Vetted KYC doesn’t protect Tijuana businesses


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Enhanced KYC requirements and money-laundering fines have some American banks leary of cash-heavy commercial accounts based in Tijuana, Mexico, and the surrounding area–even when the KYC results show perfectly legitimate business operations.

According to a report this week in the U-T San Diego newspaper, the Calimax supermarket chain, with a heavy presence in Baja California and Sonora, is but one example of a business that was informed by its American banker that the relationship was being terminated due to the complications presented by its consistently high–and entirely predictable and legitimate–cash deposits.

U.S. dollars are a common currency for border businesses in Mexico, and many of them like to have at least one American bank account for excess cash deposits and for the convenience and cost savings of paying U.S.-based vendors directly. Additionally, until recently Mexican law imposed strict limits on the amount of U.S. dollars that could be deposited in Mexican bank accounts.

While this cash-deposit limit for Mexican banks was a measure intended to hinder drug traffickers, it also squeezed legitimate businesses such as Calimax, where customers often pay for groceries in dollars. And now many businesses like Calimax are finding it hard to find either a Mexican or an American banking relationship for their U.S. dollar deposits. Mexican president Enrique Peña Nieto recently announced alternate measures for legitimate cash-heavy businesses, but those restrictions have not yet eased in Tijuana and the surrounding area.

According to the Tijuana Chamber of Commerce, well-established businesses with clearly legitimate sources of cash are being affected by the U.S. account closures and the limits on dollar deposits in Mexican banks.

Reporter Sandra Dibble cited Jose Larroque of the international law firm Baker and McKenzie as explaining that the reporting effort required of banks for large cash deposits can be so onerous that the benefits of those businesses’ accounts cannot outweigh the costs of compliance efforts.

Border towns like Tijuana, with its close proximity to San Diego, see especially high numbers of customers using dollars, and that is especially true during the holiday season, according to Tijuana business leader Mario Escobedo Carignan.

And while some Mexican businesses struggle to find banks for their legitimate cash deposits, some drug traffickers have evaded the Mexican limits on dollar deposits by shipping more of their illegal dollar proceeds to the United States via armored vehicles, the owners of which would claim that the cash was from money-exchange houses, which made it difficult to track.

According to the Associated Press, the Otay Mesa Port of Entry site logged $1.78 billion in declared cash in 2013, up from just $10.6 million in 2009. The staggering increase in dollars being brought into the U.S. in believed to be tied to the strict dollar-deposit limits in Mexican banks.

Dibble noted in her story that one of the account-closure letters sent to a Mexican business attributed the closure to tougher monitoring requirements for commercial accounts so the bank had “undertaken a review of our current deposit account relationships to determine whether the size and type of the relationship sufficiently warrants the increased amount of oversight required” and upon review decided to close the account.