Feds Investigate U.S. Banks for Suspected Drug Cartel Ties

Two major U.S. banks are being looked into by U.S. regulators for suspected ties to Mexican cartels. The investigations signify a crackdown on money laundering in the U.S.

According to an exclusive Reuters report, Charles Schwab Corp and Bank of America’s Merrill Lynch brokerage firm are both being examined by the  U.S. Securities and Exchange Commission (SEC). Regulators are apparently suspicious that the banks did not diligently verify the identities of numerous clients. 

More specifically, the SEC will check to see if the banks irresponsibly missed “red flags” that would indicate laundered money being deposited as a result drug or cartel activity.

Reuters discovered that so far, the SEC has identified that the banks accepted multiple shell companies and clients using false information. 

Sources told Reuters that many of the accounts in question, some of which obtain millions of dollars, have ties to drug trafficking groups and cartels. Almost all of the suspicious account-holders reportedly live near the Mexican border–one was allegedly a Texas-based farmer. 

The SEC is reportedly making large-scale efforts to crack down on money laundering.

Reuters reported, “Broker-dealers are required to establish, document and maintain procedures for identifying customers and verifying their identities under sections of the Bank Secrecy Act. In 2008, the SEC fined E*Trade Financial Corp $1 million for failing to verify the identities of more than 65,000 secondary account holders in joint accounts, resulting in false reporting.”

The report continued, “U.S. Treasury Undersecretary for Terrorism and Financial Intelligence David Cohen began urging regulators two years ago to make sure financial institutions are identifying the true beneficial owners of their accounts. Cohen’s exhortations came amid concerns that bad actors, such as drug cartel members and terrorists, are growing more creative in their attempts to secretly transfer tainted funds.”

In addition to efforts by the SEC, Schwab is reportedly conducting an additional, internal investigation into the allegations.  

According to Reuters, it is not clear what penalties will be administered if the banks are further revealed as having violated money laundering rules. 

Follow Kristin Tate on Twitter @KristinBTate.