Difficult time for money-transfer firms
By Krissah Williams
Washington Post
WASHINGTON — The U.S. banking system is exasperating Luz Igot. She and her husband have run a money-transfer company that sends cash to the Philippines from a small suburban shop for the past seven years with few problems. Today, the war on terrorism is threatening to put them out of business.
Sarah L. Voisin • Washington Post
Last year, Chevy Chase Bank closed her accounts, she said. In the next few months, she set up accounts at Bank of America and later Wachovia. In short order, the banks closed those accounts, and all gave her similar reasons for their decisions.
Luz and Romeo Igot's small shop in Kensington, Md., sends about $1 million a month to the Philippines, but the growing reluctance of banks to handle accounts for small money-transfer companies may put them out of business. Such companies came under new scrutiny when it was discovered that money transmitters were used to wire cash to the hijackers just days before the Sept. 11, 2001, attacks.
"The reason why they closed us is because they don't know who are our customers," Igot said. "I try to explain to them I have all the IDs and the (customer's) information, but they said no. It hurts the small ones like us. Where do we go from here?"
Their company, Jeci Cash Transfer, got caught in the limelight of a national debate about whether money transmitters are an easy tool for money laundering.
Such companies came under new scrutiny when it was discovered that money transmitters were used to wire cash to the hijackers just days before the Sept. 11, 2001, attacks. A stream of new banking regulations in the USA Patriot Act of 2001 required banks to know their customers, which some banks interpreted as extending to the customers of their money-transfer clients.
Some considered those clients too risky, and large U.S. banks began announcing last year that they planned to limit or end their relationships with small- and medium-size money-transfer companies. No background check or bank account is required to use a money-transfer service, and identification is required only to send more than $1,000.
Money-transfer companies, whose customers typically trade in cash, use bank accounts to deposit large sums of money each day and to wire money to accounts in foreign countries. Without bank accounts, they cannot operate.
"This is devastating. ... It is a tidal wave. One bank after the other is closing them out. There is nowhere to go," said Michael McDonald, a former IRS special agent who now consults with money-transfer companies. "Banks are being challenged by regulators for not knowing enough about the source of funds from these entities. How much does a bank need to know?"
The answer to that question is unclear, which has prompted the Department of Treasury's Financial Crimes Enforcement Network (FinCEN) to schedule a hearing this week with banks, money transmitters, check cashers and their trade groups to discuss "mounting concern" in the financial sector regarding banking for money transmitters, according to a letter the agency sent out last month.
The small companies transmit a portion of the more than $30 billion that immigrants living in the United States send back to their families, according to the Inter-American Development Bank in Washington. Large companies, such as First Data Corp.'s Western Union and MoneyGram International Inc., have been largely unaffected because of the size of their networks, according to the National Money Transmitters Association and regulators.
The small money-transfer company owned by Igot and her husband, Romeo, sends about $1 million a month to Manila. They charge a flat $10 fee, while larger companies charge as much as $30. They pay the state $4,000 for their biennial licensing fee.
Banks are in a sticky situation, said John Byrne, director of the American Bankers Association's regulatory compliance center. Regulators have said they mean business when it comes to ensuring that banks identify and report suspicious transactions. Riggs was fined $25 million by bank regulators for failing to file such reports and not complying with anti-money-laundering laws.
"Banks not wanting to be criticized are closing the accounts. Our industry clearly would like stronger guidance (about) what are acceptable relationships with those entities," Byrne said.
J.P. Morgan Chase & Co. announced last year that it would cut ties with all of its money-transfer customers. Spokesmen for two major banks operating in the region, Wachovia and Bank of America, said they are evaluating their money-transfer clients and would decide whether to close accounts on a case-by-case basis.
The confusion in part stems from different approaches to money transmitters taken by FinCEN, which regulates the transmitters and other cash businesses, and the Office of the Comptroller of the Currency, which oversees banks.
Money transmitters are trying to adjust. Remesas Quisqueyana Inc., a money-transfer business with 20 locations in five states, has had accounts closed by a few large banks although it is registered with FinCEN and has a compliance program.
"It is very, very hard," said Chief Executive Mohamed Chalabi in New York, whose customers are mostly Latin American immigrants.
"There are a number of states where I don't have bank accounts, which means trucking the money for long distances at serious risks."
