Border Branches Closing Over Dirty Money Concerns

Concerns over human and drug trafficking have led some big banks to make an extreme move in an attempt to avoid illegal money that is flowing over the border (or, more accurately, crawling under the border in dozens of long underground tunnels) and ending up at small bank branches disguised as legitimate funds from legal business.

Those illegal deposits have added up to billions in fines for big banks in recent years, as the status of everything from mortgage securities to foreign-exchange trading has fallen into question. Updated regulation in November from the Federal Financial Institutions Examination Council has put even greater pressure on banks to level up their anti-money laundering efforts and invest most heavily in compliance systems aimed at heading potential illegal activity off at the pass.

However, residents in border communities like Nogales, Arizona, have noted that the crackdown is leading banks to simply close branches rather than risk illegal funds entering them – which in turn is hampering the local economy. For example, cattle ranchers are finding it hard to pay their workers – who are often Mexican nationals who are finding their banks accounts are getting closed.

“It’s killing our business,” one rancher told The Wall Street Journal.

Other business owners complain that these restrictions place an undue burden on legitimate businesses for an arbitrary and essentially unfair reason – they are physically close to Mexico.

“I don’t send any money across the border.…All the banking I do is within the United States,” another Nogales local told The Journal, adding that his grandfather banked with Chase or its predecessors as early as the mid-1960s.

The difficulties have drawn legislative attention – Arizona Senators John McCain and Jeff Flake have both written banks and asked for hearings on the issue, and FDIC staffers visited Nogales earlier this spring to learn more on the issue from the point of view of business owners and local officials.

Bank executives have responded that Arizona, Southern California and the Rio Grande Valley in Texas represent three “high trouble” regions from the point of view of money laundering. One executive that spoke to WSJ noted that closing an account is often the faster and cheaper alternative to trying to definitively confirm compliance.

“We are picking on Nogales in a way because the drug traffickers are picking on Nogales,” the executive said. “They’re using Nogales to bring their stuff in.…We can only get into trouble for failing to bank them perfectly.”

Nogales resident Bruce Bracker sees the situation differently, and believes banks have a responsibility to make sure that law-abiding citizens have access to banking.

“[Banks] can’t keep cutting off access to capital and access to banking and expect the economy to grow and communities to thrive,” he told WSJ. “Don’t paint us all in the same brush of drug dealers and money launderers. There are legitimate business owners, too.”

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