Remittances and Money Laundering in Mexico
By Sam Logan
·
The need for financial literacy and bringing remittance users into the formal financial
sector outweighs worries over money laundering or terrorism financing.
Remittances sent from the United States to Mexico
exceed informal finances that flow from developed to developing nations around the world by billions of dollars. Mexicans
working both legally and illegally inside the United States sent an estimated US$28.1 billion to relatives in Mexico in 2005
alone. Money sent home to countries in Latin America and the Caribbean represents 70 percent of the world’s total amount
of remittances. Most of this money originates in the US, where the formal financial sector remains reticent to remittance
senders and companies because of worries over terrorist financing and money laundering.
The US Treasury Department includes all financial
transfers within the realm of the formal financial structure. It applies controls against money laundering and terrorist financing
to help detect and disrupt illicit fund transfers. These controls may lead to heavy fines or legal action that US banks would
prefer to avoid rather than capture a part of remittance transfers.
Financial literacy, a term that refers to educating
remittance senders and recipients so they feel more comfortable using the formal financial system, has been promoted by the
US government, non-governmental organizations and some banks as the key to bringing remittance users and formal banking systems
closer together. Yet programs that promote financial literacy within the United States remain on passive footing, providing
information in Spanish online for a community in which some members may not be familiar with computers, much less the Internet.
In Mexico, there is currently some initiative to
offer financial literacy programs, but security is a problem. Some 61 percent of households that receive remittances fall
into the bottom 20 percent of non-remittance income. They are poor families that in many cases live in areas controlled by
Mexico’s narcotrafficking organizations, making it difficult for the government or other organizations to reach remittance
users.
Narcotrafficking
and Money Laundering
Narcotrafficking analysts, US Drug Enforcement Administration
agents, and other security officials throughout the Americas generally agree that Mexican organized crime has a near monopoly
on the lower half of the cocaine procurement chain that stretches from Colombian coca farms to street retailers in the United
States.
Colombian narco-traffickers tend to sell their cocaine
to Mexican organizations, preferring to focus on coca leaf crops, cocaine production, securing transport between Colombia
and Mexico, and managing money laundering operations. The Mexican traffickers focus on maintaining supply from Colombia, smuggling
cocaine north of the border, and getting the money out.
Money laundering efforts are largely initiated by
Mexican actors, so it would seem that remittances play an important role in hiding the origination of illegal wealth. But
money launderers prefer to employ bulk cash transfers. Cash packages are taped to human smugglers, who easily walk across
the border from the United States to Mexico. In other cases, smugglers shovel cash into 40-foot containers, sending it back
to Mexico on flatbed trucks.
Of the many methods used to launder money earned
by the sale of cocaine and other drugs inside the United States, cash remittances are not the top choice for money laundering
experts according to the treasury department.
“The vast majority of illicit funds we see
flowing from the United States to Latin America via remittances tend to be laundered proceeds,” US Treasury Department
spokesperson Molly Millerwise told ISN Security Watch, adding that “while remittances can be used by bad actors to move
money, they are generally not an efficient method for laundering.”
Commenting on the formal financial sector’s
other worry, terrorism finance, Millerwise said: “While there is believed to be terrorist financing in Latin America,
remittances from the United States to Latin America are not a prevalent means for financing terrorism in the region.”
Growing
Remittances
The changing nature and increasing migration from
Mexico to the United States has evolved to the point that the governments of both countries may soon put more attention on
an ever-important social challenge that will require a policy solution.
More Mexicans are moving to the United States every
year, sending home an increasingly significant amount of money. As long as this money remains outside the formal financial
sector, the economies of both countries are negatively affected.
Latino immigrants make up some 6.6 percent of all
US households according to the Inter-American Development Bank (IADB). As well, according to the US Census Bureau, 1.2 percent
of the household population in Pennsylvania, two percent of the population in Indiana, and nearly one percent of the population
in Ohio is Latino. None of these states had measurable Latino populations five years ago.
Latino migrants from Mexico no longer stop in border
states, but head directly to where there is work. And once they payoff debt accrued from their journey they almost always
begin sending money home, often as much as US$300 a month.
The IABD reports that remittances from the United
States to Latin America will total more than US$45 billion in 2006 — 51 percent higher than the total amount registered
in 2004.
Remittances flow from nearly every state in the United
States, and most transfers head directly to Mexico.
Promoting
Financial Literacy
In a May meeting between the US Treasury Department
and the World Bank, Assistant Secretary for International Monetary and Financial Policy Mark Sobel highlighted the need for
greater financial literacy among remittance senders.
“Inadequate financial access and financial
literacy are issues for many countries, including the United States,” Sobel said. “Bringing un-banked residents
into the financial mainstream and raising financial literacy of US residents are priorities for the US government.”
The Financial Literacy and Education Commission,
created in 2003, launched a national strategy three years later, which, according to Sobel, is constructed to improve the
financial education and financial literacy of all US residents. A website and hotline have been made available in both Spanish
and English, and a multimedia campaign is currently under development.
Yet such initiatives seem to fall short of reaching
the community most in need, one that remains offline. Part of the challenge is getting around the illegal immigrant conundrum.
Still another challenge moves beyond remittance senders to remittance receivers, a community perhaps more in need of financial
literacy.
Maria Jaramillo, the executive director of the remittances
program with the international micro-finance consulting organization ACCION International, recently told ISN Security Watch
that her group considered financial literacy an important factor that would help bring remittance recipients closer to the
formal banking sector.
“We think financial literacy is an important
component to create awareness that remittances can be assets, capital that [recipients] have to create opportunity,”
Jaramillo said.
“Because of dependency on remittances, [recipients]
have a reduced ability to think beyond tomorrow.” Jaramillo explained that the one project that many remittance recipients
focus on was the construction of a house for the family. Once the house has been built, however, there is little consideration
of another equity-building endeavor.
Financial literacy remains elusive for many remittance
recipients in Mexico. Part of the challenge is the country's security problem. Yet US banks should not remain reticent to
edge themselves closer the remittance community because bank leaders are worried about money laundering or terrorism financing.
The benefits of banking remittance senders and recipients
far outweigh the risk associated with working in these communities. As the gross number of remittances climbs further into
the billions, figuring as a higher percentage of annual gross domestic product, the economic security of recipient countries
begins to be a final factor that among all others should spur the formal financial sector to find ways to formalize remittance
flows.
——————————
This article was originally published at ISN Security Watch (11/20/06). The International Relations and Security
Network (ISN) is a free public service that provides a wide range of high-quality and comprehensive products and resources
to encourage the exchange of information among international relations and security professionals worldwide.
Sam Logan (www.samuellogan.com) is an investigative journalist who has reported on security, energy, politics, economics, organized
crime, terrorism, and black markets in Latin America since 1999. As well, Logan is the Latin American correspondent for ISN Security Watch. He has just published his first e-book entitled “The Reality of a Mexican Mega Cartel.”
Reprinted with permission from ISN.
