Cross-border banking rules too strict, costly

Overregulation slowed US job growth by 285,000 jobs between 2012 and 2018

McALLEN, Texas (Border Report) — Aggressive overregulation of cross-border banking regulations between the United States and Mexico is costing billions of dollars in lost funds between the two countries and doing little to stem the flow of illegal currency that are laundered every year, according to a recent report.

According to a report released by the Texas Business Association.

The report, “Anti-Money Laundering Regulation, Correspondent Banking and the Adverse Economic Effects for the US-Mexico Bilateral Relationship,” was authored by Robert Shapiro, former undersecretary of commerce and chief economic adviser in the Clinton administration. He found that over-regulation of the correspondent banking market, i.e. the cross-border transaction process that facilitates the exchange of US dollars for local currency, deteriorates this market, leads to higher costs for consumers and does little to suppress illegal activities. banking activity.

Specifically cited are the Bank Secrecy Act (BSA) and “intense” anti-money laundering standards, which are the responsibility of the Office of the Comptroller of the Currency, to deter and detect money laundering, terrorist financing and other criminal acts American financial institutions. , which, according to the report, causes billions of dollars in losses each year in the United States.

“We have concluded that these efforts have become ineffective, inappropriate, and costly to the US economy,” the report released last month said.

Around the world, government authorities have seized what the report calls “a very small share” of the estimated $1 trillion to $3 trillion funds that are illegally laundered each year.

The Rio Grande near Mission, Texas is the border between Mexico and southern Texas. In order to transfer money between countries, anti-money laundering standards are applied to banking institutions, which a recent report says are “over-regulating” financial institutions and causing job and economic losses. . (Sandra Sanchez/Border Report File Photo)

“Criminals often attempt to evade ‘know your customer’ rules for banks by using false identities and creating multiple layers of front companies, trusts and foundations registered in multiple countries and hiring directors and officers ‘designated’ without knowing an account‘s ultimate owners or beneficiaries,” according to the report.

Shapiro also cited “shadow banking” arrangements that fall outside banking regulation and include internet transfers, blockchain cryptocurrency payments and complex financial derivatives,” as well as informal transfer systems that transfer money. funds anonymously through networks of intermediaries at currency exchanges, stockbrokers, casinos, and car dealerships, and through cash purchases of real estate, gemstones, and precious metals,” according to the report.

Given the extensive financial breaches, the report found that scrutiny of Mexican correspondent banking “is inappropriate” and jeopardizes a “major trading partner” for the United States and has resulted in “significant economic costs”.

Mexican exports to the United States have slowed by $74 billion between 2011 and 2021, according to the report.

Mexico’s banking system is more transparent than that of 109 other countries, including the United States, Japan, Canada and Israel, according to the Tax Justice Network.

But strict overregulation has forced all but a few Mexican banks to scale back their correspondent banking operations, the report said. Relationships with smaller and regional Mexican banks have declined by 34%, according to the report.

(Chart by Texas Association of Business Report)

That caused a cumulative slowdown in GDP growth of $38.3 billion and slowed U.S. job growth by 41,000 jobs a year or 285,000 jobs from 2012 to 2018, the report said.

The report also found that a drop in the number of Mexican banks willing to transact across borders is “preventing access” for low-income workers to secure financial institutions to send money back and forth between countries, which which makes them “marginal”. access to banking services »

Many of these workers are low-income migrants who send money home to Latin America to support their families while they work in the United States.

The Texas Association of Business is the Texas State Chamber and is hosting a roundtable with Texas Governor Greg Abbott at McAllen on Monday. Border Report plans to cover the event.

Michael J. Birnbaum