WACHOVIA:

Neither BCCI nor the shell banks of Nauru were ever legitimate financial institutions. However, their stories arent typical. Most cases involve legitimate banks getting caught up in money-laundering activities. One example is Wachovia.

In the early 2000s, Wachovia was one of the largest banks in the U.S. Along with its many legitimate customers, it did plenty of business for Mexican and Colombian drug cartels. Reuters reports that the bank processed at least $110 billion in drug money from 2004 to 2007.

The money-laundering scheme was a multistage process. Drug dealers smuggled cash from U.S. drug sales over the Mexican border, then laundered it through currency exchanges known as casas de cambio (exchange houses). They deposited the cash in bank accounts in Mexico, which had less strict disclosure rules.

Later, they sent the money back to the U.S. They transmitted some into Wachovia accounts via wire transfer. They also used travelers checks and bulk cash shipments through a service provided by Wachovia. Contrary to the law, the bank never checked or reported any of these transactions as suspicious.

An investigation by the U.S. Drug Enforcement Agency exposed these crimes. After detecting narcotics aboard a plane in 2005, the agency started tracing the money used to buy it. The agency received help from Martin Woods, a whistleblower in Wachovias London office.

After a 22-month investigation, the U.S. government charged Wachovia with money laundering. However, by that time, Wells Fargo had acquired the bank. The new parent bank cooperated with investigators and settled the case in 2010.

In the end, Wells Fargo paid just $110 million in penalties a tiny fraction of the amount Wachovia had laundered. It also promised to improve its anti-money-laundering measures. None of the individuals responsible ever faced criminal charges.

• Discuss how the firm has managed to sustain operations despite such a tumultuous event. Finally, are there ways to prevent money laundering schemes from occurring in the future? If so, explain.
• Finally, there are several steps involved in a money laundering process, such as placement, layering, and integration. Each step plays a pivotal role in how the fraud is carried out. Which phase is the most significant in terms of ethical and legal repercussions?
• How does money laundering relate to identity theft, if at all? What are the signs to look for?