Overview
In one of Donald Trump’s first proposals with legal details – explaining the mechanism through which he would coerce Mexico to pay for a border wall – Trump has gotten those legal details embarrassingly wrong. It almost overshadows the incoherence of the proposal.
In a March 31 memo addressed from Trump to Robert Costa and Bob Woodward of the Washington Post, Trump indicates he would force a multi-billion dollar payment from the Mexican government to build the border wall. He says he would do this by threatening to stop money transfers from illegal aliens working in the United States. Although the proposal seemingly would apply to all aliens, the focus of the memo is Mexican nationals.
Trump’s memo suggests the flow of funds into Mexico is such that the potential loss of these funds would cause the Mexican government to cough up billions for the border wall. In exchange, Trump would withdraw his threat to stop remittances from the US to Mexico.
Let’s set aside the policy issues and examine the legal mechanism. The legal details are sparse, but at least there are some. Trump cites Section 326 of the Patriot Act, part of US anti-money laundering laws. He says that this particular “know your customer” provision obligates financial institutions to obtain identification information before opening accounts for customers. Not too bad so far – the rules implementing Section 326 are called the “Customer Identification Program” rules, sometimes generically referenced as “know your customer” rules. But then things go downhill from there.
He says the executive branch issued “detailed regulations on the subject, found at 31 CFR 130.120-121.” But there are no regulations at 31 CFR § 130.120-121. When the Treasury Department initially issued customer identification regulations for banks, they were found at 31 CFR § 103.121. (That number after the letters is 103, not 130). Forgiving the transposition of numbers in Trump’s memo, those regulations were re-issued over five years ago with completely different numbering, so that the current regulation to which Trump presumably meant to cite is 31 CFR § 1020.220.
Is this just a set of typos we should overlook? Nope – it evinces a lack of familiarity with the relevant legal terrain that becomes obvious in the next paragraph of Trump’s memo. Trump says he would issue a regulation “to redefine applicable financial institutions to include money transfer companies like Western Union . . . .”
But Western Union and similar money transmitters already are categorized as financial institutions: a “money transmitter” is a type of “money services business,” see 31 CFR § 1010.100(ff), and a money services business is a type of “financial institution,” see 31 CFR § 1010.100(t)(3). And money services businesses already have an entire part, 31 CFR Part 1022, labelled “Rules for Money Services Businesses,” with customer identification requirements, see 31 CFR § 1022.210. So a big part of what Trump says he would do – categorize money transmitters as financial institutions in order to require them to identify their customers – already has been done.
Trump might say this is a quibble, and that the important part of his proposal is what follows: under his rule, “no alien may wire money outside the United States unless the alien first provides a document establishing his lawful presence in the United States.” This might preclude huge numbers of individuals and businesses outside the United States from maintaining accounts at US financial institutions. The British businesswoman in London who wants to open an account and wire money to Paris seemingly would be out of luck (because she is not legally present in the United States) just the same as the Mexican worker seeking to wire money to family in Mexico City. No accounts for either of them.
But we’re not intending to argue with policy choices – we’re arguing about coherence. And the coherence problem here, is that Trump’s rule cannot be used to freeze money in illegal Mexican aliens’ accounts, thus preventing the wire transfers. Why is that? Because on the face of it, his rule would prevent them from having those accounts in the first place.
So those without legal status in the United States would have to look to bulk cash transfers and other unregulated channels. In an interesting piece, the Wall Street Journal recently reported that US anti-money laundering rules, particularly those applicable to money transmitters, tend to drive money to unregulated channels, making it hard for law enforcement and intelligence officials to trace.
So Trump’s rule likely would put a premium on unregulated mechanisms for moving cash from the US to Mexico. But maybe Trump could ensure that doesn’t happen by building a border wall – and getting the Mexican government to pay for it.
