Money Laundering Fears Cost Some Border Businesses Their Bank Accounts

La Roca restaurant in Nogales, Mexico, draws a mix of American tourists and locals. It used to have an American bank account and credit card until the bank closed the account.
Jude Joffe-Block
By Jude Joffe-Block
January 02, 2015

NOGALES, Sonora — Here in this Mexican border town, the lunch crowd is settling in at La Roca restaurant. Its live music, colorful decor and traditional cuisine have made it a landmark for 43 years.

The prices are listed in dollars, and many of the diners come in from Arizona. The ownership is American and so was the restaurant’s bank account and credit card — until a few months ago.

That’s when La Roca’s owner Alicia Martin said she got a phone call from Chase Bank. They said they were closing some foreign business accounts, including La Roca’s.

“And I was like, 'What?'” Martin said. “'What are you talking about? You know, why?' And she said, ‘Because we can’t monitor you.’”

It was part of the bank’s efforts to stay in line with federal anti-money laundering regulations.

Martin asked how the bank could be suddenly suspicious of a business account that had been with the bank for more than 40 years.

“And she said, ‘Well, don’t take it personally, there have been some people that have been with us for 70 years and we are closing their accounts as well,’” Martin said.

Jude Joffe-Block
In addition to closing some foreign business accounts, Chase has closed some branches along the Arizona border, including its only branch in Douglas, Ariz.

Chase spokesperson Mary Jane Rogers confirmed the bank made a business decision to close fewer than 5,000 small foreign business accounts as it seeks to comply with anti-money laundering regulations.

Regulators have cited the bank in the past for a number of issues, including deficiencies in the bank’s anti-money laundering controls. In fact, that’s one reason Chase had to pay billions in penalties in recent years.

Martin thought about moving her account to another U.S. bank, but heard others might soon follow Chase’s lead.

“What happens to those of us who do business transparently, and it is honest business?” Martin said. “I don’t know. I feel like we are being punished for somebody else’s deeds.”

The Southwest border is seen as a higher risk area for money laundering because drug and human smuggling organizations are looking for ways to launder their profits.

Paul Hickman of the Arizona Bankers Association said banks in this region are trying to do the right thing.

“They don’t want to help facilitate illegal conduct,” Hickman said. “And if they find a concentration of high-risk accounts, they are going to scrutinize those and they are going to decide, all right, what kind of resources do we have to police this?”

Hickman said if banks don’t have the resources to properly monitor certain accounts, they will not want to “put society at risk by continuing to potentially facilitate this kind of trade.”

Meanwhile, the regulatory climate for banks, particularly on anti-money laundering issues, has been getting stricter.

“Most of the major banks are either facing enforcement actions or there have been enforcement actions,” said Dennis Lormel, who used to head the Federal Bureau of Investigation’s financial crimes program and now consults on anti-money laundering issues.

Jude Joffe-Block
Juan Carlos Ochoa says two banks have closed the account for his Arizona-based cattle import business.

HSBC came under fire a few years back for inadequate controls that federal law enforcement officials say allowed a Mexican drug cartel to launder millions of dollars.

But as banks and regulators try to prevent that kind of crime, it’s not always obvious which client accounts should be closed.

“What has been going on in the border area of the United States actually has been a point of contention between the government and the private sector for at least six months, maybe even longer,” said John Byrne, the executive vice president of the Association of Certified Anti-Money Laundering Specialists. 

Byrne said the regulatory environment has been changing lately, leaving banks to fear they could be slapped with fines or forced to make expensive reforms if they make even small mistakes monitoring a risky customer. For that reason, banks sometimes decide it is a better business decision to close certain accounts rather than take on the risk.

Yet at the same time, regulators and law enforcement say it’s counterproductive for banks to close too many accounts because it sends transactions underground.

This tension became apparent in recent months after some banks began closing the accounts of check cashers, currency exchange dealers, money transmitters and other types of money service businesses. These types of businesses have a reputation for being vulnerable to money laundering.

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network put out a statement in November urging banks to consider banking these businesses on a case-by-case basis. 

“Refusing financial services to an entire segment of the industry can lead to an overall reduction in financial sector transparency that is critical to making the sector resistant to the efforts of illicit actors,” the statement said.

While Lormel believes the banks are appropriately closing some accounts engaged in suspicious activity, he said other cases are less clear cut.

“This is a very complex subject,” Lormel said. “There is no easy answer, there is no easy fix. And unfortunately some very honest and innocent people are getting caught up losing their banking relationships.”

Cattle broker Juan Carlos Ochoa said he is another one of those honest, innocent people losing their bank accounts.

Ochoa is a dual citizen who imports cattle into Douglas, Ariz. and he runs a feedlot for 5,000 cows on the Mexican side of the border.

Ochoa said business is good, except for the stress of where to keep his money.

After Chase closed his Douglas-based business's account, he moved it to Wells Fargo. Then Wells Fargo closed his account, too, without offering an explanation.

Lori Brown, a spokesperson for Wells Fargo, wrote in an email that the bank evaluates all of its relationships for risk and return.

"We consider many factors in our evaluations, including applicable regulatory guidance," Brown said in the email. "In some cases, after an extensive review, Wells Fargo will make a business decision to exit relationships with business customers." 

Ochoa said he is willing to adapt to any requests banks might have of him, but said neither bank offered him that opportunity.

“I can’t be without a bank account because every day I have to buy and sell cattle,” Ochoa said in his native Spanish. 

Ochoa needs a U.S. account so American buyers can easily wire him his payments.

But at the same time, a number of major banks have been closing branches on the Arizona border. The dwindling number of branches in Douglas means there is only one bank left in town that hasn’t yet rejected Ochoa.

“The day there are no more banks left, I don’t know what I am going to do,” Ochoa said.

Arizona Sen. John McCain wrote a letter to four major banks in September asking whether anti-money laundering regulations were causing the banks to close branches and restrict cross-border transactions.

An aide for McCain’s office said in an email the banks have cited the area’s economic decline and regulatory issues as reasons for reducing services on the Arizona border.

Ochoa said the irony is if border businesses are excluded from banks, it could force them to rely more on cash. And that makes transactions harder to trace and more vulnerable to money laundering.

EDITOR'S NOTE: The web version of this article has been modified to reflect that a Chase spokesperson confirmed the bank is in the process of closing fewer than 5,000 small foreign business accounts. An earlier version stated the number was 5,000. Also, it was an aide for Sen. John McCain's office who provided information on the banks' responses.  

Updated 1/5/2015 at 11:23 a.m.