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Drug gangs moved money via Wachovia

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Steve Chiotakis: There are two places very important to the illegal drug trade between Mexico and the United States. Exchange houses south of the border, where currency’s traded. And the local bank here at home. There’s a big spread today in Bloomberg Markets magazine on the list of financial firms that help move money to those cartels. Wachovia — owned by Wells Fargo — tops the list. It’s admitted to not monitoring international wire transfers closely enough. Mike Smith reported on the connection. He’s Latin America correspondent for the magazine and he’s with us via Skype in Santiago, Chile. Hi, Mike.

Mike Smith: Hi.

Chiotakis: Why Wachovia? Was there something that sort of singled out Wachovia in all of this?

Smith: Well, Wachovia in the mid-2000s went on a major expansion into the business of handling wire transfers. So Wachovia became the dominant handler of transfers out of Mexico by these exchange houses, which turned out to be a big vehicle for the drug cartels to launder money.

Chiotakis: They say that they didn’t know anything about this. Was something even more sinister going on, do you think? Were there local branch workers who were doing some of this?

Smith: Well, we talked to several people who worked in the compliance area of Wachovia at that time, and they all said the same thing. That they became suspicious of these transfers, they informed their superiors, and the people who ran the actual businesses didn’t believe them or didn’t want to believe them, and overruled them and kept those accounts open and kept moving money for these customers, which turned out to be drug dealers.

Chiotakis: What do these drug cartels buy with all this money?

Smith: Well, the drug cartels have gigantic operations. They sell drugs in 231 American cities, that’s according to the U.S. government. So they have significant costs. And the biggest cost for them is to buy the cocaine that they move into American cities because Mexico doesn’t produce cocaine. But of course, this is an extremely profitable business, so they have a lot of cash left over that they spend on living the life of a high-rolling drug dealer — buying houses, buying cars. That’s where all this money goes.

Chiotakis: What’s Wachovia say about all of this? Any official response about this?

Smith: Well, Wells Fargo — like you said — they’re the new owner of the bank. They say that they spend about $40 million making changes and that they are as vigilant as any bank can be.

Chiotakis: Miek Smith, Latin America correspondent for Bloomberg Markets magazine, joining us from Santiago, Chile. The name of the article is called “Wachovia’s Drug Habit.” Mike, thanks for being with us.

Smith: Thank you.

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