Wall Street Is Laundering Drug Money And Getting Away With It

by Zach Carter


Too-big-to-fail is a much bigger problem than you thought. We’ve all read damning accounts of the government saving banks from their risky subprime bets, but it turns out that the Wall Street privilege problem
is far more deeply ingrained in the U.S. legal system than the simple
bailouts witnessed in 2008. America’s largest banks can engage in
flagrantly criminal activity on a massive scale and emerge almost
completely unscathed. The latest sickening example comes from Wachovia
Bank: Accused of laundering $380 billion in Mexican drug cartel
money
, the financial behemoth is expected to emerge with nothing
more than a slap on the wrist thanks to an official government policy
which protects megabanks from criminal charges.

Bloomberg’s Michael Smith has penned a devastating expose detailing Wachovia’s drug-money operations and the government’s twisted response. The bank
was moving money behind literally tons of cocaine from violent drug
cartels. It wasn’t an accident. Internal whistleblowers at Wachovia
warned that the bank was laundering drug money, higher-ups at the bank
actively looked the other way in order to score bigger profits, and the
U.S. government is about to let everyone involved get off scott free.
The bank will not be indicted, because it is official government policy
not to prosecute megabanks. From Smith’s story:

No big U.S. bank . . . has ever been indicted for violating the Bank Secrecy Act or any other federal law. Instead, the Justice Department settles
criminal charges by using deferred-prosecution agreements, in which a
bank pays a fine and promises not to break the law again . . . . Large
banks are protected from indictments by a variant of the too-big-to-fail
theory. Indicting a big bank could trigger a mad dash by investors to
dump shares and cause panic in financial markets.

Wachovia was acquired by Wells Fargo in late 2008. The bank’s penalty for laundering over $380 billion in drug money is going to be a promise not
to ever do it again, and a $160 million fine. The fine is so small that
Wachovia will almost certainly turn a profit on its drug financing
business after legal costs and penalties are taken into account.

This is several steps beyond what most of us think about when we debate too-big-to-fail. The government isn’t shielding Wachovia from losses on
risky bets in the capital markets casinos— it’s shielding the bank from
the prosecution of outright criminal behavior. The drug money business
did not pose risks to the financial system, and Wachovia wasn’t losing
money on it. Wachovia is simply being shielded from what ought to be the
ordinary functioning of the justice system.

Think about what would happen if you or I were accused of laundering $380 billion in drug money. We could not simply settle the allegations out of court in
exchange for an apology and a fine. We’d spend the rest of our lives in
jail for financing a ruthless, bloody and illegal business. About 22,000
people have been killed in the Mexican drug trade since 2006, and the
drug trade itself can’t happen without extensive money laundering
operations. Moving the money is one of the most difficult and critical
elements of any criminal enterprise—without ways to convert crooked cash
into seemingly innocuous funds, crooks simply can’t operate. Wachovia
was doing top-level dirty work for drug dealers.

On the streets of American cities, the mere possession of these drugs can land you with a multi-year prison sentence. But financing multi-billion-dollar drug
empires? Don’t do it again, pretty please.

Too-big-to-fail isn’t just a matter of systemic risk and mathematical models gone haywire, It’s about the basic functioning of our democracy. You cannot have a
functional democracy in which an entire privileged class of bankers can
get away with anything—and if you can get away with laundering
hundreds of billions of dollars in drug money, there’s not much you
can’t get away with.

Congress is poised to pass a decent Wall Street reform bill, but that legislation will not end this criminal imbalance. If the bill will really end too-big-to-fail, the Justice
Department could immediately end its special immunity policies for large
financial institutions. That isn’t going to happen. The public deserves
tougher prosecutors, but we also need further legislation to break up
the megabanks so that they can’t use their economic clout to bully
everyone in Washington.

http://blogs.alternet.org/speakeasy/2010/07/14/megabanks-are-launde...

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