US banks are cutting off a growing number of customers in Mexico, deciding that business south of the border might not be worth the risks in the wake of mounting regulatory warnings.
At issue are correspondent-banking relationships that allow Mexican banks to facilitate cross-border transactions and meet their clients’ needs for dealing in dollars—in effect, giving them access to the US financial system. The global firms that provide those services are increasingly wary of dealing with Mexican banks as well as their customers, according to US bankers and people familiar with the matter, NewsNow reported.
The moves are consistent with a broader shift across the industry, in which banks around the world are retreating from emerging markets as regulators ramp up their scrutiny and punishment of possible money laundering. For many banks, the money they can earn in such countries isn’t worth the cost of compliance or the penalties if they step across the line.
US financial regulators have long warned about the risks in Mexico of money laundering tied to the drug trade. The urgency spiked more than a year ago, when the Financial Crimes Enforcement Network, a unit of the Treasury Department, sent notices warning banks of the risk that drug cartels were laundering money through correspondent accounts, people familiar with the advisories said. Earlier, the Office of the Comptroller of the Currency sent a cautionary note to some big US banks about their Mexico banking activities.
Affecting Mexican Banks
But the pain Mexican firms are experiencing is relatively new. The fallout is affecting Mexican banks of various sizes such as Grupo Elektra’s Banco Azteca, Grupo Financiero Banorte and Monex Grupo Financiero, and their customers, the people said.
Regulators have consistently said they don’t direct banks to cut ties with specific countries or a large swath of customers.
But the advisories, which had nonpublic components that haven’t been previously reported, were interpreted by several big banks as a fresh signal that they do business in Mexico at their own peril, according to people familiar with the matter.
“All they know is that sanctions are big and revenues are small,” said Luis Ni?o de Rivera,vice chairman of Banco Azteca, based in Mexico City. “It’s simple arithmetic: ‘I make a million dollars and they’re going to fine me a billion? I won’t do that.’”
Multiple US lenders have cut ties with Banco Azteca, which caters to low-income customers with branches in Mexican retailers, said Nino de Rivera, adding that the bank has taken steps to bolster its compliance with US regulations.
Difficulties sending money are especially problematic for Mexican banks. The country received $24.4 billion in US dollars in 2014 from people living in the US, making it globally the fourth-largest recipient of remittances, according to the World Bank. If the banks are unable to send dollars back to the US, the firms could be stuck with large amounts of cash that they are unable to easily use in operations.
Several of the biggest banks in Mexico are owned by foreign banks, so they can use their US units to clear dollars and are largely unaffected by the recent moves. But smaller Mexican banks depend on correspondent relationships.
