Bloomberg Businessweek, September 7, 2018: The U.S.-Mexico border is becoming a banking desert
Heightened scrutiny of banks in high financial crime areas, particularly those near the border, has caused banks to retreat, unleashing a host of unintended consequences. According to a report released in February by the U.S. Government Accountability Office, Calexico, Calif., was down to a single bank branch in 2016 from six three years earlier. San Ysidro, Calif., lost five of its 12 bank branches in the same period, while a single ZIP code in Nogales, Ariz., lost three of its nine branches. Of the banks that remained in U.S. border counties, almost 80 percent said they had limited or stopped offering services to customers who might require intensive monitoring. Businesses run by Mexican nationals, those that transact on both sides of the border, and those that deal primarily in cash were especially likely to get the boot.
Towns such as Nogales, have a long history of paying the price for transnational problems. The town of 20,000 sits quite literally on the border: A towering rust-colored fence marks the international boundary between the Mexican and American sides of what used to be effectively the same town. The easy movement of people, products, and money across the border was a boon for Nogales’s retail and produce industries, but it also benefited drug smugglers and traffickers. “Imagine water going over a dam. That’s what it used to be like,” says Nils Urman, a longtime Nogales resident who runs a nonprofit aimed at redeveloping the downtown. Traffickers “were staged in motels right across the border. They had spotters on top of the roof and when border patrol left for the day, they’d give them the go, and—holy cow.”
The fence went up in the 1990s, but the real turning point for the Nogales border, Urman and other residents say, was Sept. 11. The 2001 USA Patriot Act ramped up pressure on banks to detect and report suspicious activity and increased penalties on institutions that didn’t comply. A series of high-profile prosecutions made clear just how steep those penalties could be. In 2012, HSBC got hit with a $1.9 billion fine for failing to stop the Norte del Valle and Sinaloa cartels from laundering more than $880 million of drug money.
Some banks hired additional compliance officers to manage the workload, but for big banks with tens of billions of dollars in assets, those small border accounts were expendable. One major bank closed 5,000 accounts in 2016 alone, the GAO found, representing less than 0.5 percent of its overall accounts.
Amid the exodus, 1st Bank Yuma, a small regional institution, opened its first Nogales branch in the fanciest glass building downtown. With so many in need of banking services, it’s in a position to be choosy. David Esquivel, the bank’s senior vice president, says he initially limited customers to well-known produce businesses and has expanded only via referrals—one way he manages risk. Just four years after opening in Nogales, Esquivel says, the branch is no longer actively seeking deposits.
The Federal Deposit Insurance Corp. and other federal agencies have sent reps to Nogales to explain how the extensive monitoring is necessary to catch and deter criminals. It’s an argument the townspeople are familiar with. “We’ve always been this sort of place where all these federal regulations get dumped,” says Urman. “We have to realize downtown is not going to be what it used to be.”
