Wachovia was one of the largest banks in the United States. Between 2004 and 2007, it provided banking services to Mexican currency-exchange businesses, known as casas de cambio. These businesses transferred very large amounts of money into accounts maintained by Wachovia in the United States.
Serious Anti-Money-Laundering Failures
US authorities later found that Wachovia had failed to maintain adequate anti-money-laundering controls over this high-risk business. The bank did not properly monitor transactions or respond adequately to warning signs that some funds could be connected to Mexican drug-trafficking organisations.
Approximately US$378.4 billion passed through the arrangements examined by the authorities. This figure should be described carefully: it was the total amount processed without adequate monitoring, not an amount proved in its entirety to be criminal proceeds.
Nevertheless, the investigation established that some transactions handled through Wachovia were connected to drug trafficking. Funds passing through the bank were traced to the purchase of aircraft used to transport cocaine, including shipments involving approximately 22 tons of the drug.
The Regulatory and Criminal Response
In March 2010, Wachovia entered into a deferred prosecution agreement with the United States Department of Justice. The bank admitted that it had failed to maintain an effective anti-money-laundering programme for its Mexican currency-exchange business.
Wachovia agreed to:
- forfeit US$110 million, representing funds connected to drug proceeds;
- pay a further US$50 million penalty;
- cooperate with the authorities;
- strengthen its anti-money-laundering controls; and
- comply with the conditions of the deferred prosecution agreement.
Criminal proceedings were brought against the institution, but the case did not proceed to a criminal trial. No individual banker was prosecuted. After the bank complied with the agreement, the criminal charge was dismissed.
By then, Wachovia had been acquired by Wells Fargo. The banking business continued under its new ownership, and there was no attempt to close Wells Fargo or place the wider institution into liquidation.
The Comparison With BCCI
The Wachovia case is not identical to BCCI, and the comparison should not suggest that all of the US$378.4 billion represented laundered drug money. The important comparison concerns the regulatory response.
Wachovia admitted serious and prolonged failures involving high-risk transactions from Mexico. Some funds were directly connected to drug trafficking, criminal proceedings were commenced against the bank, and the institution paid substantial forfeiture and penalties.
The response was nevertheless directed towards punishing the misconduct, improving controls and preserving the banking business. The bank was not subjected to worldwide closure, its customers were not placed into a prolonged liquidation, and its viable operations continued as part of Wells Fargo.
BCCI had also been implicated in money laundering through particular officers and operations. However, BCCI as an international institution was closed across numerous countries, despite an Abu Dhabi-backed restructuring programme, substantial financial support and proposals to separate viable banking operations from problem assets.
The question is therefore not whether the two cases were identical. It is whether BCCI was given the same opportunity to remove responsible individuals, strengthen its controls, complete its restructuring and preserve its viable banking operations.
Why the Case Matters
Wachovia demonstrates that even extremely serious anti-money-laundering failures involving drug-trafficking proceeds do not automatically require the destruction of an entire banking institution.
Regulators retained the distinction between wrongdoing within the bank and the continued existence of the wider institution. The misconduct was investigated, the bank was penalised and its operations were allowed to continue under new ownership.
That distinction lies at the centre of the question examined throughout this section: was BCCI subjected to a more severe institutional response than comparable Western banks facing serious misconduct and regulatory failures?