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HSBC paid $1.25 billion in forfeitures as well as an additional $665 million in civil penalties.
The record settlement also included a so-called deferred prosecution agreement between HSBC and banking regulators.
In July, David Bagley, head of compliance for HSBC Bank’s London headquarters publicly resigned while testifying before a U.S. Senate committee, after he and other banks officials apologized for repeatedly violating anti-money-laundering rules and accepting billions of dollars from the drug cartels.
Bagley told the Senate’s Permanent Subcommittee on Investigations: “I recommended to the group that now is the appropriate time for me and for the bank for someone new to serve as the head of group compliance. I have agreed to work with the bank’s senior management toward an orderly transition of this important role.”
The committee’s yearlong investigation revealed that HSBC transferred $7 billion from Mexico over a two-year period, “raising red flags that the volume of dollars included proceeds from illegal drug sales in the United States.”
The report also claims that the bank completely failed to monitor more than $60 trillion in wire transfers.
Committee Chair, Sen. Carl Levin (D-MI) stated: “In an age of international terrorism, drug violence in our streets and on our borders, and organized crime, stopping illicit money flows that support those atrocities is a national security imperative.”
Of course, this is only the latest peak into the banking industry’s dirty little secret…
In 2010, United Nation´s Office on Drugs and Crime Executive Director Antonio Maria Costa 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 Colombian 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.”
Federal prosecutor, Jeffrey Sloan told The Guardian: “Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations.”
As a result of the investigation, Wachovia forfeited $110 million as well as a $50 million fine to the U.S. government…a rather paltry amount considering the bank reported a profit of $12.3 billion in 2009 alone.
Court documents from Wachovia’s 2010 settlement state: “Through CDCs (casa de cambios), persons in Mexico can use hard currency and … wire transfer the value of that currency to US bank accounts to purchase items in the United States or other countries. The nature of the CDC business allows money launderers the opportunity to move drug dollars that are in Mexico into CDCs and ultimately into the US banking system.
On numerous occasions monies were deposited into a CDC by a drug-trafficking organization. Using false identities, the CDC then wired that money through its Wachovia correspondent bank accounts for the purchase of airplanes for drug-trafficking organizations.”
The federal case claimed that “nearly $13 million went through correspondent bank accounts at Wachovia for the purchase of aircraft to be used in the illegal narcotics trade. From these aircraft, more than 20,000kg of cocaine were seized.”
As evidence of that last statement, on April 10, 2006, Mexican soldiers raided a DC-9 jet just after it landed in Ciudad del Carmen, along Mexico’s gulf coast. The plane, which had been purchased by the Sinaloa Cartel contained 5.7 tons of cocaine.
Also found on that plane was evidence of billions of dollars in wire transfers through Mexican casa de cambios into Wachovia bank accounts.
However, Wachovia is only one of many banks to come under investigation for alleged money laundering activities.
In October 2010, federal banking regulators announced an enforcement action against HSBC North American Holdings Inc. and HSBC Bank USA over its anti-money laundering compliance policy.
The Office of the Comptroller of the Currency, stated that HSBC “had deficiencies with respect to suspicious activity reporting, monitoring of bulk cash purchases and international funds transfers, customer due diligence concerning its foreign affiliates, and risk assessment with respect to politically-exposed persons and their associates.”
A U.S. Justice Department investigation is reportedly ongoing into HSBC’s activities.
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 reportedly 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 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 Colombian 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 actually went to help homeowners facing foreclosure, combined with the Treasury´s refusal to specifically tell Congress where large amounts 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.
Tags: Banking Industry, Mexican Drug Cartels, Money Laundering
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