On March 11, the Treasury Department announced new measures that will impact cash transactions at money services businesses (MSBs) in limited geographic areas including San Diego, El Paso, and Laredo. Money services businesses in these border areas will be required to file Currency Transaction Reports (CTRs) with Treasury’s Financial Crimes Enforcement Network (FinCEN) for any transaction above $200. Among those impacted by the measure will be low-income financial consumers living or working in the southwest border region who use MSBs to cash checks or send family remittances.
In a statement, Treasury Secretary Scott Bessent said the measure “underscores our deep concern with the significant risk to the U.S. financial system of the cartels, drug traffickers, and other criminal actors along the Southwest border,” and that “as part of a whole-of-government approach to combating the threat, Treasury remains focused on leveraging all our available tools and authorities to better identify and counter these criminal activities.”
Yet this statement commiting to use “all our available tools” sharply contrasts with the Treasury Department’s own announcement just days earlier that it will not enforce the bipartisan Corporate Transparency Act – the most important U.S. anti-money laundering reform in a generation – for 99.8 percent of entities the law intended to cover. It is also juxtaposed with a recent announcement by the Department of Justice that it will deprioritize white collar, financial crimes and pause enforcement of a major anti corruption law that applies to U.S. companies.
Illegal drug trafficking is a huge problem with heartbreaking human costs. Over 100,000 Americans die each year from drug overdoses, the leading cause of death for Americans ages 18 to 45. But it’s hard to understand how the campaign to combat this $500 billion illicit market would be advanced by focusing on $200 cash transactions.
As a new report by the International Crisis Group reminds us, drug trafficking is big business. The report notes that the financial footprint of the Jalisco New Generation Cartel, for example, “is believed to touch business and banking on almost every continent, enabling the group to avoid law enforcement with ease.” Further, as a source quoted in the report notes, “the majority of investors in drug trafficking are politicians or businessmen”. Yet recent moves by Treasury do not reflect the corresponding illicit finance risks posed by crooked politicians or unscrupulous businessmen within the universe of criminal actors.
Moreover, it’s hard to understand how this measure reflects a risk-based approach. The most recent U.S. National Risk Assessment points to three major money laundering risks: anonymous shell companies; the lack of comprehensive anti-money laundering safeguards for investment advisers, real estate professionals, and complicit gatekeeper professionals; and “pockets of weaknesses in compliance and supervision” at some financial institutions. Discussion of MSBs in the National Risk Assessment, while limited, is focused on unlicensed and unregistered MSBs, which would hardly benefit from new cash reporting requirements if they are operating informally to begin with.
In the United States, MSBs are already covered by major anti money laundering laws, such as the Bank Secrecy Act (BSA) and have existing reporting responsibilities to FinCEN. Changes to anti-money laundering policy for the sector, while they may be merited, should be carefully considered in order to mitigate unintended consequences. For example, requiring MSBs to report customer details to FinCEN for every $200 cash transaction may make immigrants afraid to use formal, licensed MSBs, diverting financial flows into dangerous and unsupervised channels. At the same time, FinCEN’s detailed public announcement of specific zip codes and thresholds makes it extremely easy for illicit actors to avoid these very controls. From a cost-benefit perspective, it’s hard to see what we gain on the anti-money laundering front.
Finally, it’s worth remembering that the illicit drug trade is not a problem unique to border communities, low-income financial consumers, or MSBs. It is an American problem that impacts all of us, regardless of where we live or work, how much money we make, or where we were born. Piecemeal, politicized approaches distract from efforts to find and implement more meaningful structural solutions based on risk-based analysis.