Prosecutors at the U.S. Justice Department are investigating Wachovia Corp, the fourth largest U.S. bank, as part of a broader probe involving links to alleged drug laundering activities involving Latin American countries, according to a report.

Federal prosecutors and the bank are discussing reforms for its compliance system and the bank also faces possible a deferred-prosecution agreement which would require federal oversight, the Wall Street Journal reported on Saturday, citing people familiar with the matter.

Wachovia says it is committed to maintaining a strong anti-money-laundering program, a spokeswoman told the Journal.

The investigation involves 'casas de cambio' or money-exchange house, which allow people to send remittances abroad. In its ties to exchange houses, Wachovia held deposits and provided financial services.

According to filings made in court in Miami, in May of last year the U.S. government froze more than $11 million in assets deposited in 23 accounts at Wachovia tied to a Mexican exchange house called 'Casa de Cambio Puebla.

In a countersuit filed in July by the exchange house it claimed that the seized money was from legitimate sources.