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.
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.
By Zach Carter, Alternet
- Article from Alternet.