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Money-laundering rules hindering So. Arizona industries

photos by Luis Carrasco / Arizona Daily Star

Sabrina Hallman, president and CEO of Sierra Seed Company, shows the small workstation that allows her to process checks and connect to her Bank of America account in Mexico City.
March 14, 2015 6:09 pm • By Luis F. Carrasco

NOGALES, Ariz. — Federal regulations meant to stop drug-cartel money laundering are threatening Southern Arizona’s produce industry — and leaving many cross-border importers unable to find banks willing to do business with them.

In the past two years, Bank of America and Banamex USA, a Citigroup subsidiary, left town, while Chase shuttered one of its two branches here. The banks have also closed thousands of accounts along the border, leaving many companies scrambling.

The closures are affecting businesses of all kinds, but the produce industry is being hit the hardest due to its business model, which involves frequent money transfers between the United States and Mexico that set off red flags meant to identify criminal activity.

“One by one, these banks have called up their customers who have had accounts with them for 20, 30, many more years, and said, ‘Well, here’s your notice. In 30 days, we’re going to be closing your accounts. Good luck to you,’”
Lance Jungmeyer, president of the Fresh Produce Association of the Americas, told the Arizona Senate Finance Committee last month.

Industry leaders say the situation jeopardizes an industry that represents 22 percent of the jobs in Santa Cruz County, 33 percent of the economic output and approximately $40 million in taxes locally and to the state.


Sabrina Hallman, president and CEO of Sierra Seed Company, said she’s had three banks in five years tell her they’re not interested in her business.

Like many in the produce business, the agricultural seed distributor depends on an annual line of credit to manage cash flow due to the seasonal nature of the work.

Her company sells seeds to large growers in Mexico on credit, and doesn’t get paid until the farmers sell off their crops.

In 2010, the company’s long-term relationship with Southern Arizona Community Bank was terminated by the bank’s new owners. But even though Sierra Seed had a steady history of repayment, securing a new line of credit proved difficult.

“We started tap dancing with every possible bank we could find,” Hallman said. “We met with Chase, Wells Fargo, Bank of America, Vantage West, National Bank of Tucson, BBVA Compass — if we could get our foot in the door, we talked to them.”

The bankers were willing to listen, she said, but it was the fact that her business operated on both sides of the border that kept getting them rejected.

After almost two years, she finally secured a line of credit with Chase, which asked that Sierra Seed move its business accounts, including that of its sister company in Mexico, over to them.

A year and a half later, Chase told Hallman it was closing the account for the Mexican company, sending her on yet another quest for banking services.

It took 20 months and reams of paperwork, but Bank of America, which has an office in Mexico City, agreed to be her bank.

“They went through the U.S. banking regulations, they went through the Mexican banking regulations,” she said. “My bankers are now in Tucson, Phoenix, Florida and Mexico City.”

She understands the need to stop money laundering, she said, but it’s frustrating that the facts of daily life along the border often escape far-away regulators and corporate banking executives.

“You’ve got people who don’t live where we live, or work how we work, making decisions that affect our lives,” she said. “Nobody meant to stop cross-border trade, but it’s definitely had an impact, and it’s hurting terribly.”


In recent years, banks have felt the sting of heavy fines levied by the Financial Crimes Enforcement Network, a bureau of the Treasury Department that combats money laundering.

In 2012, HSBC, one of the world’s largest banking and financial services organizations, paid more than $1.9 billion in penalties over its failure to prevent Mexican drug-trafficking organizations from laundering hundreds of millions of dollars in the United States.

“There’s a feeling among the bankers that the performance standard is near perfection in complying with AML (anti-money laundering). Understandably so, but it’s just difficult,” Duane Froeschle, president of Alliance Bank of Arizona and co-chair of the Arizona-Mexico Commission, said in testimony before the state finance committee.

Constantly changing regulations have evolved beyond “know your customer” to “know your customer’s customer” and have made due diligence much tougher, Froeschle said.

“It requires us to take on complex investigations somewhat similar to those run by law enforcement, individual customer by customer, and we’re kind of bound to that duty by our regulators,” he said.

All that adds up to increased costs for banks, he said, not just in training employees, but in more sophisticated data management.

Last September, Sen. John McCain sent letters to the heads of Bank of America, Citigroup, JPMorgan Chase and Wells Fargo seeking information about branch and account closures along the border.

The banks attributed the closures to the area’s economic decline, consolidation and the growing use of online banking services, as well as general regulatory and compliance burdens, according to a statement the senator submitted to the Arizona Senate Finance Committee.

When asked during a media briefing in his office last month whether money laundering was the reason for the closures, McCain was more direct.

“They’ve been not particularly straightforward, but everybody knows that this is the reason for them doing it — there’s no other logical reason,” he said.

McCain said when his office has communicated with banks on the issue, they haven’t denied it.

It is not regulators’ intention to shut out legitimate businesses from the financial system, Jennifer Shasky Calvery, director of the federal Financial Crimes Enforcement Network, said during a speech to the Mexican Bankers Association last October.

Ideally, she said, there should be proper implementation of all regulations, along with the free and secure movement of capital within and across borders.

“I can appreciate that these two messages are at odds with each other, but we need to find a balance between the two,” she said.


Some importers have proposed establishing a credit union or using smaller local banks, but their need for multimillion-dollar lines of credit means their options are limited.

“The local bank can know its customers, they can know the risk, and I think there’s a big opportunity there,” testified Jungmeyer, of the state produce association. “The big banks, however, have the multiple branches, in multiple states, and branches in Mexico and other areas.

“They, frankly, have more power.”

All the finger-pointing between banks and the federal government is of little help to border businesses, said Bruce Bracker, chairman of the Greater Nogales Santa Cruz County Port Authority.

“Everybody’s saying they have a job to do and they have to do it, which is not how things get done,” he said. “Somewhere out there, there’s a solution to this.

“We just need the players to come to the table and tell the business community what they need, and the business community will comply.”

Bracker said it is frustrating to see large businesses, including the assembly or manufacturing factories known as maquiladoras, have no trouble while small businesses struggle with their banking.

“If large companies aren’t having these issues and they’re ‘trusted sources,’ then what do the small businesses have to do to become trusted sources?”

But even as they rail against the problem, industry representatives said they are hopeful their voices are being heard.

Last month brought not only a hearing before the Arizona Senate Finance Committee, but McCain and Sen. Jeff Flake also sent a letter to Sen. Richard Shelby, an Alabama Republican and chairman of the Senate banking committee, requesting federal attention.

While the senators wait for a response, Hallman, the seed distributor, said she is already dreading her next go-round with the banks as she looks to grow her company.

“Our next expansion plan is on this side of the border,” she said. “But it will require funding — and I just don’t know how that’s going to happen.”

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