
In 1998, the brother of former Mexican President Carlos Salinas, Raul Salinas was caught transferring hundreds of millions of dollars out of Mexico to Citibank in New York. Citibank was then sending the money to banks in Switzerland.
The Salinas family is believed by both U.S. and Mexican law enforcement to have received nearly a billion dollars from Mexican and Columbian drug cartels. Raul Salinas was released from prison in 2005, after serving ten years for the murder of his brother-in-law.
Upon consideration of the fact that many U.S. banks have engaged in laundering drug profits for the powerful and violent cartels, the $700 billion bank bailout engineered by Bush administration Treasury Secretary Hank Paulson seems even more questionable.
The fact that none of that bailout money went to help homeowners facing foreclosure, combined with the Treasury’s refusal to specifically tell Congress where $200 billion of it went makes you wonder if the relationship between the banks and the drug cartels goes far beyond what we are being told by the Justice Department.
Dave Gibson
HowardWasRight 
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