U.S. banks fail to monitor Mexican drug-gang money

Just before sunset on April 10, 2006, a DC-9 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.

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, Venezuela, to drug traffickers in Toluca, near Mexico City, Mexican 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 and Bank of America.

This was no isolated incident. Wachovia, it turns out, had made a habit of helping move money for Mexican drug smugglers. Wells Fargo, which bought Wachovia in 2008, has admitted in court 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 22 tons of cocaine.

The admission came in an agreement that Charlotte, N.C.-based 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 — 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,” says Jeffrey Sloman, the federal prosecutor who handled the case.

Thousands of deaths

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 U.S. In the Mexican city of Ciudad Juárez, just across the border from El Paso, Texas, 700 people had been murdered this year as of mid-June. Six Juarez police officers were slaughtered by automatic-weapons fire in a midday ambush in April.

Mexican President Felipe Calderón 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.

Among the dead are police, soldiers, journalists and ordinary citizens. The U.S. pledged Mexico $1.1 billion in the past two years to aid in the fight against narcotics cartels.

In May, President Obama said he’d send 1,200 National Guard troops, adding to the 17,400 agents on the U.S. side of the border to help stem drug traffic and illegal immigration.

“It’s the banks laundering money for the cartels that finances the tragedy,” says 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 the 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,” Woods says.

Wells Fargo regrets that some of Wachovia’s former anti-money-laundering efforts fell short, spokeswoman Mary Eshet says. Wells Fargo has invested $42 million in the past three years to improve its anti-money-laundering program and has been working with regulators, she says.

Bank cleanup

Wachovia is just one of the U.S. and European banks that have been used for drug-money laundering. For the past 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.

Miami-based American Express Bank International paid fines in both 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 London-based HSBC Holdings, Europe’s biggest bank, 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 Culiacán and Tijuana of laundering drug funds through their accounts at the Mexican units of Banco Santander, Citigroup and HSBC, according to court documents filed in the case.

The money changers are in jail while being tried. Citigroup, HSBC and Santander, which is the largest Spanish bank by assets, weren’t accused of wrongdoing. The three banks say Mexican law bars them from commenting on the case, adding they each carefully enforce anti-money-laundering programs.

Drug cartels branch out

Mexico’s drug cartels have become multinational criminal enterprises.

Some of the gangs have delved into other illegal activities such as gunrunning, kidnapping and smuggling people across the border, as well as into seemingly legitimate areas such as trucking, travel services and air-cargo transport, according to the Justice Department’s National Drug Intelligence Center.

These criminal empires have no choice but to use the global banking system to finance their businesses, Mexican Sen. Felipe Gonzalez says.

“With so much cash, the only way to move this money is through the banks,” says Gonzalez, who chairs the Senate public-safety committee.

Gonzalez, a member of Calderón’s National Action Party, carries a .38 revolver for personal protection.

“I know this won’t stop the narcos when they come through that door with machine guns,” he says, pointing to the entrance to his office. “But at least I’ll take one with me.”

With assistance from David Voreacos, Jens Gould, Jonathan Levin and David Evans.