When Citigroup Inc. bought Mexico’s second-largest bank in 2001, its executives spoke excitedly about capitalizing on the billions of dollars that flow across America’s southern border.
But 14 years later, Citigroup shut down its Mexican operation’s American subsidiary, Banamex USA in Century City – after paying $140 million in fines over the bank’s failure to comply with anti-money-laundering rules. The high-cost flameout, along with less severe setbacks for other institutions, has some industry insiders wondering if any bank can move money across borders without breaking today’s rules.
Since sweeping new regulations were passed in the wake of the financial crisis, a handful of American banks have ended relatively inexpensive services that allowed customers to send money to Mexico.
Bank of America’s SafeSend, a low-cost way to transfer funds to individuals south of the border, was quietly discontinued in February 2013, though a bank spokeswoman said at the time that the decision to kill the program was based on weak demand.
However, it’s not just Americans wishing to send money to Mexico that are affected. Carson’s Merchants Bank of California announced in February that it would stop wiring money from Somali immigrants to their families back home. The bank – which had handled about two-thirds of all U.S. remittances to Somalia after Wells Fargo, U.S. Bank and other institutions pulled out – attributed that decision to “ever-changing regulatory requirements and expenses,” according to a letter obtained by the Business Journal last year.
In that case, nonprofit groups in the region chalked up regulators’ concerns to fears that money from the United States was finding its way to terrorist group al-Shabab.
Ran Grushkowsky, co-founder of Santa Monica online money remittance portal WireCash, which began life as a joint venture with Cleveland’s KeyBank, said it’s ordinary remitters, not drug cartels, who are feeling the pain of the tighter regulations.
“It’s a problem plaguing this whole industry, really without good reasoning,” Grushkowsky said. “They’re not really preventing money-laundering. All they’re doing is hurting the consumer and eliminating competition.”
Still, the impact is felt most sharply at banks sending money to countries plagued by terrorism, drug trafficking or other ills. L.A.’s Chinese-American banks, for instance, have noticed an increase in the general compliance burden, but didn’t single out any extra scrutiny on their international transfers.
However, the Federal Reserve did order China’s China Construction Bank last month to improve its anti-money-laundering practices at its New York branch, and regulators ordered Koreatown’s Hanmi Financial Corp. to improve its anti-money-laundering program in 2005, though the bank was able to satisfy regulators the following year, and it appears the government has turned its attention to more troublesome spots as of late.
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