Just before sunset on April 10, 2006, a DC-9 jet landed at the international airport in the port city of Ciudad del Carmen, 500 miles east of Mexico City. As soldiers on the ground approached the plane, the crew tried to shoo them away, saying there was a dangerous oil leak. So the troops grew suspicious and searched the jet.
They found 128 black suitcases, packed with 5.7 tons of cocaine, valued at $100 million. The stash was supposed to have been delivered from Caracas to drug traffickers in Toluca, near Mexico City, prosecutors later found. Law enforcement officials also discovered something else.
The smugglers had bought the DC-9 with laundered funds they transferred through two of the biggest banks in the United States: Wachovia Corp. and Bank of America Corp.
This was no isolated incident. Wachovia, it turns out, had made a habit of helping move money for Mexican drug smugglers. San Francisco's Wells Fargo & Co., which bought Wachovia in 2008, has admitted in court that its unit failed to monitor and report suspected money laundering by narcotics traffickers - including the cash used to buy four planes that shipped a total of 22 tons of cocaine.
The admission came in an agreement that Wachovia struck with federal prosecutors in March, and it sheds light on the largely undocumented role of U.S. banks in contributing to the violent drug trade that has convulsed Mexico for the past four years.
Wachovia admitted it didn't do enough to spot illicit funds in handling $378.4 billion for Mexican currency exchange houses from 2004 to 2007. That's the largest violation of the Bank Secrecy Act, an anti-money-laundering law, in U.S. history - a sum equal to one-third of Mexico's current gross domestic product.
Wachovia's blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations, said Jeffrey Sloman, the federal prosecutor who handled the case.
Since 2006, more than 22,000 people have been killed in drug-related battles that have raged mostly along the 2,000-mile border that Mexico shares with the United States.
Among the dead are police, soldiers, journalists and ordinary citizens. In Ciudad Juarez, just across the border from El Paso, Texas, 700 people had been killed this year as of mid-June.
Mexican President Felipe Calderon vowed to crush the drug cartels when he took office in December 2006, and he's since deployed 45,000 troops to fight the cartels. They've had little success.
The United States has pledged Mexico $1.1 billion in the past two years to aid in the fight against narcotics cartels.
It's the banks laundering money for the cartels that finances the tragedy, said Martin Woods, director of Wachovia's anti-money-laundering unit in London from 2006 to 2009.
Woods says he quit the bank in disgust after executives ignored his documentation that drug dealers were funneling money through Wachovia's branch network.
If you don't see the correlation between the money laundering by banks and the 22,000 people killed in Mexico, you're missing the point, he said.
Wells Fargo's effort
Wells Fargo regrets that some of Wachovia's anti-money-laundering efforts fell short, spokeswoman Mary Eshet says. Wells Fargo has invested $42 million in the last three years to improve its anti-money-laundering program and has been working with regulators, she says.
Wachovia is just one of the U.S. and European banks that have been used for laundering. For two decades, Latin American drug traffickers have gone to U.S. banks to cleanse their dirty cash, says Paul Campo, head of the Drug Enforcement Administration's financial crimes unit.
American Express Bank International paid fines in 1994 and 2007 after admitting it had failed to spot and report drug dealers laundering money through its accounts. Drug traffickers used accounts at Bank of America in Oklahoma City to buy three planes that carried 10 tons of cocaine, according to Mexican court filings.
Federal agents caught people who work for Mexican cartels depositing illicit funds in Bank of America accounts in Atlanta, Chicago and Brownsville, Texas, from 2002 to 2009. Mexican drug dealers used shell companies to open accounts at HSBC Holdings Plc, Europe's biggest bank by assets, an investigation by the Mexican Finance Ministry found.
Those two banks weren't accused of wrongdoing. Bank of America spokeswoman Shirley Norton and HSBC spokesman Roy Caple say laws bar them from discussing specific clients. They say their banks strictly follow the government rules.
A Mexican judge on Jan. 22 accused the owners of six centros cambiarios, or money changers, in Culiacan and Tijuana of laundering drug funds through their accounts at the Mexican units of Banco Santander SA, Citigroup Inc. and HSBC, according to court documents filed in the case.
The money changers are in jail while being tried. Citigroup, HSBC and Santander, the largest Spanish bank by assets, weren't accused of any wrongdoing.
The three banks say Mexican law bars them from commenting on the case, adding that they each carefully enforce anti-laundering programs.
Michael Smith, Bloomberg News
Wednesday, June 30, 2010