Thursday, February 7, 2013

Wells Fargo, Senator Dianne Feinstein and the Mexican Drug Cartels










“Oropeza, 48, was arrested May 31, 2007, by police in Saraland, Ala., who stopped him on a traffic violation. Checking his record, they learned of the investigation in Texas.

They searched the van and discovered 185 pounds of cocaine hidden under a false floor. That allowed federal agents to freeze Oropeza's bank accounts and search his marble-floored home in Brownsville, Robinette says.”


The government, like the banks, had a vested interest in shutting down the investigation, as the results of any genuine inquiry would have exposed negligence and collusion on the part of the regulators as well as gross violations of law by the banks that would have made it more difficult for the Obama administration to avoid criminal prosecutions.

The Times also reported that such “independent investigators” played a key role in the HSBC money laundering scandal, helping cover up the extent of the British-based bank’s money laundering operation for Mexican drug cartels.

World Socialist Web Site

Published by the International Committee of the Fourth International (ICFI)

Firms make billions as middlemen in government cover-up of Wall Street crimes

By Andre Damon
7 February 2013

In the network of corrupt and incestuous relations between government financial regulatory agencies and the banks they nominally police, a growing role is played by private, for-profit “consulting” firms that serve as middlemen in the government cover-up of corporate crime.

The New York Times in a front-page article last week called attention to this lesser-known mechanism used by the government to protect Wall Street from being held to account for the fraudulent and illegal practices in which it engages on a daily basis.

The Times wrote: "Federal authorities are scrutinizing private consultants hired to clean up financial misdeeds like money laundering and foreclosure abuses, taking aim at an industry that is paid billions of dollars by the same banks it is expected to police."

The firms in question operate in essentially the same way as the credit rating agencies that facilitated the subprime meltdown. Just as Standard & Poor’s Rating Services and Moody’s Investors Service are paid by the banks whose securities they rate, the consulting firms tasked with investigating banks are chosen and paid by the very institutions they are investigating. This arrangement is based on a howling conflict of interest. Consulting firms that want to keep old clients and add new ones, and increase their profits, are obviously under pressure to cover up the misdeeds of their banking paymasters.

Moreover, the same revolving door by which individuals move seamlessly between Wall Street and the regulatory agencies exists between the consulting firms and the banks and regulatory bodies.

Last month's $8.5 billion foreclosure fraud settlement with major US lenders lifted the lid on bank regulators' increasing use of these “independent investigators.” Tasked with finding the extent of fraud and illegality in the processing of home foreclosures, these companies helped the banks cover up their fraudulent activities and ensure that the extent of their wrongdoing was not brought to light.

The settlement between ten major mortgage lenders and the Office of the Comptroller of the Currency (OCC), a branch of the Treasury Department, related to widespread fraud committed by the banks in their rush to foreclose on as many homes as possible in 2009 and 2010. To expedite the foreclosure process, the banks had employees or contractors sign off on thousands of mortgage documents every month, swearing that they had intimate knowledge of their contents when, in reality, they had not even read them.

This resulted in the improper expulsion of an unknown number of families—probably in the hundreds of thousands—from their homes.

In April of 2011, the OCC, the Office of Thrift Supervision (OTS), and the Board of Governors of the Federal Reserve System ordered individual reviews of foreclosures carried out between 2009 and 2010 by fourteen mortgage lenders, including Bank of America, Citibank, JPMorgan Chase and Wells Fargo.

The investigation was intended to individually review all cases in which homeowners claimed that they were improperly foreclosed on, so that each victimized household could receive a cash payout. The findings of such an investigation would have undoubtedly shown that foreclosure fraud was far more prevalent than had been previously known, and laid the basis for further lawsuits against the lenders.

Instead of reviewing the foreclosures themselves, regulators had the banks hire so-called independent investigators, who, while receiving $2 billion in fees from the lenders, dragged their feet in reviewing the foreclosure cases.

Last month, government regulators closed down the review on the grounds that it was too time-consuming and too expensive for the banks and came up with a sweetheart settlement that cost the banks a relative pittance.

Instead of payouts to individuals who were harmed by the banks' wrongdoing, the lenders agreed to split a $3.3 billion cash payout among 4.2 million foreclosed homeowners, without "determination of harm." As a result, homeowners will receive a check of under $1,000 even if they were illegally thrown out of their homes.

The government, like the banks, had a vested interest in shutting down the investigation, as the results of any genuine inquiry would have exposed negligence and collusion on the part of the regulators as well as gross violations of law by the banks that would have made it more difficult for the Obama administration to avoid criminal prosecutions.

When setting up the "Independent Foreclosure Review" in April 2011, regulators claimed that they had to rely on independent contractors such as Promontory Financial and PricewaterhouseCoopers because regulators themselves had neither the money nor the manpower the review the claims.

"The Office of the Comptroller of the Currency employs just 3,800 people, only about 2,000 of whom are bank examiners," said Bryan Hubbard, director for public affairs operations at the OCC in a telephone interview Monday. "It would simply not have been practical to hire the staff necessary for the review."

He added that "independent consultants are used often by many regulators, not just the OCC, in support of enforcement actions. It was not unusual." He added that the decision to end the review "will provide more money to more borrowers than maintaining the original course."

The argument that closing down the investigation resulted in greater compensation for victimized borrowers is absurd.

The growing scandal over the role of “independent consultants” in the foreclosure abuse settlement prompted Senator Elizabeth Warren and Representative Elijah Cummings to send a letter to the US Federal Reserve and office of the Comptroller of the Currency last week, asking them to publish documents related to the role of the consultants hired by the banks to review foreclosures.

The role of such "independent investigators" in covering up the banks' crimes goes beyond the foreclosure settlement. Since the 2008 financial meltdown, it has become increasingly common for financial regulators to rely on such companies in regulatory actions. The New York Times reported that the OCC required the hiring of such consultants in more than 130 regulatory actions since 2008.

The Times also reported that such “independent investigators” played a key role in the HSBC money laundering scandal, helping cover up the extent of the British-based bank’s money laundering operation for Mexican drug cartels. The newspaper reported that HSBC was cited for its loose money laundering protections in 2003 and turned to the consulting firm Deloitte & Touche to review its compliance with regulations.

In 2010, the bank was again investigated in connection to its money laundering activities, ultimately leading to a $1.9 billion settlement with regulators late last year. To help determine the fine to be levied, HSBC was ordered to hire an independent consultant to assess the extent of its legal transgressions.

The bank hired its reliable ally of previous years, Deloitte & Touche, which, according to the Times, "generously bundled hundreds of missed transfers into a single report," which "may have helped save the bank from some government fines."

"Independent investigators" like Deloitte and Promontory are staffed largely by former regulators, who, having gained experience in government, have turned to using their knowledge to help banks skirt regulations, for sizable fees. Promontory Financial, which examined loans for Bank of America and Wells Fargo, is a case in point. The company was founded in 2000 by Eugene Ludwig two years after he left his position as Comptroller of the Currency.

Last month, Promontory announced that Julie Williams, the former chief council at the OCC, would join the group to become the firm's director of advisory practice. “I thought I could do more good helping firms understand and comply with government expectations—which are not always just what’s in rules and regulations—at Promontory,” she said upon taking the job.

PricewaterhouseCoopers, which carried out the foreclosure fraud investigation for Citigroup, brags to potential clients that its "teams consist of experienced regulatory risk specialists, including ex-regulators, who not only know the rules, but have also implemented and assessed compliance against them." OBAMA PROMISED HIS CRIMINAL BANKSTER DONORS NO PRISON TIME AND NO REAL REGULATION. DID HE DELIVER?


The JPMorgan scandal also throws into relief the government’s failure to prosecute those responsible for the 2008 financial meltdown. Despite overwhelming evidence of wrongdoing and criminality uncovered by two federal investigations last year, those responsible have been shielded from prosecution.


Records show that four out of Obama's top five contributors are employees of financial industry giants - Goldman Sachs ($571,330), UBS AG ($364,806), JPMorgan Chase ($362,207) and Citigroup ($358,054).


The settlement, reported to be worth $25 billion, was announced February 9 and hailed by President Obama as a serious rebuke to the banks and boon to distressed homeowners. (See: “Obama administration brokers pro-bank mortgage fraud settlement”).


The social and historical catastrophe confronting mankind is not simply the product of an economic crisis in the abstract. This crisis is mediated by class interests, and these class interests find expression in definite actions. Behind the central banks and governments stand the interests of a financial elite whose relationship to the rest of society is fundamentally parasitic.













“The program of “gunwalking,” as the tactic of permitting known buyers for the Mexican gangs to purchase weapons and take them to Mexico, was part of a murky but undoubtedly reactionary effort by the US government to develop relations with the drug cartels, some of which deposited huge sums in American banks, to the benefit of Wall Street.”

US House votes contempt citation for attorney general

By Patrick Martin
30 June 2012

The Republican-controlled House of Representatives voted to find Democratic Attorney General Eric Holder in contempt of Congress Thursday, the first time in US history that such a sanction has been applied to the top US law enforcement official.

The vote came on a near-party-line vote of 255 to 67, with 108 Democrats abstaining. The majority of Democrats walked out of the Capitol during the voting in order to make a show of outrage over the contempt citation. The action is not expected to have any practical effect, since the House of Representatives will now request the US Attorney for Washington DC, who is Holder’s subordinate, to bring charges against his own boss, and he is likely to refuse.

The contempt citation is purportedly the outcome of a protracted congressional investigation into “Fast and Furious,” an abortive effort by the Phoenix office of the Bureau of Alcohol, Tobacco and Firearms, ostensibly to gather intelligence on Mexican drug cartels. The ATF allowed gang representatives to buy weapons at American gun shops and then bring them across the Rio Grande into Mexico.

The operation was first initiated under the Bush administration, under the codename “Wide Receiver,” but was shut down in 2007. It was revived after Obama and Holder took office, under its new name, although it is not clear whether the White House or senior Justice Department officials were aware of it.

In December 2010, Border Patrol agent Brian Terry was shot to death in a gun battle in which several “Fast and Furious” weapons were involved. The program was abruptly shut down, and top Justice Department officials initially denied its existence in a February 4, 2011 letter to Congress that was later retracted.

The House Governmental Operations committee, headed by California Republican Darrell Issa, has focused its investigation not on the “Fast and Furious” program itself, but on efforts to prove that top Justice Department officials lied about the program in the course of a series of responses to the committee in 2011.

Each request from Issa’s committee for documents has been followed by further requests for internal emails about the Justice Department’s response to the previous document requests, in an evident effort to construct and trigger a perjury trap that would implicate either Holder or one of his top subordinates in a purported cover-up.

“Fast and Furious” does involve serious issues relating to the secret operations of the federal government. The program of “gunwalking,” as the tactic of permitting known buyers for the Mexican gangs to purchase weapons and take them to Mexico, was part of a murky but undoubtedly reactionary effort by the US government to develop relations with the drug cartels, some of which deposited huge sums in American banks, to the benefit of Wall Street. It is likely for this reason that even some Republican Senators have sought to distance themselves from Issa’s campaign—this is not the sort of program that is supposed to see the light of day.

The House Republicans, in fact, are uninterested in exposing either the US manipulation of the drug gangs or the criminal activities of Wall Street. The Justice Department has supplied the committee with the documents related to the origins and functioning of the “Fast and Furious” program. The subpoena rejected by Holder, which triggered a claim of executive privilege by Obama, involves 1,500 pages of internal emails between top Justice Department officials written only after “Fast and Furious” had been shut down.

A driving force in the campaign over “Fast and Furious” vote is the National Rifle Association, the ultra-right group that purports to represent gun owners. Top NRA officials claim that top Obama administration officials devised “Fast and Furious” in order to produce a series of bloody incidents along the border involving guns purchased at US gun shops. The purpose of this alleged conspiracy was to generate political propaganda for sweeping restrictions on gun ownership that the Obama administration supposedly plans to introduce in its second term.

Some 17 House Democrats decided to follow the dictates of the NRA and vote for the contempt citation against Holder, in an effort to win the backing of the right-wing group in the upcoming congressional elections. Only two Republicans voted against the contempt citation.

What is remarkable in the conflict is that there are ample reasons for indicting Attorney General Holder for criminal actions against the democratic rights of the American people, but these are of no interest to the ultra-right groups spearheading the campaign over “Fast and Furious.”

Holder has been one of the most aggressive spokesmen for the claims of the Obama administration of presidential power to order the assassination of American citizens, or to detain them indefinitely without charge or judicial review, in the name of the “war on terror.” The Justice Department has spearheaded a series of prosecutions of whistleblowers who have leaked information on anti-democratic operations of the military-intelligence apparatus within the United States.






Records show that four out of Obama's top five contributors are employees of financial industry giants - Goldman Sachs ($571,330), UBS AG ($364,806), JPMorgan Chase ($362,207) and Citigroup ($358,054).



Consider the Obama administration's choices for the four most important positions in financial sector law enforcement. The attorney general (Eric Holder) and the head of the Justice Department's criminal division (Lanny Breuer) both come to us from Covington & Burling, a law firm that represents and lobbies for most of the major banks and their industry associations; indeed Breuer was co-head of its white collar criminal defense practice, and represented the Moody's rating agency in the Enron case. Mary Schapiro, the head of the SEC, spent the housing bubble in charge of FINRA, the investment banking industry's "self-regulator," which gave her a $9 million severance for a job well done. And her head of enforcement, perhaps most stunningly of all, is Robert Khuzami, who was general counsel for Deutsche Bank's North American business during the entire bubble. So zero prosecutions isn't much of a surprise, really.


Banking Is a Criminal Industry Because Its Crimes Go Unpunished

Posted: 07/16/2012 8:23 am

Consider just this month's news in financial services.

First, Barclay's has been manipulating the Libor, the main interest rate upon which most other interest rates and financial transactions are based, since 2005. Moreover, Barclay's traders were colluding with traders in many other banks to assist them in manipulating the Libor too, so that they could all profit from their bets on it.

Second, JP Morgan Chase is having a really great month. Recent reports describe how it is resisting Federal subpoenas related to price-fixing in U.S. electricity markets. It is also accused (by former employees among others) of deliberately inflating the performance of its investment funds to obtain business. And finally, JP Morgan's failed "London whale" trade, which has now cost over $5 billion, is being investigated to determine whether the loss was initially concealed from regulators and the public.

Third, HSBC is paying a fine because it allowed hundreds of millions, perhaps billions, of dollars of money laundering by rogue states and sanctioned firms, including some related to terrorist activities and Iran's nuclear efforts. But HSBC is only one of at least 12 banks now known to have tolerated, and in some cases aggressively courted, money laundering by rogue states, terrorist organizations, corrupt dictators, and major drug cartels over the last decade. Others include Barclay's, Lloyds, Credit Suisse, and Wachovia (now part of Wells Fargo). Several of the banks created special handbooks on how to evade surveillance, created special business units to handle money laundering, and actively suppressed whistleblowers who warned of drug cartel activities.

Fourth, a new private lawsuit cites documents indicating that Morgan Stanley successfully pressured rating agencies into inflating the ratings of mortgage-backed securities it issued during the housing bubble.

Fifth, Visa and Mastercard have just agreed to pay $7 billion to settle a private antitrust case filed by thousands of merchants, who alleged that Visa and Mastercard colluded to fix fees and terms of service.

Just another month in financial services. Is it unusual? No, it's not. If we go back just a little further, we have UBS, HSBC, Julius Baer, and other banks actively marketing tax evasion services to wealthy U.S. and European citizens. We have senior executives of several banks (including JP Morgan Chase and UBS) strongly suspecting that Bernard Madoff was running a Ponzi scheme, but deciding to make money from him rather than turn him in. And then, of course, we have the financial crisis and everything that led to it. As I show in great detail in my book Predator Nation, we now possess overwhelming evidence of massive securities fraud, accounting fraud, perjury, and criminal Sarbanes-Oxley violations by mortgage lenders, investment banks, and credit insurers (including senior executives of Countrywide, Citigroup, Morgan Stanley, Goldman Sachs, Bear Stearns, AIG, and Lehman Brothers) during the housing bubble that caused the financial crisis. If we go back to the late 1990s, we have the massively fraudulent hyping of Internet stocks, and several banks (including Merrill Lynch and Citigroup) actively aiding Enron in committing its frauds.

So, July 2012 really isn't abnormal at all. The reason for this is very simple. Over the past two decades, the financial services industry has become a pervasively unethical and highly criminal industry, with massive fraud tolerated or even encouraged by senior management. But how did that happen?

Well, deregulation helped, of course. But something else was far more important. It is the one critical factor that unites all of the episodes cited above, including those of this month. This critical unifying factor is the total number of criminal prosecutions of major firms and senior executives as a result of all of these crimes combined.

And what is that number?


Literally zero. A number that neither President Obama nor Mitt Romney shows the slightest interest in changing.

Consider the Obama administration's choices for the four most important positions in financial sector law enforcement. The attorney general (Eric Holder) and the head of the Justice Department's criminal division (Lanny Breuer) both come to us from Covington & Burling, a law firm that represents and lobbies for most of the major banks and their industry associations; indeed Breuer was co-head of its white collar criminal defense practice, and represented the Moody's rating agency in the Enron case. Mary Schapiro, the head of the SEC, spent the housing bubble in charge of FINRA, the investment banking industry's "self-regulator," which gave her a $9 million severance for a job well done. And her head of enforcement, perhaps most stunningly of all, is Robert Khuzami, who was general counsel for Deutsche Bank's North American business during the entire bubble. So zero prosecutions isn't much of a surprise, really.

In contrast, what do you think would happen to you if, as a lone individual, you were caught supporting Iran's nuclear program? Do you think that you would get off with a "deferred prosecution agreement" and a fine equal to a few percent of your annual salary? No?

But that's because you don't live right. You probably haven't been to the White House a dozen times since President Obama took office, or attended White House state dinners, like Lloyd Blankfein has. Nor have you probably overseen millions of dollars in lobbying and campaign donations, or hired senior administration officials, or sent your executives into the government in senior regulatory positions, or paid $135,000 for a speech by someone who later became chairman of the National Economic Council. And, well, you get the law enforcement that you pay for.


Stepped-up efforts by U.S., Mexico fail to stem flow of drug money south

By William Booth and Nick Miroff
Washington Post Staff Writers
Wednesday, August 25, 2010; 7:12 PM

LAREDO, TEX. - Stashing cash in spare tires, engine transmissions and truckloads of baby diapers, couriers for Mexican drug cartels are moving tens of billions of dollars in profits south across the border each year, a river of dirty money that has overwhelmed U.S. and Mexican customs agents.

Officials said stemming the flow of this cash is essential if Mexico and the United States hope to disrupt powerful transnational criminal organizations that are using their wealth to corrupt, terrorize and kill.

Despite unprecedented efforts to thwart the traffickers, U.S. and Mexican authorities are seizing no more than 1 percent of the cash, according to an analysis by The Washington Post based on figures provided by the two governments.

The major Mexican drug organizations write that off as the cost of doing business - losing a percentage far smaller than the fees for an ordinary wire transfer or ATM withdrawal, Mexican and U.S. law enforcement officials said.

The Obama administration recently proposed a $600 million surge in spending and personnel, including additional gamma-ray scanners and money-sniffing dogs, as part of an intensifying effort to capture the dollars going from U.S. drug consumers to Mexican mafias.

The drug traffickers and their Colombian suppliers smuggle $20 billion to $25 billion in U.S. bank notes across the southwest border annually as they seek to circumvent banking regulations and the suspicions aroused by large cash deposits, studies by federal officials, regulators and academics show.

"If we fail to curtail these money flows, the confrontation with organized crime will generate more violence and more corruption," Carlos Pascual, the U.S. ambassador to Mexico, said at a border conference in El Paso this month.

Most of the money is smuggled in plastic-wrapped bricks of $20 bills. Often the bank notes retain the sticky residue or fine powder generated by the marijuana, cocaine and methamphetamine sold to the most voracious consumers in the world.

"Cash is the ultimate challenge for us," John Arvanitis, chief of financial operations for the Drug Enforcement Administration, said in an interview. "It moves so rapidly, so fluidly. It crosses borders. It moves in bulk. It is stored in warehouses. It is moved into business. They have multiple, multiple options. They can hide a million dollars in a tractor-trailer, or they can carry it across the border in a handbag."

Since the two countries pledged to bolster joint operations in March 2009 and began searching more vehicles heading south, customs agents have seized record amounts of cash - not only in vehicles but also hidden in children's toys, loaves of bread and body cavities.

But authorities are barely making a dent in the cartel profits. U.S. agents captured $85 million in illicit cash along the southwest border last year, according to the Department of Homeland Security. Mexican inspectors have seized $31 million in suspicious cash at all ports of entry into the country over the past three years, according to figures provided by the Mexican customs agency. In two years of undercover operations targeting Mexican cartels in the United States, the DEA seized $216 million, although it is unclear how much of that would have been smuggled south. (THE MEXICAN DRUG CARTELS HAUL BACK FROM THE U.S. FROM $40 TO $60 BILLION PER YEAR.)

"We see mostly small seizures, in small denominations. It doesn't mean that much to them," said a senior Mexican official who investigates financial crimes, speaking on the condition of anonymity because of security protocols. "To really hurt the criminal organizations, we would have to be confiscating much, much more."

Asked how much more, the official said, "a billion dollars."

T.J. Bonner, president of the union representing Border Patrol agents, said seizing cash in southbound traffic is extremely difficult.

"Throw a backpack of cash over the fence into Mexico, and what are we going to do?" he said. "Charge someone with littering in a foreign country?"


Mexican officials say a greater percentage of drug profits remain in the United States than U.S. officials acknowledge. Former attorney general Eduardo Medina Mora said that, based on the U.S. notes Mexican banks return to the United States, about $10 billion "does not have an explanation and could be attributed to the flow of drug trafficking money."

That figure does not include the billions never deposited in Mexican banks but quickly smuggled farther south - to Central America, to pay transport costs, and to Colombia, Peru and Bolivia, to purchase more cocaine.

'No paper trail'

Cash smuggled across the border is a leading source of foreign currency in Mexico, surpassed only by petroleum sales and about equal to the dollars earned from tourism and official remittances from Mexicans working in the United States.

"There's no paper trail when you smuggle $400,000 or $500,000 over the border in a hidden compartment on one car," said David Gaddis, deputy chief of operations for the DEA.

U.S. bank notes are easily spent in Mexico, where 67 percent of commercial transactions are made with cash - often dollars - as opposed to 21 percent in the United States.

Since late 2006, when President Felipe Caldern launched his U.S.-backed military-led offensive against the traffickers, police and soldiers have confiscated $411 million in U.S. currency but only $23 million in Mexican pesos, according to Mexico's intelligence service.

In the United States, cash from the wholesale distribution of heroin, cocaine, methamphetamine and marijuana is consolidated in several key cities, including New York, Atlanta, Chicago, Los Angeles and the Raleigh-Durham, N.C., area, before it moves south.

"What we are seeing is the professionalization of the movement of bulk cash," said an agent with U.S. Immigration and Customs Enforcement who spoke on the condition of anonymity because of security protocols. "We are seeing specialists in money movement. That's all they do. They prefer to lose drugs versus money because drugs are so much easier to replace."

ICE agents said cartels pay couriers about 2 or 3 percent to smuggle cash, far more than they lose to law enforcement.

At the crossing

At the busy border crossing in Laredo, U.S. customs agents search hundreds of southbound vehicles a day. Pickups and vans filled with household goods bought in the United States slow to a stop as agents ask the occupants whether they are carrying weapons, ammunition or more than $10,000 in cash. Almost everyone says no.

Many cars are just waved through. Others are briskly inspected. The officers tap on the vehicle panels with rubber mallets, searching for hidden compartments; open trunks and glove boxes; use mirrors to examine the undercarriage; hold a density meter next to the gas tank; and pop open the hood and inspect the running engine.

"We've seen hidden compartments in oil pans, with cars running on two quarts of oil instead of five," said Gene Garza, director of the Port of Laredo for U.S. Customs and Border Protection.

If agents detect anything suspicious - if a car with Arizona plates has no bugs on its windshield or a woman who claims to be the driver's wife looks nervous - the vehicle is inspected a second time, with cash-sniffing dogs. The vehicle might then be scanned by X-ray machines and disassembled.

In a typical seizure here last month, 50 bundles containing $607,629 were found in a spare tire of a Ford pickup. A few days earlier, $506,057 was discovered in a false compartment of a car's front bumper. The drivers face charges of cash smuggling, with a typical prison sentence of a year or two if convicted.

At the Laredo port alone, 22,000 cars cross into Mexico every day, plus 12,000 pedestrians and 6,000 tractor-trailers. They all can't be searched, officials say, and $1 million in $100 bank notes could almost fit in a shoe box.

Once the couriers cross, the risk of being caught is even slimmer, even as Mexico tries to overhaul its customs agency with help from the $1.6 billion in U.S. aid in the anti-narcotics Merida Initiative. Mexico has fired more than 1,000 customs agents and hired 2,300 since 2007, doubling their base salaries in an effort to ward off corruption. Inspectors are subjected to lie-detector tests, job rotations and monitoring by surveillance cameras.

But former agents say drug cartels continue to corrupt and intimidate inspectors. In Ciudad Juarez, across the river from El Paso, more than 30 agents have resigned in recent months after several co-workers were killed.

In Nuevo Laredo, a Mexican customs official said his inspectors have seized "maybe a million dollars" in the past year.

"It's not enough," said the senior officer, who spoke on the condition of anonymity because of security concerns. "They keep telling us to find more and more, but it's very hard."




Wells Fargo, which owns Wachovia, immediately entered into a deferred prosecution agreement and paid the federal government $160 million in fines.


Several other U.S. banks have also been discovered flouting money-laundering laws.


No wonder former Mexican president  Vicente Fox, a conservative businessman, is

urging his country to legalize the production, sale and distribution of drugs

"as a strategy to weaken and break the economic system that allows cartels to earn

huge profits."


Calderon's military surge was backed by more than $1.2 billion in drug war aid from former President Bush, and by several hundred million more from the Obama administration.

Read more:

Bloody Mexico drug war boosts U.S. gun shops, banks


United States banks' key role in Mexico's drug gangs and dirty money

By Michael Smith

Bloomberg News

Just before sunset on April 10, 2006, a DC-9 jet landed at 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. So 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 to drug traffickers in Toluca, 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 U.S.: 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 that its unit failed to monitor and report suspected money laundering by narcotics traffickers. The admission came in an agreement that Wachovia struck with federal prosecutors in March, and it sheds light on the role of U.S. banks in contributing to Mexico's violent drug trade.


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, in U.S. history — 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.

Since 2006, more than 22,000 people have been killed in drug-related battles. Among the dead are police, soldiers, journalists and ordinary citizens. The U.S. has pledged Mexico $1.1 billion in the past two years to aid in the fight against narcotics cartels.

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 in 231 U.S. cities from coast to coast, taking in about $39 billion 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 — 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 22,000 people killed in Mexico, you're missing the point," Woods says.

Cleansing dirty cash

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 financial-crimes unit of the U.S. Drug Enforcement Administration (DEA).

American Express Bank paid fines in 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, 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 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. The money changers are in jail while being tried. Citigroup, HSBC and Santander 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.

HSBC has stopped accepting dollar deposits in Mexico, and Citigroup no longer allows noncustomers to change dollars there. Citigroup detected suspicious activity in the Tijuana accounts, reported it to regulators and closed the accounts, Citigroup spokesman Paulo Carreno says.

On June 15, the Mexican Finance Ministry announced it would set limits for banks on cash deposits in dollars.

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 Senator Felipe Gonzalez says.

"With so much cash, the only way to move this money is through the banks," says Gonzalez, who 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."

No bank has been more closely connected with Mexican money laundering than Wachovia.

After a 22-month investigation, the Justice Department on March 12 charged Wachovia, now owned by Wells Fargo, 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.

Bank's regrets

If Wells Fargo keeps its pledge, the U.S. government will, according to the agreement, drop all charges against the bank in March 2011.

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.

"We have substantially increased the caliber and number of staff in our international investigations group, and we also significantly upgraded the monitoring software," Eshet says. The agreement bars the bank from contesting or contradicting the facts in its admission.

The bank declined to answer specific questions, including how much it made by handling $378.4 billion, including $4 billion of cash from Mexican exchange companies.

The Smurfs

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. 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.

By law, the money changers have to demand identification from anyone exchanging more than $500. They also have to report transactions higher than $5,000 to regulators.




The cartels get around these requirements by employing legions of individuals, including relatives, maids and gardeners, to convert small amounts of dollars into pesos or to make deposits in local banks. After that, cartels wire the money to a multinational bank.

The people making the small money exchanges are known as Smurfs, after the cartoon characters.

"They can use an army of people like Smurfs and go through $1 million before lunchtime," says Jerry Robinette, who oversees U.S. Immigration and Customs Enforcement operations along the border in east Texas.

The U.S. Treasury has been warning banks about big Mexican-currency-exchange firms laundering drug money since 1996. By 2004, many U.S. banks had closed their accounts with these companies. Wachovia ignored warnings by regulators and police, according to the deferred-prosecution agreement.

One customer that Wachovia took on in 2004 was Casa de Cambio Puebla, a Puebla, Mexico-based currency-exchange company. Pedro Alatorre, who ran a Puebla branch in Mexico City, had created front companies for cartels, according to a pending Mexican criminal case against him.

A federal grand jury in Miami indicted Puebla, Alatorre and three other executives in February 2008 for drug trafficking and money laundering. In May 2008, the Justice Department sought extradition of the suspects, saying they used shell firms to launder $720 million through U.S. banks.

Puebla executives used the stolen identities of 74 people to launder money through Wachovia accounts, Mexican prosecutors say in court-filed reports.


"Wachovia handled all the transfers, and they never reported any as suspicious," says Jose Luis Marmolejo, a former head of the Mexican attorney general's financial crimes unit now in private practice.


It was the Puebla investigation that led U.S. authorities to the broader probe of Wachovia. On May 16, 2007, DEA agents conducted a raid of Wachovia's international banking offices in Miami. They had a court order to seize Puebla's accounts.


U.S. prosecutors and investigators then scrutinized the bank's dealings with Mexican-currency-exchange firms. That led to the March deferred-prosecution agreement.


With Puebla's Wachovia accounts seized, Alatorre and his partners shifted their laundering scheme to HSBC, according to financial documents cited in the Mexican criminal case against Alatorre.


In the three weeks after the DEA raided Wachovia, two of Alatorre's front companies, Grupo ETPB and Grupo Rahero, 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 against Alatorre.


Laundering money

For years, federal authorities watched as the wife and daughter of Oscar Oropeza, a drug smuggler working for the Matamoros-based Gulf Cartel, deposited stashes of $20 bills several times a day at a Bank of America branch in Brownsville, Texas, less than 3 miles from the border.

Bank employees got to know the Oropezas by the smell of their money.

"I asked the tellers what they were talking about, and they said the money had this sweet smell like Bounce, those sheets you throw into the dryer," says Tom Salazar, an agent who investigated the family. "They told me that when they opened the vault, the smell of Bounce just poured out."

Oropeza, 48, was arrested May 31, 2007, by police in Saraland, Ala., who stopped him on a traffic violation. Checking his record, they learned of the investigation in Texas.

They searched the van and discovered 185 pounds of cocaine hidden under a false floor. That allowed federal agents to freeze Oropeza's bank accounts and search his marble-floored home in Brownsville, Robinette says.

Inside, investigators found a supply of Bounce alongside the clothes dryer.

All three Oropezas pleaded guilty in U.S. District Court in Brownsville to drug and money-laundering charges in March and April 2008. Oscar Oropeza was sentenced to 15 years in prison; his wife was ordered to serve 10 months and his daughter got 6 months.

Bank of America's Norton says, "We not only fulfilled our regulatory obligation, but we proactively worked with law enforcement on these matters."

Banks aren't the only financial institutions that have turned a blind eye to drug cartels in moving illicit funds. Western Union, 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?' "

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 has made significant improvements, it complies with anti-money-laundering laws and works closely with regulators and police, spokesman Tom Fitzgerald says.

Copyright © The Seattle Times Company






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