Large financial institutions like Bank of America (NYSE:BAC), HSBC (NYSE:HSBC), Citigroup (NYSE:C), and JPMorgan Chase (NYSE:JPM) have dealt an expensive blow to immigrants and their families. As regulators crack down on money laundering and illicit international transfers of wealth, the world’s largest money movers have scaled back their cash transfer businesses. Most affected has been Mexico, as about half of the total remittances sent from the U.S. go there.
So why did banks decide to pull the plug on this business, which The New York Times calls the “the largest and arguably most effective antipoverty effort in the world”?
For banks, it is regulatory paranoia, among other reasons. Regulators have cracked down on international money transfers as evidence that terrorists and drug traffickers have used the bank route to launder money has surfaced. Consequently, banks are being made fully accountable for international monetary transactions through their channels. They have been required to increase surveillance, closely monitor such transactions both virtually as well as manually, and implement foolproof systems to track and record the end use of transferred funds. And for banks, it is just too much effort for too little pay.
Most banks learned their lesson after paying crippling penalties for their involvement in cases of money laundering in the garb of international money transfer businesses. But now banks have jumped to the other end of the spectrum, deciding to roll back money transfer services, thus affecting genuine transfers made by immigrants working in the U.S. to their families living in other countries. According to Fortune, the cost of sending and receiving money to families through non-banking channels could jump up five times in the absence of the banks.