Global Financial Integrity

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Banks, Not Borders, Hold Immigration Key

Krishen Mehta
Global Financial Integrity

This article was originally published by The Dallas Morning News.

Solutions to root causes of the huge levels of illegal immigration from Mexico to the United States deserve more attention. One cause of people leaving developing countries like Mexico is the outflow of financial resources from illicit activities. Stop this flow of capital, and countries would have the resources to create jobs and opportunity at home and stem the flow of people over our borders.

To do this, we must change our laws, which today make it far too easy for people from other countries to hide their ill-gotten gains here in America.

A report just released by Global Financial Integrity, a think tank based in Washington, estimated that Mexico lost a massive $872 billion in illicit financial outflows from 1970 to 2010. The report also found that banks in the United States were the top destination for Mexican funds. In this way, our own banks are helping push ordinary Mexicans to come to the United States, often illegally, to overcome the domestic problems created by this kind of massive capital outflow.

There are several ways to change our banking transparency and other laws that could help prevent the flow of illicit financial resources. First, we should eliminate anonymous shell corporations. In many states, like Delaware, it is easy to create a corporation without knowing who actually owns it. Delaware earns about $750 million a year in corporate franchise fees at an annual administrative cost of only about $12 million. Opportunities afforded by these vague laws are a big moneymaker for the anonymous enterprises. The problem is that these anonymous corporations are a favorite tool of criminal enterprises, tax evaders and others to access the banking system and launder money.

A bipartisan bill, the Incorporation Transparency and Law Enforcement Assistance Act, would eliminate shell companies. A companion bill has been introduced in the House, but so far there has been little traction. Passing these laws would make it more difficult for the underground economy in Mexico to reap the rewards of crime and would make it easier for the average Mexican to make a living.

Second, U.S. banks should be required to provide the IRS with information about bank accounts owned by non-U.S. citizens. Banks collect this information for the IRS for all U.S. residents but not foreigners. As a result, the U.S. is often a tax haven for illicit flows of money from abroad. Receiving such illicit funds from other countries, especially poor developing countries like Mexico, is not in our national interest.

A recently proposed regulation would allow the IRS to have more information about the deposits of nonresidents and could be used to better prosecute individuals and corporations involved in illicit activities. Unfortunately, this change has met stiff resistance from some members of Congress, including those from New York, Texas and Florida. We should welcome legally acquired wealth, savings and deposits, but we should not be a haven for illicit wealth.

Third, after 9/11, our laws allowed the real estate industry to be exempt from the “know your customer” anti-money-laundering requirements for funds from overseas that were invested in U.S. real estate. As a result, much of the money generated through illicit means abroad, whether it is from environmental crimes, trafficking, smuggling, gambling or tax evasion, can get free entry into our country as long as it is invested in real estate. We need to take a second look at this loophole.

Change our banking laws to stop illicit capital flows so Mexico and Mexicans can prosper and have real jobs at home.

Krishen Mehta is co-chairman of the advisory board at Global Financial Integrity and may be contacted through