The Border's Banking Desert

Options are drying up for small businesses in areas of high money laundering risk

- Emily Feldman

Sabrina Hallman’s seed business has operated out of warehouses a short drive from the U.S.-Mexico border since 1989. The Sierra Seed Co., which sells to commercial growers in Mexico, is well-known in her small Arizona town—as is Hallman, a former school principal who took over from her father as chief executive officer in 2007.

Three years later her bank was acquired, and its new owners cut off a line of credit her business had depended on for years. The decision was so unusual at the time that it even took Hallman’s local branch by surprise. They advocated to their new bosses on her behalf. “They said, ‘You don’t understand, we know this company. It’s solid,’ ” she recalls. But their good word wasn’t enough. The company did business on both sides of the border and therefore posed a money laundering risk the bank wasn’t willing to take. Rather than spend resources vetting and monitoring what it perceived to be a high-risk account—or face enormous fines for failing to do so—Hallman’s company had to go.

Heightened scrutiny of banks in high financial crime areas, particularly those near the border, has caused banks to retreat, unleashing a host of unintended consequences. According to a report released in February by the U.S. Government Accountability Office, Calexico, Calif., was down to a single bank branch in 2016 from six three years earlier. San Ysidro, Calif., lost five of its 12 bank branches in the same period, while a single ZIP code in Nogales, Ariz., lost three of its nine branches. Of the banks that remained in U.S. border counties, almost 80 percent said they had limited or stopped offering services to customers who might require intensive monitoring. Businesses run by Mexican nationals, those that transact on both sides of the border, and those that deal primarily in cash were especially likely to get the boot.