A key feature of the international financial system over at least the last decades has been the large expansion of cross-border financial transactions. This expansion is very noticeable in border regions since people and businesses at both sides of the border try to benefit from advantages on one side or the other. Cross-border transactions have grown significantly and US northern and southern borders are no exception. .
All types of Criminals – and terrorists too, around the world are also very active in the border regions; they use cash couriers as a major means of physically moving funds across borders in order to finance their illicit activities and to launder their ill-gotten gains. There have been many initiatives to facilitate the detection, investigation and prosecution of drug trafficking offences and serious crimes that involve the transportation of cash across borders; international anti-money laundering and counter-financing of terrorism standards recommended by the Financial Action Task Force (FATF) are in place in most countries and this Best Practice Paper describe such standards. Another good Best Practice Paper was issue by the MENA FATF group.
US-Mexico Border and Cash Smuggling
In a document entitled “Money Laundering and Bulk Cash Smuggling: Challenges for the U.S.?Mexico Border“, Douglas Farah, Sr Fellow at the International Assessment and Strategy Center says: “Historically, Mexico has been the single greatest source of U.S. currency repatriated by a foreign country to the United States. Moreover, documented inflows from Mexico have customarily exceeded outbound reporting linked to legitimate sources such as worker remittances and cross-border commerce, revealing a substantial unexplained gap. The gap, estimated to be between $11 billion and $22 billion, can be attributed, in large part, to bulk cash smuggling associated with transnational criminal activity such as drug trafficking and alien smuggling.”. In 2013, ICE special agents arrested over 520 individuals who were attempting to smuggle currency and seized more than $59 million dollars in bulk currency or monetary instruments in the US-Mexico Border. News of people being detained at the border smuggling cash are always in the news (Antonio Rakigjija – Primo – Cosme Barcelo). You can pick and choose many documents on the cash smuggling problem into Mexico and the many initiatives to control, regulate and persecute the US Cash in Mexico by the Mexican Government. Also how the US Government advises US Banks of possible scenarios to watch out for regrading this issue (FIN-2014-A005 – May 28, 2014 – Update on U.S. Currency Restrictions in Mexico: Funnel Accounts and TBML). You can also find a number of critics, such as Jim Karger’s article on “How Mexico’s new currency control could backfire“. Now, it is important to point out that most of the laundering of US currency in Mexico has not happen at the border; just the cases against HSBC, Bank of America, Wachovia and other large banks (read a summary here done by NPR) involve billions of US bank notes received in bank branches of international banks in Mexico and shipped back to the US from their man office in Mexico City..
At IMTC USA 2012 we had the opportunity to hear Mr. Kip Holmes making a presentation on the efforts of the Southwest Border Anti-Money Laundering Alliance (SWBalliance) to disrupt the illicit movement of money that flows across the southwest border into Mexico and train law enforcement, prosecutors, and private sector partners regarding money laundering in the border states. Mr. Holmes led for many years the efforts of the SWBalliance before his death in 2013.
The problem for legitimate exchange businesses.
In his above mentioned article, Douglas Farah quickly points out:”Another unintended side effect of the growing controls and regulations placed on the casas de cambio and centros cambiarios is that many of those companies are going out of business.” Prior to the stricter 2009-2011 regulations imposed on banks and other financial service companies in Mexico, there were over 7,000 duly registered exchange centers in Mexico. After the regulations, around 3,000 were formally registered. A growing concern is that a good number of the other 4,000 previously registered exchange centers have “gone underground” and may be facilitating money laundering activities.
The majority of the foreign exchange activity activity occurs along U.S.-Mexico border towns (SanYsidro-Tijuana, Calexico-Mexicali, McAllen-Reynosa, El Paso-Ciudad Juarez). In Mexico, Exchange centers abound at airports, tourist locations and U.S.-Mexico border localities. The physical currency most often traded is the U.S. Dollar, although exchange centers also capture Canadian Dollars, Euros, Pounds and other currencies. Retail currency exchangers serve tourists, mexicans being paid in US Dollars (tips, services, etc) and mexican nationals coming back from the US with cash (a preferred method rather than send a money transfer in the US side and collect it at the other side of the border). Bulk currency exchanger providers service retail exchangers and also service non-currency exchangers (supermarkets, casinos, pharmacies, department stores and other businesses that receive US Dollars).
Most larger and traditional exchangers have developed AML programs, trained their personnel, designed KYC rules and methods to mitigate risk and survive in a very complicated environment. But these exchange centers are in need of a financial intermediary that will receive its U.S. bank notes. Restrictions in the amounts of U.S. dollars they can deposit into bank accounts in Mexico has limited the possibility of disposing of the US bank notes in Mexico and they need a US Bank (almost impossible to find) – or a US MSB that exchanges these bank notes and in turn deposits these funds in a US Bank.
Our Workshop at IMTC USA 2014: Forex at the US-Mexico Border
With the current state of affairs, it is extremely hard for legitimate businesses to exist. A few brave ones are doing the best they can to survive, in Mexico and the US, and we at IMTC want to hear from them, as well as the US Banks that are banking them. We turned to Compliance Plus, a New Jersey firm that is advising some of these businesses to design a Workshop where we could have a series of panels to listen, analyze, discuss best practices and help the industry to find the way to stay in business, minimizing the risk and meeting regulator’s concerns in both sides of the border. Should legitimate businesses disappear because the risks are too high? Oscar Herasme from Compliance Plus has published this summary of Compliance Plus view of the situation and we will hear in San Diego, on Wednesday, June 25th, his detailed presentation that will open the Workshop.
If you want to participate in a panel (or has information or feedback), please contact us as soon as possible.