Dutch lender Rabobank’s California unit agreed Wednesday to pay $369 million to settle allegations that it lied to regulators investigating allegations of laundering money from Mexican drug sales and organized crime through branches in small towns on the Mexico border.
The subsidiary, Rabobank National Association, said it doesn’t dispute that it accepted at least $369 million in illegal proceeds from drug trafficking and other activity from 2009 to 2012. It pleaded guilty to one count of conspiracy to defraud the United States for participating in a cover-up when regulators began asking questions in 2013.
The penalty is one of the largest U.S. settlements involving the laundering of Mexican drug money, though it’s still only a fraction of the $1.9 billion that Britain’s HSBC agreed to pay in 2012. It surpasses the $160 million that Wachovia Bank agreed to pay in 2010.
Three execs behind cover-up
Under the agreement, the company will cooperate with investigators. The federal government agreed not to seek additional criminal charges against the company or recommend special oversight.
The settlement describes how three unnamed executives ignored a whistleblower’s warnings and orchestrated the cover-up. Two of the executives were fired in 2015 and one retired that year.
“Settling these matters is important for the bank’s mission here in California,” said Mark Borrecco, the subsidiary’s chief executive.
In 2010, Mexico proposed new limits on cash deposits at the country’s banks, resulting in more tainted deposits at Rabobank branches in Calexico and Tecate, according to the plea agreement. Accounts in the two border towns soared more than 20 percent after Mexico’s crackdown, and bank officials knew the money was likely tied to drug trafficking and organized crime.
Risky customers escaped scrutiny, including one in Calexico who funneled more than $100 million in suspicious transactions. Customers in Tecate withdrew more than $1 million in cash a year from 2009 to 2012, often in amounts just under federal reporting requirements.
“The cartels probably thought these were sleepy towns, no one’s going to notice,” said Dave Shaw, head of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations in San Diego. “When you bring in $400 million, someone is going to notice. The bank should have known and they just chose not to report any suspicious activity.”
Punishment for cover-up, not crime
Heather Lowe, legal counsel and government affairs director at research and advocacy group Global Financial Integrity, said the illegal activity bore similarities to what happened with HSBC and Wachovia.
But those banks were charged with laundering Mexican drug proceeds, while Rabobank only acknowledged covering it up.
“It seems in this case we have the bank taking the hit for lying but not for the violations themselves,” said Lowe, who expects the three unnamed executives will be prosecuted.
A whistleblower alerted two of the three executives to suspicious activity in 2012 and shared her concerns with the bank’s “executive management group,” according to the plea agreement. She also spoke with regulators amid concerns in the company that the government scrutiny could endanger a pending merger. She was fired in July 2013.
The government has a cooperating witness in former compliance officer George M. Martin, who agreed in December to cooperate with authorities in a deal that delayed prosecution for two years.
Martin, a vice president and anti-money laundering investigations manager, acknowledged he oversaw policies and practices that blocked or stymied probes into suspicious transactions and said he acted at the direction of supervisors, or at least with their knowledge.
Martin told investigators that he and others allowed millions of dollars to pass through the bank.
Rabobank, based in Utrecht, Netherlands, said last month that it set aside about 310 million euros ($384 million) to settled allegations against its subsidiary. Sentencing is scheduled May 18.
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