How Mexico could call Donald Trump’s bluff

Washington Post

By Max Ehrenfreund

April 6, 2016

How Mexico could call Donald Trump’s bluff 

Donald Trump has now explained his plan to force Mexico to pay to build a wall along the border with the United States: He would bar undocumented immigrants in the United States from remitting money to Mexico. That threat to the Mexican economy, Trump says, would force the government to pay up.

It isn't a credible threat, however, according to experts on the intricate network of software, firms and people that moves money across international borders.

If it's a challenge for authorities to prevent people from slipping across borders illegally, it's even more difficult with currency. Already, many financial institutions are finding they are unable to shut terrorists and criminals out of the international money transfer system -- a smaller task than preventing the nearly 11 million undocumented immigrants in the United States from remitting what they've earned here.

Then there's the possibility of smuggling cash. Experts point out that, by monitoring money transfers above ground, Trump's plan might just create a black market for remittances that's even more difficult to track.

President Obama alluded to these problems when asked about Trump's plan on Tuesday. "The notion that we're going to track every Western Union bit of money that’s being sent to Mexico -- good luck with that," the president said.

Mexicans received almost $25 billion in remittances from around the world last year, according to the Bank of Mexico. The Pew Research Center estimates that 98 percent of Mexico's remittances come from the United States.

It's not clear, though, how much of that money is sent by illegal immigrants -- or how Western Union and other firms would identify customers who don't have papers.

Trump explained his plan in detail for the first time in a memorandum to The Washington Post this week. In it, Trump wrote that he would use his executive authority as president to require "that no alien may wire money outside the United States unless that alien first provides a document establishing his lawful presence in the United States."

This plan is "Swiss cheese, in terms of holes," said Gary Hufbauer of the Peterson Institute for International Economics.

Already, banks and firms such as Western Union must keep detailed records on their customers under a federal law designed to prevent criminals from laundering money. Yet the logistical challenges in enforcing a rule against transfers by undocumented migrants could be substantial. U.S. citizens would presumably have to show that they are not undocumented immigrants before moving money abroad.

Walmart, for example, recently set up a service to allow customers to wire money to Mexico and other countries, noted economist Mike Moebs, founder of the research firm Moebs Services in Lake Forest, Ill. To continue providing that service, Walmart would have to develop some kind of system for verifying its customers' passports or immigration documents. Clerks might also have to ask their customers to show how they got the money, since otherwise undocumented migrants could pay their friends and family who are here legally to move money for them.

"The problem is there's all sorts of ways you can get around it," Moebs said.

Authorities around the world are putting the onus on banks and financial institutions to enforce rules against laundering money and financing terrorism. Already, some of those banks are finding that investigating their clients and doing all the associated paperwork is just too expensive. Instead, they're cutting the wires.

In the United Kingdom, Barclays simply closed the accounts of nearly 150 smaller firms that were handling remittances for clients in 2013. The bank couldn't eliminate the risk that some of those remittances were going to terrorists abroad, for example.

Aside from major firms like Walmart and Western Union, some migrants use these smaller, mom-and-pop businesses to send remittances. These firms might not have the resources to check their customers' papers. Many have lost access to the financial system in the United States as well, according to a report from the nonpartisan Government Accountability Office in January.

The report warned that these requirements could prove counterproductive by encouraging people to move their money in cash. That would only make detecting suspicious activity more difficult. The report's authors also considered the possibility of confirming customers' immigration statuses, concluding that more restrictions could compound the problem. The World Bank raised similar concerns in another report last fall.

The existing rules are already causing financial problems for households in developing nations, said Vijaya Ramachandran, an economist at the Center for Global Development.

"It has really terrible consequences for the families that rely on the money," she said. "Remittances are hugely important to poor countries."

The World Bank estimates that remittances to developing countries last year totaled $435 billion -- far more than official foreign aid from governments in the developed world.

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