Meeting Brings Together Federal Regulators With Banks And Border Businesses

By Jude Joffe-Block
Published: Monday, June 22, 2015 - 5:35pm
Updated: Tuesday, June 23, 2015 - 8:34am

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

Federal bank regulators visited Nogales last week to discuss hurdles to banking on the border.

The meeting comes after Fronteras Desk and other media outlets reported that banks have stopped servicing some Arizona border businesses due to the challenge of complying with federal anti-money laundering regulations.

Arizona's senators helped to arrange the June 16 meeting, which was by invitation only and closed to the press. Through interviews with participants, Fronteras Desk learned the meeting brought federal regulators from the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of Currency together with local bankers, political representatives and business people.

Those in attendance included Sabrina Hallman, the president and CEO of Sierra Seed Company, based in Nogales.

“I am one of those people who has been affected by banks closing your accounts and asking you to move your money and shutting off your lines of credit,” Hallman said.

Three banks have ended relationships with Hallman since 2008. Her company distributes seeds in Mexico, where she also has a sister company.

“And it is the Mexican account that really gives people problems,” Hallman said. “And then transferring money back and forth between the two companies.”

Mexican drug cartels have managed to launder smuggling profits through major banks in the U.S. As a result, banks face a lot of federal red tape if they have customers who do cross border business in known drug trafficking areas. Regulators can punish banks with fines or require them to make expensive reforms if they are found to be out of compliance.

That’s likely why so many banks decided Hallman’s business wasn’t worth it.

So the question at the recent meeting was, how can you prevent money laundering without jeopardizing legitimate border business?

“There was a clear airing of what the problems are,” said Duande Froeschle, the president of the Arizona Division of Western Alliance Bank. “Not all of the solutions were resolved in that meeting.”

Froeschle was one of several bankers at the meeting. Though his bank doesn’t have any locations on the border, he says the burden of anti-money laundering rules is felt in banks in other parts of Arizona, too, though to a lesser degree. Froeschle said he is concerned about this issue’s impact on the Southern Arizona economy. 

“Everyone has to concede this is a continuing problem,” Froeschle said.

Lance Jungmeyer of the Nogales-based Fresh Produce Association of the Americas felt hopeful the meeting would encourage some smaller banks to service the Arizona border.

“They heard from the community there is an opportunity here because the very large banks for the most part have pulled away from the market,” Jungemeyer said. “That leaves a void, that means an opportunity.”

Big banks such as Chase and Bank of America have closed branches in border cities like Nogales and Douglas. But Jungmeyer acknowledged it may be an even bigger challenge for smaller banks to comply with anti-money laundering rules.

“One banker stood up and discussed how he wants to service the community here - but he has recognized that in order to do that there are costs," he said.

Such as costs for additional staff to monitor client accounts.

“He wondered how he could recoup these costs and the FDIC representatives there said, ‘Well, you are perfectly safe and legal to pass these costs back on to your banking customers,'" Jungmeyer said.

Jungmeyer finds that possibility worrisome for border business.

After the meeting, Sen. Jeff Flake released a statement saying, “The administration needs to make sure regulations necessary to combat money laundering take into account that there are essential businesses near the border.”

Flake and Sen. John McCain have attempted to schedule a senate hearing on the issue, but have not been successful to date.

The June meeting followed a smaller meeting in March hosted by the FDIC.

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