Nogales, Arizona, is located on the border with Mexico. U.S. regulators have long viewed the region as a hotbed of drug and human smuggling.
The Wall Street Journal reports today that some big banks are closing their branches in Nogales “amid a recent industrywide focus on money laundering.” Fears are growing that banks will be swept up in enforcement actions if a customer were to be paid by traffickers and then deposit those funds “disguised as being related to legitimate business activities.”
Not only are some larger banks leaving the Nogales region, other large banks reportedly are closing accounts viewed as high risk. These include accounts of Mexican nationals, resulting in difficulty for business owners in paying some employees, and accounts of businesses that send money to Mexico. In such cases, “it is easier to close accounts than spend the time and money necessary to achieve certainty that an account is safe.”
Stepping into the void are some regional banks. Whether federal regulators will require these regional banks to have sophisticated anti-money laundering programs that are on-par with those of the departing national banks (J.P. Morgan, Bank of America, Citigroup, etc.) remains to be seen. But it would appear that concerns over the Nogales region will only worsen should the region be served only by smaller regional banks.
The closure of branches and accounts is caused by the fear that banks will be targets of enforcement actions should they make a mistake. As one bank executive stated, “We can only get into trouble for failing to bank them perfectly.”