Tighter Rules on Money Transfers Put Squeeze on Businesses

By ELINOR COMLAY
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An Interamericana Express in Atlantic City. Mexico is the biggest destination for money transfers from the United States, according to estimates by the World Bank. Credit Mark Makela for The New York Times       
 
                

For years, Fernando Lopez’s storefront money-transfer business in Atlantic City was a place where local residents could wire money to family and friends abroad. But that business, Interamericana Express, which handled a lot of transmittals to Mexico, is dwindling as banks and regulators take a stricter view of cross-border money transfers.
 
Mr. Lopez’s business accounts have been closed several times in recent years by three different banks over money-laundering concerns despite his state license, hours of compliance training and binders full of rules and regulations. Since being dropped by the banks, he has operated his money-transfer business as an agent of MoneyGram International and Ria Money Transfer, depositing transfers in accounts at those companies. Banks will not take any of his money-transfer business directly.
 
Frustrated, he is trying to convert his shop, which also offers notary and bill payment services, into a by-the-pound parcel shipping center. The banks don’t see a small business with a money-transfer operation “in a good way,” Mr. Lopez said.
 
“We comply with all the regulations. We have to follow the rules,” he said. “But they don’t want to deal with us.”
 
Mexico is the biggest destination for money transfers from the United States, according to estimates by the World Bank. About $24.3 billion was remitted there from the United States last year, practically all of the cross-border money that flowed to Mexico from around the world, and nearly one-fifth of all remittances sent abroad from the United States. But what was once viewed as a big consumer business opportunity for American banks is now seen as a liability.
 
The affected businesses include mom-and-pop convenience stores such as Mr. Lopez’s, potentially limiting options for the millions of people living in the United States who want to send money home or forcing them to send cash, which is risky. Over one-quarter of American households rely on nonbank financial institutions, including money transmitters, for everyday banking needs, according to the Conference of State Bank Supervisors.
 







“Large banks are just walking away from the business completely,” said Peter Ohser, an executive vice president of MoneyGram International in Dallas, one of the two biggest transmitters next to Western Union.
 
Bank of America and JPMorgan Chase scrapped their own low-cost remittance services two years ago. And last year, Citigroup agreed to pay $140 million to regulators for failing to safeguard against money laundering. It shut down its Banamex USA unit, with $500 million in assets and branches in Arizona, California and Texas, some 14 years after Citi bought the Mexico City-based Banamex as an opportunity to serve the needs of Hispanic families living on either side of the border.
 
AmeriMex Communications, a Roswell, Ga., company that sells cellphone minutes to people in the United States to give to family or friends in Mexico, has started to work with some convenience store owners on a prepay basis because many are also money-transfer agents and their bank accounts have been frozen, according to Don Aldridge, the chief executive of AmeriMex.
 
Convenience stores that handle remittances need an account to deposit the cash. Because it is nearly impossible for banks to know the identity of the final customer in a money transfer, remittance companies and their agents are being categorized as a high risk for money laundering and denied banking services. “We are part of the collateral damage,” Mr. Aldridge said.
 
He added he had considered buying three convenience stores in the Atlanta area and getting a money-transferring license, but he was told by his bank — First Citizens Bank in Raleigh, N.C. — that it would no longer be able to work with him if the stores were transferring money abroad.   
 


Fernando Lopez at his money-transfer shop, Interamericana Express. Mr. Lopez’s business accounts have been closed several times in recent years by three different banks over money-laundering concerns. Credit Mark Makela for The New York Times       
 
 

A spokeswoman for First Citizens Bank, Barbara Thompson, said that she was not aware of Mr. Aldridge’s experience and that the bank did provide services to money-transfer companies that were registered with state and federal authorities.
A Bank of America spokeswoman declined to comment. JPMorgan and Citigroup did not respond to questions about their policy toward money-transfer companies and agents.
 
Regulators are aware of the problems that money transmitters are facing; they say the situation is part of a wider trend of banks closing potentially risky accounts because of the costs of monitoring and compliance.
 
“Among other factors, accounts may be dropped for very legitimate reasons, including suspicions of illicit activity or account holders not having the appropriate controls in place,” said Daniel L. Glaser, assistant Treasury secretary for terrorist financing. “The fact that, over the same time period, the overall level of U.S.-to-Mexico remittances appears to be healthy and growing may indicate that some of the weaker institutions are losing access and the market may be consolidating under stronger participants — which would not be a bad thing.”
 
As of the end of March, state financial regulators licensed 456 money transmitters, a 12 percent decrease from the same period last year, though licenses for companies that operate in multiple states — larger than just a one-store operation — rose 16.6 percent, according to a report by the Conference of State Bank Supervisors.
 
Though the dollar amount of transfers has been rising steadily since the financial crisis, the data reflects the health of the economy and the strength of the dollar, rather than the health of the money-transfer market, experts said.
 
“What you don’t see behind the scenes is that prices are going up,” said Mr. Ohser of MoneyGram. A lack of banks willing to provide account services to any business that is transferring money to Mexico is causing friction and leading to increased costs, Mr. Ohser said.
 
Regulators say they are growing concerned that people will resort to sending cash across the border, which is harder to track and riskier. “Money transmitters going out of business could lead remittance senders to use informal methods that are less detectable,” according to a Government Accountability Office report published in January this year.
 
Armored cars and courier services taking currency across the border have drawn the attention of the Financial Crimes Enforcement Network, known as FinCen, which last year began investigating an increase in suspicious dollar currency shipments. FinCen investigators, along with Customs and Border Protection and Immigration and Customs Enforcement, have since tightened monitoring of border cash transit.
 
The Treasury Department is working closely with Mexican authorities to address the difficulties that money-service businesses on both sides of the border are facing, Mr. Glaser said. “It’s a priority for us that remittance channels remain open.”
 
Various international organizations are also working on efforts to help the money-transfer industry get access to banks. The Financial Stability Board in Switzerland has been coordinating those efforts, since noting that the trend of banks withdrawing services to other banks — known as correspondent banking — “has the potential to rise to a systemic issue.”
 
Opinions are not changing quickly enough for people like Mr. Lopez, however. He worries his accounts at Ria and MoneyGram could be closed, too. “That would be devastating,” he said. “That’s the reason I’m trying to expand my shipping business. It’s like Plan B.”

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