Wells Fargo set to settle money-laundering case

By Stephen Foley
Tuesday 16 March 2010 01:00

Wells Fargo, the US bank in which the investment guru Warren Buffett is the biggest shareholder, is close to settling claims that lapses in anti-money laundering controls allowed Mexico's ruthless drug cartels to get cash into and out of the country.

Talks with the US Department of Justice are aimed at ending a controversy that made headlines when a whistleblower in the London office of the Wells Fargo subsidiary Wachovia claimed he had been demoted for raising his concerns.

Martin Woods said in a filing to an employment tribunal last year that in 2006 he began noticing suspicious numbers of large travellers cheques arriving at his office for processing from the Mexican currency exchanges with which Wachovia dealt.

These exchanges, known as casas de cambio, are used throughout Mexico and the border towns of the US by citizens working abroad to transfer cash, but US authorities believe that drug gangs have also been using the system.

The activities predate Wells Fargo's ownership of Wachovia. It acquired the bank during the financial panic of 2008. Wachovia ended its relationship as a "correspondent bank" for the casas de cambio two years ago, a year after the US Drug Enforcement Agency raided one of the exchange's offices and discovered evidence that the Sinaloa drug cartel had used it for buying aeroplanes used for transporting cocaine.

Mr Woods, who was UK compliance officer for Wachovia, said in his employment tribunal filing that he feared for his life because, after he raised his suspicions, the travellers cheques abruptly stopped being routed through London. Wachovia denied his claim that colleagues may have tipped off the Mexican exchanges, and also denied obstructing anti-money laundering efforts. The case was settled, and both sides agreed not to discuss the matter further.

The separate Justice Department investigation has been going on for three years, with authorities based in Florida examining whether Wachovia complied with anti-money laundering rules. The bank said it has been co-operating fully with the investigation throughout, and yesterday it issued a new statement in response to speculation that a settlement is likely soon.

"We look forward to resolving this issue, and are committed to maintaining compliant and effective anti-money laundering policies and practices, and a strong compliance and risk management culture across the integrated organisation," a spokesman said.

The bank told shareholders last month that it expects to have to pay significant financial penalties, and will also have to enter into a legal agreement on its future conduct. In previous cases against other banks, where regulators have found lapses in money laundering protections, fines have run into tens of millions of dollars.

Mexican drug cartels control most of the supply of cocaine and crystal meth into the US market, an export business that is estimated at $25bn-$40bn a year. Despite this, US authorities have seized barely $16m in cartel assets in the past decade. Drug money pervades many aspects of the Mexican economy, and US authorities believe that businesses which are enlisted to aid money laundering can expect to take a cut of 3-8 per cent. Associates sometimes make thousands of tiny deposits in their bank accounts to avoid raising suspicion from banking authorities, a practice known as "smurfing".

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