Wachovia Bank, a part of Wells Fargo & Co., is in talks with the Justice Department to settle U.S. government allegations that a failure in bank controls enabled Mexican exchange houses to launder drug money, according to people familiar with the situation.
A settlement could come within weeks, the people said. It isn't clear whether monetary payment will be part of the settlement.
The U.S. attorney's office in Miami led the probe, begun about three years ago, focusing on the role the government alleges a Wachovia correspondent-bank unit played in processing illegal money transfers for the exchange houses, according to these people and court documents.
The exchange houses, known as casas de cambio, line the U.S.-Mexican border and serve as a hub in the global remittance business that allow U.S. immigrants to send money back to Latin America to help relatives.
Federal officials, however, also have identified the money-transfer business as a way for drug traffickers to move cash around.
Wachovia officials have been cooperating with the probe. Wachovia hasn't admitted liability. In its annual securities filing, submitted Feb. 26, Wells Fargo said that the Wachovia bank unit "is engaged in discussions to resolve this matter by paying penalties and entering into agreements concerning future conduct."
On Sunday, Wells Fargo said in a statement: "We look forward to resolving this issue, and are committed to maintaining compliant and effective anti-money laundering policies and practices, and a strong compliance and risk management culture across the integrated organization."
The investigation into Wachovia predates Wells Fargo's Dec. 31, 2008, acquisition of Wachovia Corp., a transaction that followed Wachovia's troubled expansion into mortgage lending and the ouster of Chief Executive G. Kennedy Thompson in June 2008. Wachovia Bank N.A. and Wells Fargo Bank N.A. today are the bank subsidiaries of San Francisco-based Wells Fargo & Co.
On March 20, the two bank units will be consolidated under one bank charter. Wachovia branches and cash machines are being integrated into Wells Fargo through 2011 and will continue to have Wachovia signs for the time being.
In recent years, Wachovia, which was headquartered in Charlotte, N.C., had built up its business with casas de cambio to win more banking business with the Hispanic market.
The bank exited from the foreign money-transfer business by early 2008.
The investigation into Wachovia and the casas de cambrio was the subject of a page one story in The Wall Street Journal in April 2008.
The bank's dealings with casas de cambrio was also at issue in a separate case filed by a former U.K. employee, turned whistleblower, Martin Woods. Mr. Woods helped oversee compliance for Wachovia's correspondent banking business, which worked with the exchange houses.
In a report filed as part of an employment complaint reviewed by The Wall Street Journal, Mr. Woods alleged that in late 2006 and throughout 2007, he had filed a "large number" of suspicious activity reports about travelers checks that were tied to casas de cambio customers and were being processed in London. Those reports are typically filed with regulators to highlight improper money movements.
Mr. Woods alleged that his efforts to probe improper money transfers were ignored and that he was questioned about poor work performance, according to employment records related to the case.
Wachovia declined to comment on Mr. Woods's allegations, which don't appear to have triggered the U.S. probe. The case was confidentially settled.