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International and U.S. Banks make millions from laundering drug money

By Michael Webster: Syndicated Investigative Reporter.  

The Department of Justice and U.S. Treasury said that HSBC allowed the most notorious international drug cartels to launder billions of dollars across borders. In addition, the government said HSBC violated U.S. sanctions for years by illegally conducting transactions on behalf of customers in Iran, Libya, Cuba, Sudan and Burma.

Between 2004 and 2007, Wachovia Bank now Wells Fargo & Co., which bought Wachovia Corp. in 2008, has admitted in court that its unit failed to monitor and report suspected money laundering by narcotics traffickers. They handled funds totaling $378.4 billion for Mexican currency-exchange houses acting on behalf of Mexican Drug Cartels. A sum equal to one-third of Mexico’s current gross domestic product.
These transactions so far had amounted to be the largest violation of the Bank Secrecy Act, an anti-money-laundering law in US history. This case is not remarkable; Wachovia is just one of several US and European banks that drug cartels have used to launder money.
Outrageous HSBC Settlement Proves our government just looked the other way.
The United States Justice Dept. headed by Attorney General Eric Holder signed off on a settlement deal with the British banking giant HSBC. According to Rolling Stone Magazine “that is the ultimate insult to every ordinary person who's ever had his life altered by a narcotics charge”.
 
Despite the fact that HSBC admitted to laundering billions of dollars for Colombian and Mexican drug cartels (among others) and violating a host of important banking laws (from the Bank Secrecy Act to the Trading With the Enemy Act), Assistant U.S. Attorney General Lanny Breuer and his Justice Department elected not to pursue criminal prosecutions of the bank, opting instead for a "record" financial settlement of $1.9 billion, which as one analyst noted is about five weeks of income for the bank.
Breuer admitted that drug dealers would sometimes come to HSBC's Mexican branches and "deposit hundreds of thousands of dollars in cash, in a single day, into a single account, using boxes designed to fit the precise dimensions of the teller windows."

Rolling Stone put it thus way “If you've ever been arrested on a drug charge, if you've ever spent even a day in jail for having a stem of marijuana in your pocket or "drug paraphernalia" in your gym bag, Assistant Attorney General and longtime Bill Clinton pal Lanny Breuer has a message for you: Bite me”.
Sen. Elizabeth Warren recently demanded answers from top banking regulators over the possibility of shuttering financial firms that flout federal anti-money laundering laws or violate international trade sanctions.
Referencing the penalties leveled against HSBC after the company was caught being used to funnel billions in drug money, the Massachusetts Democrat questioned regulators about why they did not consider forcing the British bank to shut its doors on U.S. soil.
“What does it take?” Warren said. “How many billions of dollars do you have to launder for drug lords?
Regulators fined the company $1.9 billion over the laundering, but Warren questioned why no criminal prosecutions were aimed at the company or its employees, saying they were not being held to the same standard as common Americans.
“If you’re caught with an ounce of cocaine, the chances are good you go to jail. If you’re caught repeatedly, you can go to jail for life,” Warren told regulators during a Senate Banking Committee hearing. “Incidentally, if you launder nearly a billion dollars in drug money, your company pays a fine and you go home and sleep in your own bed at night.”

Officials from the Treasury Department, Federal Reserve and Office of the Comptroller of the Currency hesitated to weigh in on when it was appropriate to shut down financial firms, saying the decision to shutter a bank would follow prosecutions by the Department of Justice.
There is apparently a double standard going on here in America and around the world if you’re a bankster making millions and in some cases perhaps even billions you face no criminal charges what so ever. But if your just a citizen and make any money from drugs or even possess a small amount of weed you may have to post a large bond and you can not only be fined but also go to jail.
Apparently the government's rationale in not pursuing criminal prosecutions against the bank was rooted in concerns that putting executives from a "systemically important institution" in jail for drug laundering would threaten the stability of the financial system.

The New York Times put it this way: Federal and state authorities have chosen not to indict HSBC, the London-based bank, on charges of vast and prolonged money laundering, for fear that criminal prosecution would topple the bank and, in the process, endanger the financial system.
When you decide not to prosecute bankers for billion-dollar crimes connected to drug-dealing and terrorism (some of HSBC's Saudi and Bangladeshi clients had terrorist ties, according to a Senate investigation), it doesn't protect the banking system, it does exactly the opposite. It terrifies investors and depositors everywhere, leaving them with the clear impression that even the most "reputable" banks may in fact be captured institutions whose senior executives are in the employ of (this can't be repeated often enough) murderers and terrorists. Even more shocking, the Justice Department's response to learning about all of this was to do exactly the same thing that the HSBC executives did in the first place to get themselves in trouble – they took money to look the other way.

At an airport in the port city of Ciudad del Carmen, 500 miles east of Mexico City, on April 10, 2006, a DC-9 jet landed. Soldiers approached the plane, the crew tried to warn them away, saying there was a dangerous oil leak. But the troops soon grew suspicious and searched the jet.
Found on that plane was 128 black suitcases, packed with almost 6 tons of cocaine, valued at more than $100 million. The drugs were supposed to have been delivered from Caracas 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 largest banks in the U.S.: Wachovia Corp. and Bank of America Corp., Bloomberg Markets magazine reported in its August 2010 issue.
This was no isolated incident. Wachovia, it turns out, had made a habit of helping move money for Mexican drug smugglers including the cash used to buy four planes that shipped a total of 22 tons of cocaine.
 “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.
Since 2004, more than 100,000 people have been killed in drug-related battles that have raged mostly along the 2,000-mile (3,200-kilometer) border that Mexico shares with the U.S.

Former 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.
Behind the carnage in Mexico is an industry that supplies hundreds of tons of cocaine, heroin, marijuana and methamphetamines to Americans. The cartels have built a network of dealers (Street Gangs) in U.S. cities from coast to coast, taking in billions in sales annually, according to the Justice Department.
Twenty million people in the U.S. regularly use illegal drugs, spurring street crime and wrecking families. Narcotics cost the U.S. economy $215 billion a year -- enough to cover health care for 30.9 million Americans -- in overburdened courts, prisons and hospitals and lost productivity, the department says.
“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 Wachovia’s branch network.
“If you don’t see the correlation between the money laundering by banks and the  people killed in Mexico, you’re missing the point,” Woods says.

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 U.S. 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 Plc, Europe’s biggest bank by assets, an investigation by the Mexican Finance Ministry found.
A Mexican judge 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, which is 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-money-laundering programs.

Mexico’s drug cartels have become multinational criminal enterprises.

Some of the gangs have delved into other illegal activities such as gunrunning, kidnapping, smuggling of drugs and people across the border, as well as into seemingly legitimate areas such as strip clubs, massage parlors, 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 Senator Felipe Gonzalez says.
“With so much cash, the only way to move this money is through the banks,” says Gonzalez, who represents a central Mexican state and chairs the senate public safety committee.
No bank has been more closely connected with Mexican money laundering than Wachovia. Founded in 1879, Wachovia became the largest bank by assets in the southeastern U.S. by 1900. After the Great Depression, some people in North Carolina called the bank “Walk-Over-Ya” because it had foreclosed on farms in the region.

By 2008, Wachovia was the sixth-largest U.S. lender, and it faced $26 billion in losses from subprime mortgage loans. That cost Wachovia Chief Executive Officer Kennedy Thompson his job in June 2008.
Six months later, San Francisco-based Wells Fargo, which dates from 1852, bought Wachovia for $12.7 billion, creating the largest network of bank branches in the U.S. As Wachovia’s balance sheet was bleeding, its legal woes were mounting. In the three years leading up to Wachovia’s agreement with the Justice Department, grand juries served the bank with 6,700 subpoenas requesting information.
The U.S. Treasury Department after a 22-month investigation, the DOJ charged Wachovia with violating the Bank Secrecy Act by failing to run an effective anti-money-laundering program.
Five days later, Wells Fargo promised in a Miami federal courtroom to revamp its detection systems. Wachovia’s new owner paid $160 million in fines and penalties, less than 2 percent of its $12.3 billion profit in 2009.

The U.S. government drops all charges against the bank in March 2011.
Wells Fargo has declined to answer specific questions, including how much it made by handling $378.4 billion -- including $4 billion of cash-from Mexican exchange companies.
No big U.S. bank -- Wells Fargo included -- has ever been indicted for violating the Bank Secrecy Act or any other federal law. Instead, the Justice Department settles criminal charges by using deferred-prosecution agreements, in which a bank pays a fine and promises not to break the law again.
Large banks are protected from indictments by a variant of the too-big-to-fail theory. The theory is like a get-out-of-jail-free card for big banks
Moving money is central to the drug trade -- from the cash that people tape to their bodies as they cross the U.S.-Mexican border to the $100,000 wire transfers they send from Mexican exchange houses to big U.S. banks.

Drug money moves back and forth across the border in an endless cycle. In the U.S., couriers take the cash from drug sales to Mexico -- as much as $29 billion a year, according to U.S. Immigration and Customs Enforcement. That would be about 319 tons of $100 bills.
They hide it in cars and trucks to smuggle into Mexico. There, cartels pay people to deposit some of the cash into Mexican banks and branches of international banks. The narcos launder much of what’s left through money changers.
Wachovia ignored warnings by regulators and police, according to the deferred-prosecution agreement.
“As early as 2004, Wachovia understood the risk,” the bank admitted in court. “Despite these warnings, Wachovia remained in the business.”
In November 2005 and January 2006, Wachovia transferred a total of $300,000 to a Bank of America account in Oklahoma City. Drug smugglers used the funds to buy the DC-9 through Oklahoma City aircraft broker U.S. Aircraft Titles Inc., according to financial records cited in the Mexican criminal case. U.S. Aircraft Titles President Sue White declined to comment.
On April 5, 2006, a pilot flew the plane from St. Petersburg, Florida, to Caracas to pick up the cocaine, according to the DEA. Five days later, troops seized the plane in Ciudad del Carmen and burned the drugs at a nearby army base.

With the Wachovia accounts seized, they just shifted their laundering scheme to HSBC, according to financial documents cited in the Mexican criminal case.
In the three weeks after the DEA raided Wachovia, two front companies, Grupo ETPB SA and Grupo Rahero SC, made 12 cash deposits totaling $1 million at an HSBC Mexican branch, Mexican investigators found.

The funds financed a Beechcraft King Air 200 plane that police seized on Dec. 29, 2007, in Cuernavaca, 50 miles south of Mexico City, according to information in the case.
Prosecutors have tried to halt money laundering at American Express Bank International twice. In 1994, the bank, then a subsidiary of New York-based American Express Co., pledged not to allow money laundering again after two employees were convicted in a criminal case involving drug trafficker Juan Garcia Abrego.
In 1994, the bank paid $14 million to settle. Five years later, drug money again flowed through American Express Bank. Between 1999 and 2004, the bank failed to stop clients from laundering $55 million of narcotics funds, the bank admitted in a deferred-prosecution agreement in August 2007.
Banks aren’t the only financial institutions that have turned a blind eye to drug cartels in moving illicit funds. Western Union Co., the world’s largest money transfer firm, agreed to pay $94 million in February 2010 to settle civil and criminal investigations by the Arizona attorney general’s office.

Undercover state police posing as drug dealers bribed Western Union employees to illegally transfer money, says Cameron Holmes, an assistant attorney general.
“Their allegiance was to the smugglers,” Holmes says. “What they thought about during work was ‘How may I please my highest- spending customers the most?’”
Smudged Fingerprints
Workers in more than 20 Western Union offices allowed the customers to use multiple names, pass fictitious identifications and smudge their fingerprints on documents, investigators say in court records.
“In all the time we did undercover operations, we never once had a bribe turned down,” says Holmes, citing court affidavits.
Western Union It paid $65 million to the U.S. and promised not to break the law again. The government dismissed the criminal charge a year later. American Express sold the bank to London-based Standard Chartered PLC in February 2008 for $823 million.

Money laundering by large international banks has reached epidemic proportions, and U.S. authorities are supposedly looking into Citigroup Inc. (C) and JPMorgan Chase & Co.
There may be fines, but the largest corps banks are unlikely to face criminal actions or meaningful sanctions. The Department of Justice has decided that these banks are too big to prosecute to the full extent of the law, though why this also gets employees and executives off the hook remains a mystery. And the Federal Reserve refuses to rescind bank licenses, undermining the credibility, legitimacy and stability of the financial system. The Federal Reserve is owned by the nation’s largest banks many of whom are under investigation or were at some point in the recent past.

To see this perverse incentive program in action, consider the recent case of a big money-laundering bank that violated a deferred prosecution agreement with the Justice Department, openly broke U.S. securities law and stuck its finger in the eye of the Fed. This is what John Peace, the chairman of Standard Chartered Plc (STAN), and his colleagues managed to get away with March 5. The meaningful consequences for him or his company are precisely zero.
 
If you or I tried to launder money, even on a small scale, we would probably go to jail. But when the employees of a very big bank do so -- on a grand scale and over many years -- there are no meaningful consequences.
 
Sources:
DEA
The Treasury Department
 Federal Reserve
Office of the Comptroller of the Currency
The New York Times
Bloomberg Markets magazine
Simon Johnson
settlement deal
"record" financial settlement
Rolling Stone Magazine
U.S. Senate investigation
Federal prosecutor Jeffrey Sloman
Martin Woods, director of Wachovia’s anti-money-laundering unit
Department’s National Drug Intelligence Center
Mexican Senator Felipe Gonzalez
U.S. Treasury Department
U.S. Immigration and Customs Enforcement
Arizona attorney general’s office.
Cameron Holmes, an assistant attorney general
www.lagunajournal.com
www.usborderfirereport.com
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Michael ( Mick) Webster Syndicated Investigative Reports are read worldwide, in 100 or more U.S. outlets and in at least 136 countries and territories. He publishes articles in association with global news agencies and media information services with more than 350 news affiliates in 136 countries.
 He served as a trustee on trade Union funds. A noted Author, Lecturer, Educator, Emergency Manager, Counter-Terrorist, War on Drugs and War on Terrorist Specialist, Newspaper Publisher. Radio News caster. Labor Law generalist, Teamster Union Business Agent, General Organizer, Union Rank and File Member Grievances Representative, NLRB Union Representative, Union Contract Negotiator, Workers Compensation Appeals Board Hearing Representative. Mr. Webster represented management on that side of the table as the former Director of Federated of Nevada. Mr. Webster publishes on-line newspapers at www.lagunajournal.com  and www.usborderfirereport.com  and does investigative reports for print, electronic and on-line News Agencies.

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