Wachovia Bank, a unit of Wells Fargo & Co., confirmed it will pay $160 million to settle a federal investigation into whether the bank's lax controls enabled Mexican exchange houses to launder drug money.

The U.S. attorney's office in Miami led the probe, begun about three years ago and focused on the role a Wachovia correspondent-bank unit played in processing illegal money transfers for the exchange houses. 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 allows 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.

The investigation looked at activity starting four years before Wells Fargo's acquisition of Wachovia Corp. at the end of 2008, a transaction that followed Wachovia's troubled expansion into mortgage lending and the ouster of Chief Executive G. Kennedy Thompson in June 2008.

On Wednesday, Wachovia said it entered a deferred-prosecution agreement with the Justice Department. The bank, acknowledging its compliance programs were inadequate, agreed to forfeit $110 million and adopt measures to improve controls. The company also agreed to pay a $50 million civil penalty to the Office of the Comptroller of the Currency under a separate consent order. Wachovia had previously reserved money for a settlement, and those set-asides will fully cover the deal.

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