Fed-Mexico plan eases bank transfers

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The Federal Reserve Bank and Banco de Mexico are jointly touting a new program known as "Directo a Mexico" that will allow U.S. banks and financial institutions to more easily send money transfers to bank accounts in Mexico.

Offering "more pesos for every dollar," the first-time program gives U.S. banks and financial institutions direct electronic access to more than 41 million accounts in Mexico, but U.S. law-enforcement authorities and others fear it could be abused by migrants illegally in this country, crime syndicates and would-be terrorists.

The taxpayer-subsidized program "seems designed to facilitate the transfer of wealth by illegal immigrants to bank accounts outside the United States," said Tom Fitton, president of Judicial Watch, a Washington-based public watchdog agency.

Mr. Fitton said the program "undermines our nation's immigration laws and is a potential national security nightmare."

Elizabeth McQuerry, a vice president for the Federal Reserve's retail payments office in Atlanta, said the program's goal is "to make cross-border payments more efficient."

While those who either send or receive money under the program are expected to have established legal residency in the United States, the Federal Reserve Bank has no responsibility to ensure that they have. Mrs. McQuerry said that under existing federal regulations, the banks who participate in the program have the duty to ensure that their clients qualify legally.

"It would be impossible for the Federal Reserve to know all of the banks' customers," she said. She noted that 26,000 of the 27,000 account holders are receiving some form of Social Security benefits.

Last year, Mexico received nearly $21 billion in remittances from the United States, according to U.S. and Mexican authorities, most of it from California, New York, Texas and Florida. As the remittances to Mexico continue to grow, about 150 U.S. banks and financial institutions have joined the Directo a Mexico program. It guarantees "next business day" availability.

The program is not limited to Mexican migrants now in the United States, but the vast majority of those who take part in it are expected to be Mexican nationals who work in this country or were previously employed. That would include those who made Social Security payments, have since retired and now want their benefits sent to Mexico.

Critics of the program question whether banks will be vigilant in ensuring that only Mexican migrants with legal status participate. Documentation requirements of the various banks, credit unions and other financial institutions vary widely.

The USA Patriot Act allows the use of "matricula identification cards" issued by Mexican consulates to Mexican nationals in this country as a valid form of identification. The FBI has described the card as unreliable, telling a Senate committee this year that they posed a criminal and terrorist threat and were easy to obtain through fraud and a lack of adequate security measures by the Mexican government.

Several law-enforcement officials also noted that unchecked money transfers could easily be used to finance terrorist operations or by drug and alien smugglers.

The U.S. government's role in encouraging safer and less expensive money transfers to Mexico began when the Treasury Department was told by the Bush administration to "work to highlight awareness of competitive products by promoting financial literacy and expanded use of the banking system by American Hispanics."

Under the "Partnership for Prosperity" program, created to reduce immigration to the United States from Mexico by promoting economic prosperity in that country, one of the goals was to lower the cost of these remittances to Mexico by increasing competition in the financial-services industry.

Much of the billions of dollars now going to Mexico from this country is sent by wire-transfer services, such as Western Union and Mexico Transfers Inc., who charge fees that range as high a 10 percent -- or about $2 billion last year. The new money-transfer, account-to-account program calls for fees of up to $4. For each transfer made, the Federal Reserve gets 67 cents.

Earlier this month, Arizona Attorney General Terry Goddard -- looking to put the squeeze on alien and drug smugglers -- seized millions of dollars sent through Western Union wires , saying the smugglers had made $1.7 billion on smuggling monies through Western Union and other wire services.

Colorado-based Western Union agreed to pay a $3 million fine to the state in response to government worries about lax record keeping and that some transfer agents were involved in sending money to Mexico and Latin America that was tied to money laundering, drug and smuggling rings.

The Directo a Mexico program allows those who receive funds to do so in their own accounts at 8,757 branch offices nationally and at 24,323 automated teller machines throughout Mexico.