The Fourteenth Banker Blog

July 5, 2010

More on Money Laundering

Filed under: Running Commentary — thefourteenthbanker @ 2:13 PM

From Barron’s article of March, 2009:

Woods started seeing traveler’s checks arrive at his London branch from Mexican currency exchanges in 2006 — sequentially numbered, improperly endorsed, large denomination — he became suspicious.

Under laws aimed at fighting flows of dirty money, his job was to report such activity to Britain’s Serious Organised Crime Agency. Within a year of his report, Woods’ suspicions proved warranted. Mexican prosecutors raided one of the exchange companies and alleged that the cutthroat Sinaloa Cartel had used it to buy jet planes for drug-smuggling. The U.S. Drug Enforcement Agency had Wachovia freeze the exchange’s accounts in Miami and London as part of a still-ongoing investigation.

But in a whistle-blower suit filed with an employment tribunal in London, Woods says Wachovia executives resisted his scrutiny of the bank’s dealings with the Mexican exchanges. He alleges that his bosses bullied and demoted him, then withdrew his reports of other suspicious activities in Eastern Europe. His complaint alleges that Wachovia staff may have even tipped off Mexican-exchange clients about his laundering suspicions. Last June, Woods told the bank that he feared for his safety.

Skipping ahead…

Woods joined Wachovia in 2005 as its U.K. anti-money-laundering officer, after a career fighting financial crime for the British government. As a cop, he helped secure the year 2000 convictions of executives at the Bank of New York who laundered billions of dollars for the Russian mob.

But, according to Woods’ employment-court claim, his Wachovia bosses fought him when he filed reports in October 2006 about suspicious traveler’s checks originating from Mexican exchanges like the Casa de Cambio Puebla, which delivered business valued at hundreds of millions of dollars to Wachovia’s Miami office. Wachovia compliance executives scolded him, Woods alleges, for nosing into the activities of the bank’s American operations. A few months later, Woods noticed that the Mexican casas de cambio simultaneously stopped routing traveler’s checks through London. He asked his American counterparts if they had seen a similar routing change. Instead of obtaining assistance, says Woods’ court filing, he was confronted by Wachovia’s Miami manager of Latin American banking, Carlos A. Perez, who asked why Woods had problems when traveler’s checks were sent to London and problems when they weren’t. Perez didn’t respond to Barron’s inquiries.

Ah, a name is named. Carlos A. Perez. I know nothing about this man except what is conveyed here about his attitude in the matter. Both condescending and dismissive. Maybe he is incidental to the matter. Who knows. We don’t. This case is investigated and settled behind closed doors.

How does Wachovia keep it behind closed doors?  Non disclosure agreements.

Although a Non-Disclosure Agreement prevents him from speaking publicly about his experiences at Wachovia, Woods will offer advice to bank compliance officers about what to do when confronted with evidence of illegal activity when he speaks at the 8th Annual OffshoreAlert Financial Due Diligence Conference, in association with Grant Thornton, which will be held at The Ritz-Carlton, South Beach in Florida on May 2-4, 2010. He will also talk about the emotional turmoil that he has gone through as a result of his whistleblowing.

I wonder if this matter can be investigated more fully under Freedom of Information Act requests. Anyone know?

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8 Comments »

  1. Id would be interesting to hear William K. Black’s opinion on the kind of activity described by Woods.

    Comment by tippygolden — July 5, 2010 @ 8:52 PM | Reply

  2. Maybe 14 should email this post to Prof. Black.

    Comment by Sandi — July 6, 2010 @ 5:13 PM | Reply

  3. What is so very interesting about money laundering is that the Feds have a ready way made to give the illegals real fits where it counts. The fact is that a HUGE amount of Federal Reserve Notes outstanding circulate almost solely in criminal enterprise or are circulating outside the United States. Research shows the illegal venture circulation is at least $200 to $300 bn out of the total currency circulating of around $850-$900 bn: probably a lot more. Every dollar of illegal currency that could be turned into deposits has already happened. This means that demonetization/ reissuance hurts cash needs for drug dealers to operate. Call in the notes and demonetize them after a certain time frame. Allow procedures for later conversion that would scare away the crooks. That would cause huge money laundering at a time when anti laundering efforts would/ must be greatest and against a time frame. Certainly, big sourcres of currency replacement would be known since they would be offsetting old for new currency via their Federal Reserve Bank. The laws to use Clyde Barrow’s term would know exactly where to scare the most.

    Certainly, the gangsters would find ways to convert old currency but after a time it would be vert costly for them. They would also wind up with a shortage of street transaction currency stashes for a long time. Drug buyers would all be buying with new currency. The accumulation of new currency would take some time to build up again. The old currency turned in would reduce currency outstanding for a long time if the currency winds up being converted to depositor funds. Certainly, the very smart would be doing illegal transactions using depositor funds. They already are at near maximum in their usages of depositor funds for the type of business they operate. So, here they get a marginal added loss that they cannot reverse very readily. Those that can transfer funds inside the banking system are already doing the most they can safely engage in. Once laundered, the cash flows cannot readily flow back into street currency. Some sure. But the choking of cash flows here will really hurt the illegal drug people.

    The reality is that drugs are like prohibition. I grew up immersed in bootlegger reminiscences from real participants.

    Comment by Jerry J — July 7, 2010 @ 3:19 PM | Reply

  4. Apologies for hijacking this thread. Though one might consider the recent mortgage lending business a form of organized crime. I have no training as an economist. But for some reason I love listening to the economist Michael Hudson. In a nut shell what he advocates is tax reform.

    In this clip Hudson says that critics claim government debt is inflationary, but what is not being acknowledged is that mortgage debt is inflationary. Money borrowed from banks (ie, mortgage debt) drives up the value of real estate. It makes complete sense to me.

    Hudson advocates higher property taxes to hold down the value of land. This means governments will have more revenue to spend on public goods and there is less revenue in the private sector to capitalize in a sometimes self-destructive chase for higher returns that cause financial bubbles.

    14th you are a banker, what do you make of this view? After all banks are certainly in the business of lending mortgages. Any other takers on this question welcome.

    Comment by tippygolden — July 7, 2010 @ 6:58 PM | Reply

    • ps: In the video clip Hudson is addressing a conference in Latvia which is a kind of economic basket case after leaving the Soviet Bloc and then adopting free-market theory as national policy.

      Comment by tippygolden — July 7, 2010 @ 7:06 PM | Reply

      • Certainly interesting. Great rhetoric towards the end. I agree that people that let themselves be exploited will be exploited by banks or oil companies or whomever. I suspect there were many Latvian leaders who invited this exploitation and themselves participated. Every seller of bubble real estate would have profited handsomely at the time until the music stopped. I’ll bet there were flippers everywhere. Notwithstanding that local culpability, it sounds like the international banks succeeded in financially colonizing Latvia and that they have been royally screwed in the process. I will have to read up on this some more. Hudson’s advice seems sound on the surface. Latvia needs a banking system which represents its interests. If they need to shaft some of the lenders in the process maybe they should do that.

        Comment by thefourteenthbanker — July 7, 2010 @ 10:40 PM

      • Latvia is an interesting case study. It is at present a failed experiment in free-market ideology. So the Latvian group that invited Hudson might be able to develop for Latvia a middle ground between the extreme paradigms of Soviet-central planning and free-market ideology. Hudson claims to be a classical economist.

        Comment by tippygolden — July 8, 2010 @ 12:38 AM


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