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Monday, May 25, 2015

Big Banks closing branches on US Mexico border to avoid money laundering charges-Wall St. Journal

5/25/15, "Big Banks Shut Border Branches in Effort to Avoid Dirty Money," Wall St.Journal, Emily Glazer, Nogales, Arizona

"Chuck Thomas each day ships around 6,000 boxes of tomatoes, squash, cucumbers and other fruits and vegetables to U.S. grocery stores from his third-generation family business, which is a stalwart of this border town’s thriving produce industry.

It was a surprise, then, when his longtime bank, J.P. Morgan Chase JPM -0.27 % & Co., notified him it didn’t want his business anymore.

“First I was pissed off, then I steamed about it for a few days,” he said. “I’ve been with them 40 years and then they have this? It’s a pain.”

Mr. Thomas, 59 years old, isn’t the only one having banking problems in Nogales, a city with a population of about 21,000 and a steel fence separating it from Mexico. In the past several months, J.P. Morgan, Bank of America Corp. BAC 0.12 % and Citigroup Inc. C 0.24 % -owned Banamex USA have shut a total of four branches in Nogales, almost halving the number in town owned by big U.S. banks. Separately, hundreds of Chase and Wells Fargo WFC -0.02 % & Co. customers, some of them second- and third-generation business owners, have had their bank accounts closed.

The bank moves come amid a recent industrywide focus on money laundering. Wall Street wants to avoid the huge fines that could result if financial firms are drawn into the flow of dirty money.

Nogales may be the highest-profile example of how those efforts are playing out in cities along the Mexico border, where drug and human trafficking is a constant worry and money laundering is prevalent.

The trafficking fears aren’t hypothetical here: Authorities have discovered a number of cross-border tunnels in recent years, including a roughly 480-foot passageway found last year that was considered one of the longest and most sophisticated ever detected in Nogales. This activity can unwittingly draw in local banks if traffickers pay their associates and other service providers on the U.S. side of the border. Such deposits are often disguised as being related to legitimate business activities, say bank executives and other experts.

Banks have paid billions of dollars in recent years for transgressions involving everything from mortgage securities to foreign-exchange trading, and have invested heavily in compliance systems, new employees and other steps to head off future problems. While banks have long maintained anti-money-laundering measures, those efforts have taken on fresh urgency in light of updated regulation in November from the Federal Financial Institutions Examination Council, an interagency regulatory body that monitors potential money laundering and terrorist financing.

The update, the first in almost five years, puts greater pressure on banks to flag suspicious customers and shut down risky accounts.

Many in Nogales, though, complain that the crackdown is taking a toll on their economy. A number of local cattle ranchers say they are having trouble paying their employees, many of whom are Mexican nationals and have had their accounts closed in recent months.

“It’s killing our business,” said one rancher. Other businesses say they are being unfairly targeted merely because of their proximity to Mexico.

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

The issue is drawing increased attention. Arizona Sens. John McCain and Jeff Flake, both Republicans, asked for hearings and sent letters to banks, and Federal Deposit Insurance Corp. staffers flew to Nogales earlier this spring to meet local officials and business owners.

Bank executives say Arizona is one of three risky border regions, with the other two being Southern California and the Rio Grande Valley in Texas. In Nogales, banks are worried about persistent drug smuggling despite efforts by law enforcement to stem the flow, said one bank executive involved in money-laundering issues.

Banks as a result are conducting greater due diligence to understand who their customers are and their stated business. In some cases, it is easier to close accounts than spend the time and money necessary to achieve certainty that an account is safe.

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.”

As in many border towns, the economy in Nogales is intertwined with its Mexican counterpart, a city of roughly 300,000 also called Nogales. Roughly 1,500 trucks pass daily through one of three ports of entry, shuttling produce worth nearly $3 billion in 2013, according to the Fresh Produce Association of the Americas, not to mention business from manufacturing companies and the cattle industry.

On what is known as Produce Row on the U.S. side of the border, roughly 180 warehouses line the street between Nogales and nearby Rio Rico, Ariz., loaded with everything from peppers to watermelons to be shipped across the U.S. and sometimes to Canada.

Chris Ciruli’s family company, Ciruli Brothers Inc., which specializes in champagne mangoes, distributes to major retailers such as Safeway Inc. and Whole Foods Market Inc. WFM -0.61 % Mr. Ciruli says his company recently has had to lend money to employees who had their bank accounts closed and didn’t have access to cash while they searched for new banks.

Worse, he says, his family is stuck with more than 100 acres of raw land it can’t develop because large banks are no longer willing to finance projects in Nogales and smaller banks in the area have what he called “unreasonable” interest rates.

Mr. Ciruli said his father put together commercial real-estate deals with local banks years ago. “Those opportunities certainly don’t seem like they’re here now,” he said.

Many locals have moved their business to Washington Federal Inc., WAFD -0.36 % a bank based in Seattle that bought Bank of America’s two branches and related deposits in Nogales. Other remaining banks include several branches of regional banks, one Chase branch and two Wells Fargo branches.

But many Mexican nationals who work and shop in Nogales are having difficulties. There are more restrictions for U.S. employers, whose banks may limit or prohibit wire transfers to Mexico. Most employers don’t give workers checks, because they often have a hard time cashing them at Mexican banks. Some cattle ranchers use a money-exchange service, which often charges high rates and takes a cut through fees. Or the cattle ranchers sometimes wire money to CIbanco, a Mexico-based bank that has allowed such transfers.

Bruce Bracker, 51, the third generation to run retailer Bracker’s Department Store, which sits about 250 feet from the Mexico border, has seen a drop-off in business over the past several months as banks have closed Mexican nationals’ accounts.

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

Write to Emily Glazer at emily.glazer@wsj.com

Image: Edomexico

5/25/15, "Big Banks Shut Border Branches in Effort to Avoid Dirty Money," WSJ, Emily Glazer (subscrip.)



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