United States, March 19, 2010 — cyberinktimes.com — In 2008, Wachovia was a failing bank. The government forced a sale to Wells Fargo. Two years later, a federal deferred-prosecution agreement revealed why the company had been in deeper trouble than anyone knew: it had been laundering money for Mexican drug cartels.
The agreement, announced March 19, 2010, carried a $160 million penalty. That figure is the cost of failure — failure of oversight, failure of compliance, failure of basic banking safeguards.
Wachovia did not admit wrongdoing. But the deferred-prosecution structure itself signals that prosecutors had enough evidence to charge the bank criminally. They chose not to, in exchange for the payment and promises of reform.
Wachovia was not a small operation. It was one of the largest bank holding companies in the United States.
It operated in 21 states and Washington, D.C. It had more than 40 offices worldwide. It offered a broad range of services: banking, asset management, wealth management, corporate and investment banking. That breadth meant the bank handled enormous sums of money across many channels.
That also meant many places where controls could fail. The cartel money came through those channels. Prosecutors said Wachovia failed to adequately monitor transactions.
The bank processed billions of dollars that should have raised red flags. Instead, the money moved.
Mexican cartels used the U.S. financial system, and Wachovia was the door. The timing matters. The 2008 financial crisis had already exposed how poorly large banks managed risk.
Wachovia was among the hardest hit. It had made disastrous bets on mortgages.
The government forced it into Wells Fargo’s arms to prevent a collapse that could have rippled through the entire system. The money-laundering case, which came later, showed that the bank’s problems went beyond bad loans. The culture of weak oversight extended into the core of its operations.
Wells Fargo absorbed Wachovia. The brand disappeared. The last Wachovia branches were converted to Wells Fargo by October 15, 2011.
But the case did not disappear. It remains a reference point for how a major American bank could become a conduit for drug money.
The $160 million penalty was large, but not crippling. Critics noted that the bank faced no criminal conviction and no individual executives were charged. The deferred-prosecution agreement allowed Wachovia to continue operating.
It allowed Wells Fargo to complete the takeover without the distraction of a criminal trial. The bank was too big to fail, and apparently too big to prosecute in a way that would have disrupted its business.
That logic has been questioned since. For the Mexican cartels, the arrangement was simple. They needed a bank that would not ask questions.
Wachovia, according to the government’s case, did not ask enough. The result was a $160 million settlement and a lasting stain on a company that no longer exists.
