Wachovia Settles With Federal Government to End Probe

In March, the U.S. District Court for the Southern District of Florida approved an agreement by the U.S. attorney's office to defer prosecution of Wachovia Bank under the Bank Secrecy Act in return for a payment of $160 million.

The Bank Secrecy Act aims to prevent money laundering in the United States. Money laundering is a process of disguising proceeds of illegal activity, creating the appearance of legitimate business transactions.

The $160 million incorporates $110 million in civil forfeitures related to money laundering and a $50 million fine, the largest ever imposed for Bank Secrecy Act violations. Under the deferred prosecution agreement, the government will refrain from pursuing criminal charges for 12 months and ultimately dismiss those charges, provided Wachovia complies with its responsibilities under the agreement.

Under the Bank Secrecy Act, banks are required to establish programs aimed at detecting suspicious transactions indicative of potential money laundering. The requirements include reporting transactions cumulatively totaling $10,000 or more per day by a single customer, maintaining records of negotiable instrument purchases, and reporting suspicious activities possibly linked to money laundering or other crimes.

The criminal indictment underlying the deferred prosecution agreement charges Wachovia with willfully failing to set up an anti-money-laundering program as required by the Bank Secrecy Act. As a result, the government alleges, Mexican casas de cambio (CDC) were able to launder drug money through Wachovia. The indictment alleges that the CDCs used unmonitored Wachovia wire transfers, bulk cash transactions and remote deposit captures to fund airplanes for narcotics trafficking.

When other banks curtailed their relationships with CDCs due to concerns about their suspicious behavior, Wachovia stepped up its banking relationships with them and expanded its services to them.

Wells Fargo Bank purchased Wachovia in 2008 with knowledge of the BSA violations and ended the bank's relationship with the CDCs. Wells Fargo is not implicated in the wrongdoing. Wells Fargo established reserves to cover these Wachovia liabilities when it bought the banking giant, once the fourth largest in the country.