July 6, 2010
London, England
It appears that Wachovia Bank has been a bad little boy and not following the rules.
Recent reports from a US Justice Department investigation suggest that the bank didn’t follow anti-money laundering requirements from 2004 to 2007. During that time, over $378.4 billion of Mexican drug money passed through its offices.
Wachovia was formerly one of the largest banks in the United States; they went bust in 2008 under the weight of their subprime losses. I used to be a customer of theirs, long ago… it’s funny that my $10,000 foreign wires used to be scrutinized by the bankers, but $378.4 billion worth of cash deposits was not.
US banks are required to abide by a litany of anti money laundering (AML) regulations, including the Bank Secrecy Act, FINCen requirements, and the USA PATRIOT Act. Each of these rules effectively requires bankers to be unpaid government spies and report customer activities to a variety of agencies.
These government agencies have ever-expanding authority to control and confiscate private funds on suspicion of drug involvement, or money laundering, thanks to America’s pointless and endless ‘war on drugs’. If they deem something to be suspicious, they have the power to seize everything.
Given Wachovia’s failure to follow the rules, I suspect two things are going to happen.
First, the CEO of Wells Fargo (which bought Wachovia in 2008’s financial meltdown) will be called to the carpet and be forced to tap dance in front of Congress, BP-style.
As it is so popular for politicians to lambast the bankers, Barney Frank and the gang will take turns pummeling the CEO and jostling each other for the best evening news sound byte.
Wells Fargo, of course, will be forced to pay a hefty fine. Given that they have been raking in huge profits by borrowing from the Federal Reserve at 0% and investing in US Treasury Securities yielding 3%+, they’ll be able to afford it.
The second thing that will happen is that Congress will use this as an excuse to call for stricter, tougher measures. Wachovia failed to follow the rules, therefore the rules must clearly be too lax.
The end result will be harsher rules and more scrutiny. For US residents who bank in the US, this means giving the government tighter control over your money.
In the long run, I expect bureaucratic, third-world type processes (lots of stamps and signatures) for carrying out any transaction considered ‘exotic’. This would include anything involving large amounts of cash, multiple parties, and foreign accounts.
Politicians can pass these laws overnight with the stroke of a pen. They can bury nasty regulatory requirements deep inside the text of otherwise innocuous legislation– like this year’s HIRE Act which was signed into law 2 months ago.
The HIRE Act was designed to provide incentives for businesses to hire employees, yet a small portion of the text imposed new penalties and requirements for Americans with offshore holdings.
Consequently, we should all be taking action now before they enact any of these overnight changes… this means opening a foreign bank account, and parking some long-term savings in foreign property.
Remember, regardless of your home tax jurisdiction, diversifying your sovereign risk and planting financial flags overseas is always a smart move. If your home tax jurisdiction is becoming increasingly authoritarian, it’s a no-brainer.
