Blowing the Whistle -- and Paying the Price
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WHEN WACHOVIA BANK COMPLIANCE OFFICER Martin 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.
Mexican prosecutors say Wachovia's money-exchange clients helped finance aircraft for drug smuggling, including a jet, above, that crashed in the Yucatan. After crashing, the aircraft was found to be carrying more than three tons of pure cocaine.
Hector Osnaya/AFP/Getty ImagesBut 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.
In its defense against Woods' employment-court claim, the bank denies that it interfered with any money-laundering investigation and says that its own inquiries found no evidence that Wachovia employees tipped off Mexican clients. The bank's court filing concedes that Woods was warranted in reporting and blocking suspicious activities. But the bank filing says he communicated poorly with his boss and didn't finish assignments. Woods remains a Wachovia employee, now on stress-related disability leave. Bank spokesperson Mary Eshet said last week that Woods hadn't been treated unfairly. "Wachovia believes that it has acted appropriately in its business dealings," her written statement said, "and Mr. Woods' claims to the contrary are without merit."
Neither Woods nor his London lawyer, Mark Emery, would discuss the case.
The Mexico City currency changers -- known as casas de cambio -- were taken on as clients in the 1990s by First Union, which was merged into its Charlotte, N.C., neighbor Wachovia in 2002 to form the country's fourth-largest bank. Wachovia's sour loan portfolio drove it into the arms of Wells Fargo (ticker: WFC) in December.
No government has alleged that Wachovia committed money-laundering violations. Money-laundering customers have proven costly to other banks. In August 2007, the American Express banking operation in Miami paid $65 million in fines and forfeitures to avoid prosecution for lax controls against money laundering. A month later, San Francisco's Union Bank of California entered into a similar agreement to avoid money-laundering prosecution, paying $31.6 million in fines and forfeitures.
UNION BANK'S DEFERRED PROSECUTION deal followed guilty pleas by a ring of money launderers who routed cash from a Mexican casa de cambio named Ribadeo. The cambio's owner of record ended up shot in the back seat of a car with his hands tied. The defendants in the subsequent federal money-laundering case unsuccessfully demanded that the government turn over the names of Mexican witnesses and government investigators.
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.
Woods was right to suspect the Mexican casas de cambio. In May 2007, the U.S. Drug Enforcement Agency seized $11 million that Wachovia held in Miami bank accounts for Casa de Cambio Puebla. The agency said the funds would be forfeited in a criminal case that remains tightly sealed nearly two years later. In November 2007, Mexican authorities closed Puebla and arrested its executive, Pedro Alatorre Damy, calling him the financial mastermind of Mexico's Sinaloa Cartel. The Mexican government said Alatorre had financed a drug-running air force, including a DC-9 captured with five tons of cocaine and a Gulfstream II that had crashed in the Yucatan Peninsula with more than three tons of cocaine aboard.