11.
OPERATION MONEY LAUNDERING
How do you feel when, to enter your bank, you have to go through a security door that only lets one person in at a time? What runs through your head while you’re waiting in line to make a money transfer, deposit a check, get some coins and small bills so you can make change for your customers at your bar or shop? When your father, who has a regular salary, has to sign in order for you to get a mortgage on a house, because both you and your wife make do with temp work? What concepts have you learned to associate with words like spread or rating, liquidity or deficit crises? Which of these terms are you familiar with: hedge fund, subprime, credit crunch, swap, blind trust? Can you explain what they mean? Are you too convinced that you belong to the 99 percent whose combined wealth does not even match that of the remaining 1 percent? That financial capitalism is primarily to blame for your increasingly difficult struggle to make ends meet? And do you too believe that the banks, which manage to get billions from the state—from you, in other words—and yet won’t renew your credit, are a giant Moloch controlled by an invisible and untouchable clique of speculators and high-level executives? You’re wrong, at least in part. There’s no secret power trying to crush you, no specter with degrees from the best universities, dressed in expensive but understated outfits, and displaying calm, sober manners.
Banks and banking power are made up of people, just like everything else. If that power has proved to be deeply destructive, the fault lies not just with greedy cokehead brokers or that one corruptible employee, but with everyone: from the trader licensed to make high-risk deals, to the team of specialists that buys stocks on the global market that will flow into funds offered by the same bank, to the employee who suggests someone to manage your savings, right down to the teller at the window. All together they carry out the bank’s directives, and almost all of them are honest. Honest not merely as in not doing anything illegal, but also in believing they’re acting for the good of the bank without, however, acting for the ill of its clientele. Maybe a little less honest at times, but not because they decide on their own to look after their interests, but because they’re doing what they’ve always done: carrying out tacit directives that are always in the bank’s best interest. And this happens at all levels, high and low, and it forms a system. Which is how we arrive at that global mechanism that might seem to you like some kind of conspiracy but that really works much more along the lines of what has been called “the banality of evil.”
But if the mechanism is made up of many loyal and banal individuals, a little grit can cause the gears to jam. For example, the man who, if it hadn’t been for September 11, would have been kept waiting forever in a damp room at a London police station. The Twin Towers have just fallen and the United States is starting to recover. George W. Bush has introduced the PATRIOT Act, which among other things is supposed to identify and pursue international money laundering and funding for terrorism. The law establishes a series of special measures that U.S. banks are required to adopt when dealing with jurisdictions, institutions, or accounts they suspect are laundering dirty money; it provides greater transparency in financial activities and accountability, limitations on interbank operations, and tougher penalties for transgressors.
Four years later an Englishman with impertinent blond hair crosses the threshold of Wachovia Bank, one of the giants of the American credit system: a man named Martin Woods. He’s just been hired as a senior money-laundering reporting officer in the bank’s London office. Punctilious and precise, maniacal about order. Just the right person for a bank aiming to adhere scrupulously to the new money-laundering protocols. But Martin isn’t merely a zealous employee who is good with numbers and loves double-entry bookkeeping. He is a former agent of the National Crime Squad. This gives him a huge advantage over his banking peers around the world: Martin understands people. He knows how to talk with them, how to read their gestures, how to weigh the nuances of their moods. Money is just one of the many variables, just one of the many color gradations, on his personal grid for evaluating people.
There are already three actors onstage in this drama: a wounded country that’s reacting to attack; a measure that aims to stifle threats by fighting them on the financial front; and a man who wants to do his job. What’s needed now is a fourth, a key character: a DC-9. The airplane lands in Ciudad del Carmen, in the state of Campeche; awaiting it are Mexican soldiers, who find onboard 128 black suitcases containing 5.5 tons of cocaine, worth about a $100 million. A phenomenal bust, a punch in the face of the narcotics trade. But the investigators’ jaws really drop when they discover that the DC-9, which belongs to the Sinaloa cartel, was purchased with money laundered through one of the largest banks in the United States: Wachovia.
While investigators dig through the past of the DC-9 that landed in Mexico, Martin is already picking scrupulously through Wachovia’s clients’ records. That’s what investigators and money-laundering reporting officers do. Stick their noses into piles of papers, poison themselves with numbers and dates, then put it all together and see if there are any discrepancies. Martin discovers that there’s something not quite right about a bunch of traveler’s checks issued in Mexico. A tourist couldn’t possibly need that much money. Then his eyes fall on the numbers, which are strangely sequential. And the various signatures, why do they all look so much alike? He reports his suspicions to his superiors; many of the checks involve casas de cambio, Mexican currency exchange agencies. Martin spends hours on the phone, he sends e-mails, requests meetings to discuss the reports he keeps sending with stubborn determination. He smells a rat, and the news from Mexico and the United States only confirms his suspicion. The American authorities’ constant scrutiny of the bank’s activity pushes Wachovia to sever relations with some casas de cambio, and the ones that survive the cut decide to take a step back. Under fire from the outside, the banking giant vacillates at first, but then responds with a cleanup operation. Inside the bank, however, all is quiet. Silence and isolation are the most effective forms of “mobbing” (workplace bullying). Martin goes on writing new suspicious activity reports. When people point out that he’ll never get a reply, and that he’ll get himself in trouble if he keeps it up, he responds in his usual manner: He lowers his eyes and smiles. After his umpteenth report falls on deaf ears he receives an office communication: His most recent write-up was irregular, because his authorized range of action does not extend as far as the United States and Mexico. It’s the beginning of the end for Martin’s work: The spokes in his wheels multiply, office life is awful, he no longer has access to important files. The silent treatment his coworkers give him isn’t enough: Wachovia is staging a counterattack; it has to do something to shut up this incorrigible busybody.
On the other side of the Atlantic the investigators looking into the DC-9 discover that since 2004 several billion dollars have moved from the Sinaloa cartel “cash box” to Wachovia bank accounts. It emerges that for three years the bank did not respect money-laundering protocols when transferring $378.4 billion. Of this at least $110 million were from drug trafficking, which had entered international banking circuits in this way. That’s how it worked. The money entered through the casas de cambio. The world’s richest cartel was sending money as if it were an army of mamacitas with their savings stitched into the lining of their clothes or of old men selling off a plot of land to help out their grandchildren in the United States. Those same exchange agencies then opened accounts at a Miami branch of Wachovia Bank. Millions of dollars in cash were deposited in Mexico and then wired to Wachovia accounts in the United States to buy stocks or property. On numerous occasions the drug cartels themselves were the ones making the deposits. For example, about $13 million were deposited and transferred to Wachovia accounts to purchase airplanes for drug trafficking. More than twenty tons of cocaine were seized from these planes.
In English there’s a lovely word for denouncing or exposing wrongdoing: whistle-blowing. M
artin blew his whistle with all his might, and at a certain point Wachovia realized that if they wanted to silence the piper they’d have to muzzle him. The freeze-out at the office intensifies. Martin, close to a nervous breakdown, goes to see a psychiatrist. He’s out of the game, but with his remaining strength he makes one last attempt. He finds out that there will be a meeting at Scotland Yard, where he hopes to find some colleagues open-minded enough to listen to him. He’s sat at the same table with a representative from the American DEA, a jovial type with a curious gaze. Martin doesn’t think twice before pouring out his story to him. Putting all his trust in a total stranger, he pushes a rock down the escarpment in hopes of starting an avalanche. And the rock rolls. It rolls until March 16, 2010, when the vice president of Wachovia Bank signs a plea bargain in which the bank admits it provided banking services to twenty-two casas de cambio in Mexico, from which it accepted money in the form of wire transfers and traveler’s checks.
More or less what Martin Woods had reported four years earlier, much to his detriment. Woods filed suit against the bank for retaliating against a whistle-blower. That lawsuit was finally settled by Woods’ leaving the bank in exchange for an undisclosed sum and an agreement to keep the terms of the settlement confidential.A sad epilogue, at least until March 2010, a few days after Wachovia signed the plea bargain, when Martin at last gets some recognition. He receives a letter from John Dugan, comptroller of the currency of the United States, who handles bank monitoring for the U.S. Treasury Department: “Not only did the information that you provided facilitate our investigation, but you demonstrated great personal courage and integrity by speaking up. Without the efforts of individuals like you, actions such as the ones taken against Wachovia would not be possible.”
The authorities grant Wachovia Bank a deferred prosecution; that is, the charge is delayed till the end of a probation period: If the bank adheres to the law for a year and meets all its plea bargain obligations, the charges will be dropped. The authorities probably think they are acting responsibly. In such a delicate moment, with the country struggling to recover from the most serious financial crisis since 1929, they can’t risk another big bank collapsing and disaster striking again. The probation period ends in March 2011: From that moment Wachovia is clean, everything’s okay. They had to pay the government a $110 million forfeiture for accepting transactions linked to drug trafficking, and thus violating anti-money-laundering norms, plus a $50 million fine. An enormous sum but ridiculous compared to the earnings of a bank like Wachovia, which in 2009 were about $12.3 billion. Money laundering pays. Not one bank employee or director had to see the inside of a jail cell, even for a single day. No one is guilty; no one is responsible. Merely a scandal, which quickly sinks into oblivion.
We need to read between the lines, however, and go back to the story of Martin, who with his courageous stubbornness managed to obtain much more than what the sentence contains. The reticence of the authorities shows that there is a very tight link between the banks and the tens of thousands of deaths in the Mexican drug war. But that’s not all. Martin stirred up troubled waters, he dirtied his hands with numbers in order to reactivate the American banking system’s protections. A single lightning bolt in a cloudless sky. But there are thunder and lightning on the horizon. Controls grew very rigid after September 11, but with the financial crisis that exploded in the midst of Martin’s investigation, the climate changed. Hence the verdicts that send the megaswindler Bernie Madoff to prison for 150 years, and the French trader Jérôme Kerviel for 5, along with repaying Société Générale nearly €5 billion, the amount he’d burned through. These men, who often describe themselves as sacrificial lambs of the system, nevertheless caused enormous harm to individuals, companies, and society as a whole. But the narco-dollars that flow into coffers don’t seem to cause any damage; in fact, they provide that life-giving oxygen known as liquidity. So much so that in December 2009 Antonio Maria Costa, then head of the United Nations Office on Drugs and Crime, made a shocking statement: He had been able to ascertain that criminal organizations’ earnings were the only liquid investment capital some banks had to keep from failing. The International Monetary Fund’s data is grim: From January 2007 to September 2009 the total of toxic stocks and bad loans in the United States and Europe reached $1 trillion. And alongside these losses were the failures and temporary receiverships of credit institutions. By the second half of 2008 cash flow had become the banking system’s principal problem. As Antonio Maria Costa emphasized, “That was the moment when the system was basically paralyzed because of the unwillingness of banks to lend money to one another.” Only criminal organizations seemed to have enormous quantities of cash to invest, to launder.
No doubt by this point some of you are starting to think that I’m obsessed. The problem, you might say, isn’t so much mafia money as it is the financial system. Money expands like gas. If that bubble bursts, the nebula will vanish so quickly that incoming narco-dollars will pale in comparison. Which is what happened on September 15, 2008, with the avalanche the Lehman Brothers bankruptcy set in motion, an avalanche that only billions in public funds managed to stop. But the mess I’m talking about—born amid the skyscrapers of Wall Street, and thus, to all appearances, far from simple Calabrian villages, the Colombian jungle, and even the perennially crumbling, blood-soaked towns along the Mexican border—in truth isn’t a mess at all. It is well known that Lehman Brothers had invested vast sums in subprime mortgages, which were nothing other than a stroke of genius, a way of reselling mortgages that many signers could not possibly pay, as profitable investments. Profit derived from debt. When the rope snapped and the game ended, lots of people who bought homes this way ended up in the street. And above all, that time, it was decided that the bank bloated with hot air could fail too. No sooner were the catastrophic consequences of this decision unleashed than all the other banks and insurance companies that had more or less behaved like Lehman Brothers had to be saved. Yet U.S. government aid was only an emergency stopgap for a system based on those dynamics. The crux of the matter is that banks need to ingest a sufficient amount of solid food in order to produce the immense wealth that swells their bellies, which they have to be able to rid themselves of as soon as someone asks them for money, in whatever form. That is the problem with liquidity. The alchemy of contemporary finance is based on the transubstantiation of money from a solid to a liquid and gaseous state. But that solid/liquid mix proves systematically never to be enough. In the advanced West they’ve closed the factories, and consumption is nourished through forms of debt such as credit cards, leasing, installment payments, and financing. Who, on the other hand, earns the biggest profits from merchandise that must be paid for in full right away? Narco-traffickers. Real mafia money can make the difference to the survival of the financial system. That’s the danger.
A recent study by Alejandro Gaviria and Daniel Mejía, two economists at the University of Bogotá, revealed that 97.4 percent of the revenue from narco-trafficking in Colombia is regularly laundered through banking circuits in the United States and Europe by means of a complex series of financial operations. Hundreds of billions of dollars. The laundering occurs through a shareholding system, like Chinese nesting boxes, in which cash is transformed into electronic stocks and transferred from one country to another. When it arrives on another continent the money’s practically clean and—best of all—untraceable. So interbank loans have been systematically financed with funds from drug trafficking and other illicit activities. Some banks survived only because of this money. A huge portion of the estimated 352 billion narco-dollars was absorbed by the legal economic system, successfully recycled.
Three hundred and fifty-two billion dollars: narco-trafficking profits equal more than a third of the entire banking system’s losses in 2009, according to the International Monetary Fund, and that’s only the deducible tip of the iceberg we’re sailing toward. The banks, which now own many people’s existences and are capabl
e of influencing the governments of even the richest and most democratic states, now find that they too risk being held ransom. Once again, the problem is no longer far away, in wretched countries such as Mexico and Colombia, or down in Sicily, Campania, and Calabria, a southern Italy that is both accomplice and victim of its ruin. I want to scream this loud enough so that people will know, so that they prepare themselves for the consequences.
As Martin, the Wachovia whistle-blower, did, even though the praise he earned from the American authorities did not simplify his life in the financial world. He had to go into business for himself, opening two consulting companies specializing in anti-money laundering: Woods M5 Associates, and then Hermes Forensic Solutions. But he wanted to work for an important credit institution again. He contacted the Royal Bank of Scotland, one of the ten largest banks in the world and the second in the UK—until the financial crisis of 2008, that is, when it became one of those banks to be saved at any cost. The British government temporarily held almost 70 percent, so the Scottish bank needed to do everything possible to regain investor confidence. Even, one might think, hiring a man like Martin Woods to show their intention to rigorously respect all the rules of fair play. And yet in July 2012 the Royal Bank of Scotland suddenly broke the contract they had entered into with him. No explanation. Had they learned of Martin’s accusations against Wachovia? And just a few days later the LIBOR scandal broke, revealing that some leading banks, including the Royal Bank of Scotland, had for years been manipulating the London Interbank Offered Rate, the European reference rate for interbank loans.
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