Lesson Five – Money Laundering Case Study

In 2010, one of the biggest banks in America, Wachovia (now part of Wells Fargo), agreed to pay $160 million to settle accusations that it laundered Mexican drug money. It was one of the biggest actions brought under the Bank Secrecy Act.[1]

The U.S. Drug Enforcement Administration (DEA) began the investigation in 2005. During the investigation, it was discovered that Mexican cartels were smuggling U.S. dollars, gained from selling illegal drugs in America, across the Mexican border. The money was then given to the money exchangers, who deposited it into their Mexican bank accounts. The origin of the money wasn’t investigated by the Mexican banks (as their regulatory requirements weren’t comparable to the U.S.) and this allowed the criminals to place their illegal earnings into the legitimate sector. These funds were then wired back to Wachovia’s accounts in America, where their origin once again went  unchecked. Any remaining bank notes were shipped back to America using Wachovia’s “bulk cash service” provided to their correspondents. By using these two methods provided by Wachovia, the criminals could integrate their illegal funds into the financial system and then return the funds to their starting country.

Wachovia paid federal authorities millions for willingly failing to establish an adequate AML program and subsequently allowing, from 2004 to 2007, the transfer of an estimated $380 billion from money exchangers in Mexico with whom the bank did business.

The Details of the Investigation

The investigation began in June 2005 with a DEA drug-sniffing dog. At that time, according to court documents, investigators began tracing the source of money for airplanes being used to ferry cocaine in Colombia and Mexico that was ultimately destined for the U.S. Investigators discovered that those initial money transfers were overseen by a Wachovia office in Miami.

Court documents reveal that at least $13 million from the Mexican exchanges went through Wachovia for the purchase of aircraft. Four of those aircraft were seized by investigators, along with more than 22 tons of cocaine.

From there, investigators from the DEA, the Internal Revenue Service and other agencies tracked billions of dollars in wire transfers, bulk cash shipments and other transactions from the Mexican exchanges through Wachovia. Many of these wire transactions were considered suspicious.

Red Flags in this Case

In the upcoming lessons, we will talk about various red flags. It’s important to understand that these red flags are very real. In this case, red flags that should have been identified, had the bank had a sufficient AML program in place, included:

  1. Multiple round-number wire transfers on the same day for a single account
  2. Deposits of traveler’s checks with sequential numbers that contain unusual markings
  3. Bulk cash transfers up to 50% larger than a customer had led Wachovia to expect

This case gives you an idea of how banks can be used to launder money.

As a mortgage company, you are not receiving deposits like a teller would at a bank; however, when you may be in a position to review bank statements so it is important for you to keep an eye out for red flags.

What red flags should you look for in bank accounts?

  • Two or more deposits made during a week where the total amount of the deposits is greater than $5,000
  • Two or more deposits made during a month where the total amount of the deposits is greater than $10,000
  • Two or more cash deposits made during a quarter where the total amount of the deposits is more than $18,000
  • Any cash deposit between $8,000 and $10,000
  • One or more cash withdrawals during a month where the total amount is equal or above $5,000
  • Deposits equal or above $3,000 in a day, made in traveler’s checks or money orders

[1] http://www.nytimes.com/2010/03/18/business/18launder.html