Wachovia Bank Agrees to Pay $160 Million in Deferred Prosecution Agreement

Wachovia to Pay $160M in Deferred Prosecution Agreement

Mike Scarcella

The National Law Journal

Wachovia Bank, N.A. has agreed to pay $160 million to the federal government to resolve a charge that the bank willfully failed to effectively monitor for potential money-laundering activity in hundreds of billions of dollars in transactions with Mexican currency exchange houses, the Justice Department announced Wednesday.

Federal prosecutors in Florida unsealed a criminal information against Wachovia, a subsidiary of Wells Fargo & Co., that charged Wachovia with willfully failing to maintain an anti-money-laundering program from May 2003 through June 2008. Wachovia must pay a fine of $160 million within five days, according to a deferred prosecution agreement.

Justice Department prosecutors said in court papers that Wachovia failed to monitor drug-trafficking money that was passed through the bank through transfers from Mexican currency exchange houses that are commonly called "casas de cambio," or CDC.

Prosecutors said that on "numerous" occasions, the CDC wired money through its Wachovia bank accounts for the purchase of airplanes for drug-trafficking organizations. Between 2004 and 2007, foreign law enforcement agents seized four airplanes. More than 20,000 kilograms of cocaine were seized from the aircraft, according to court records.

"As this case demonstrates, financial institutions -- no matter how large -- will be held accountable when they allow dirty money to pollute the U.S. banking system," Assistant Attorney General Lanny Breuer of the Criminal Division said in a statement. "With billions of dollars flowing through our financial institutions each day, it is imperative that banks maintain robust anti-money laundering controls to identify possible illegal activity."

Government lawyers said Wachovia was aware of the risks posed by business with Mexican currency exchange houses. "Despite these warnings, Wachovia remained in the business," prosecutors said in court papers unsealed Wednesday. The investigation of Wachovia's compliance with the Bank Secrecy Act began in May 2007. The investigation revealed that at least $110 million in drug proceeds were funneled through CDC accounts held at Wachovia.

Wachovia's lawyers -- King & Spalding partners J. Sedwick Sollers III and Christopher Wray, and Sullivan & Cromwell partners Samuel Seymour and Nicolas Bourtin -- did not immediately return calls and e-mail seeking comment. All four lawyers signed the deferred prosecution agreement.

Wray is a former Justice Department assistant attorney general in the Criminal Division, and Sollers is the firm's managing partner in the Washington, D.C., office. Sollers chairs the firm's governmental investigations group. Seymour and Bourtin specialize in white-collar criminal defense and are based in Sullivan & Cromwell's New York office.

"Wachovia Bank has fully cooperated with the Federal Government throughout the course of its investigation. That cooperation has continued since the merger of Wachovia and Wells Fargo," according to a statement Wells Fargo issued Wednesday. Wells Fargo completed its merger with Wachovia in December 2008.

The statement said Wachovia has made "significant enhancements" to its anti-money-laundering and Bank Secrecy Act programs to "guard against unlawful use of its system by wrongdoers."

Assistant U.S. Attorneys Andrea Hoffman and Jared Dwyer, who work in Miami, signed the deferred prosecution agreement for the government in addition to trial attorneys Constantine Lizas and Matthew Haslinger of the Asset Forfeiture and Money Laundering Section at Main Justice.