Foreign Remittances to Latin America

CRS Report for Congress
Foreign Remittances to Latin America
Updated December 12, 2003
Walter W. Eubanks
Specialist in Economic Policy
Government and Finance Division
Pauline H. Smale
Economic Analyst
Government and Finance Division

Congressional Research Service ˜ The Library of Congress

Foreign Remittances to Latin America
Summary
The volume of foreign worker remittances, money sent back to the workers’
home countries, has grown with the U.S. economy’s increasing use of foreign and
immigrant labor. The cost of international money transmission is important to these
workers and the recipient countries because of the relatively low incomes of the
workers and the intended recipients, and the positive impact on the recipient
countries’ economies. Remittances from the United States are sent through banks
and credit unions, money transmitter companies (both large and small), postal
services, and individual couriers. Currently, the U.S. foreign remittance market is
dominated by non-bank financial institutions (NBFIs). The main reason immigrants
use NBFIs for remittance services is that the workers are often unbanked; that is, they
do not have an account with a depository financial institution. The cost associated
with these money transmissions is often high. Foreign workers often lose a
significant percentage of the value of their remittances through fees and unfavorable
exchange rates.
In the United States, the actual licensing and primary regulation of most non-
bank money transmitters is a matter of state law. Several types of federal laws, for
example, anti-money laundering laws, are applicable to all money transmitters.
Federal law requires money transmitters to register with the Treasury Department’s
Financial Crimes Enforcement Network (FinCEN). FinCEN requires the NBFIs to
be licensed, if they operate in a state that requires licensing.
In Latin America and the Caribbean countries, the monetary regulatory
authorities, led by the central banks, have not greatly intervened in the remittance
market. None of the countries discussed in this report have specific regulations
controlling the flow of remittances. The central banks usually track the flow of
remittances and make estimates on the total volume coming into their countries. But,
in general, financial authorities allow money transmitters to operate with minimal
regulation, letting the remittance market regulate itself.
Congressional oversight hearings on remittance services offered by U. S. banks,
credit unions, and non-banks were held in February 2002 by the Senate Banking
Committee and in October 2003 by the House Financial Services Committee. The
hearings focused on the high costs of remittance transmission and how to introduce
unbanked immigrants to mainstream financial services. In the 108^th Congress,
legislation to facilitate foreign remittances has been introduced. H.R. 2074 would
provide increased disclosure of all fees and rates involved in these money
transmissions. Title III of omnibus regulatory relief legislation, H.R. 1375, would
permit credit unions to offer financial services to consumers without accounts.
This report describes the remittance market place, and then using selected Latin
American and Caribbean countries as examples, shows how competition and
government regulation affect the price of remittances. It concludes with a discussion
of policy issues and current legislation.
This report will be updated as legislative developments warrant.

Contents
In troduction ......................................................1
The United States’ Remittance Marketplace.............................3
Money Transmitters............................................3
Methods and Cost of Remittances.................................4
Method ..................................................4
Cost ....................................................5
The Exchange Rate Factor...................................7
Selected Countries’ Foreign Remittance Marketplaces.....................8
Mexico ......................................................8
El Salvador...................................................9
Dominican Republic..........................................10
Jamaica .....................................................10
Guatemala ..................................................10
United States Regulation of Foreign Remittances........................11
Government Regulation and Facilitation of the Remittance Market in
Selected Countries............................................12
Mexico .....................................................12
El Salvador..................................................12
Dominican Republic..........................................13
Jamaica .....................................................13
Guatemala ..................................................13
Legislation and Policy Issues........................................13
USA PATRIOT Act...........................................15
List of Tables
Table 1. Remittances to 10 Selected Countries, 2001......................2
Table 2. Average Charge for Transferring $250
By Type of Institution..........................................6
Table 3. Exchange Rates Offered to Customers Wiring Money to Selected
Countries, April 25, 2001........................................7
Table 4. Selected Countries: 2000-2001 Total Remittances and the Average,
Minimum, and Maximum Cost of Sending $250.....................8

Foreign Remittances to Latin America
Introduction
The cost of international money transmission is important to foreign and
immigrant¹ workers and the recipient countries because of the relatively low incomes
of the workers and the intended recipients, and the impact these remittances have on
the local economies. By one estimate, Latin American immigrants who earn $25,000
or less a year tend to routinely send home payments or remittances of about $200
monthly to family, friends, and communities. The cost associated with these money
transmissions is often high. Remitters can lose a significant percentage of the value
of their remittances through fees and unfavorable exchange rates. In addition, the
total cost of a money transfer is frequently not fully disclosed when the transfer is
initiated. There is evidence that the recent growth in competition in this market is
leading to lower transfer costs.
This report provides background and analysis of issues surrounding the high
cost foreign workers often pay to send money to their families and communities in
Latin America. It begins with an explanation of how the remittance market functions
in the United States. Various methods of remitting money to Latin America and the
costs associated with money transmissions are discussed. Using selected Latin
American and Caribbean countries as examples, the report shows how competition
in, and government regulation and supervision of, remittance markets affect the price.
The report concludes with a discussion of policy issues and current legislation that
would facilitate fair and equitable pricing of foreign remittances.
The business of providing foreign workers with the means to send money back
to their home countries is expected to continue to grow with the U.S. economy’s
increasing utilization of foreign labor. The U.S. service-dominated economy has
increased the demand for low wage workers, many of whom come from Latin
America and the Caribbean. The volume of remittances has grown with this labor
force. One study estimated that between 1991 and 1996, the international
component of the U.S. money transmission business sector grew at the remarkable
rate of 20% per year and recent immigrants were a major contributor to this growth.²
Remittances to Mexico and selected countries of Central America provide an

¹ The words “immigrant” and “foreign”are used interchangeably throughout this report to
describe these workers.
² “Non-Bank Financial Institutions: A Study of Five Sectors for the Financial Crimes
Enforcement Network,” a report by Coopers and Lybrand for the Financial Crimes
Enforcement Network, Feb. 28, 1997, p.15.

illustration of the rapid growth: the volume of transfers grew from approximately
$3.7 billion in 1990 to nearly $8 billion in 1998.³
The remittance has also become a significant part of the recipient countries’
economic activities. In 2001, remittances to 10 Latin American and Caribbean
countries were estimated (in a report commissioned by the Inter-American
Development Bank) to total more than $18 billion. These estimates may be low
because it is difficult to estimate the volume of funds sent to home countries through
informal channels such as personal couriers and letters. Remittances through these
informal channels are largely undocumented, and, therefore, it is extremely difficult
to calculate the total remittance flows based on data from financial institutions.
Table 1 shows the relative significance of remittances as a percentage of gross
domestic product and exports in 10 selected countries.
Table 1. Remittances to 10 Selected Countries, 2001
(In Dollars and Percentages)
CountryRemittances As a % of GDPAs % of Exports
Mexico 9,273,747,000 1.7 6.5
El Salvador1,972,000,00017 60
Dominican Republic1,807,000,0001027
Ecuador 1,400,000,000 9 20
J a ma ica 959,200,000 15 30
Cuba 800,000,000 5 4 0
Colombia 600,000,000 1 5
Nicaragua 600,000,000 22 80
Guatemala 584,000,000 5 16
Honduras 400,000,000 7.5 17
Ten Countries18,295,947,000
^Source:^“^A^ttr^actin^g^Rem^ittan^{ces: Mar}^k^et,^Moⁿ^e^y^an^d^Red^u^ced^Co^{sts,” r}^e^p^o^r^{t co}^m^mⁱ^ssioⁿ^ed^b^y
^t^h^{e In}^t^e^r-^A^m^eri^can^D^e^v^e^l^opm^en^t^Ban^k^,^Jan^.^{28, 2002.}

³ Manuel Orozco, “Remittance and Markets: New Player and Practices,” working paper for
the Inter-American Dialogue and the Tomas Rivera Policy Institute, May 2000, p. 2.

The United States’ Remittance Marketplace
Money Transmitters
Remittances are sent through banks and credit unions, money transmitter
companies (both large and small), postal services, and individual couriers. Currently,
the U.S. foreign remittance market is dominated by non-bank financial institutions
(NBFIs).⁴ One 2003 estimate is that the foreign remittance market in the United
States could be as large as $28 billion.⁵ The vast majority of remittances are
transferred electronically or by international money order. The main reason foreign
remittance customers use non-bank money transmitters is that they are often
unbanked; that is, they do not have an account with a depository financial institution.
The foreign workers’ lack of bank accounts is attributable to poor English language
skills, low levels of education, high cost of banking services, little or infrequent need
for banking services, and questionable U.S. residency status. Generally, NBFIs
provide their customers with the convenience of longer hours of operation than
offered by banks and credit unions. In addition, money transmission services may
be an ancillary service: the foreign remittance customer may be able to cash a
paycheck, send money to family in his home country, and shop for groceries or fill
his car’s gas tank. Moreover, most foreign workers have never held a bank account
in their lives, and many are distrustful of banks. In Mexico, for example, only 20%
of families have bank accounts.⁶ Immigrants from other parts of Latin America are
likely to have an aversion to banks due to a history of losing money deposited in
banks in their home countries, through bank failures and currency devaluations.
Western Union and MoneyGram are the two largest money transmitter
companies, but there has been a proliferation of companies offering remittance
services in the last few years. Many are smaller, ethnically focused businesses
concentrated in U.S. cities with significant immigrant populations. Any country with
a substantial immigrant population in the United States will probably have a number
of courier agencies providing remittance services. Examples would be RapidMoney
—a company that sends remittances to Mexico and El Salvador from Texas and
Arizona—and Mateo Express—a courier agency favored by Dominicans. A 1997
study found approximately 8,000 money transmission outlets not affiliated with the

⁴ The Bank Secrecy Act (P.L. 91-508) defines any enterprise that is not a bank and that is
engaged in money services businesses as a non-bank financial institution (NBFI). NBFIs
cover a broad variety of enterprises ranging from the small and simple to large firms with
numerous branches or outlets. The term includes the United States Postal Service, because
it issues money orders.
⁵ U.S. Congress, House Committee on Financial Services, Remittances: Reducing Costs,
Increasing Competition, and Broadening Access to the Market, hearings, 108^th Cong., 1^st
sess., 2003. Opening remarks by Rep. Paul E. Gilmore,
[http://financialservices.house.gov/ media/pdf/100103gi.pdf].
⁶ U.S. Congress, Senate Committee on Banking, Housing, and Urban Affairs, Issues
Regarding the Sending of Remittances, hearings, 107^th Cong., 2^nd sess., 2002, p. 6.
[ h t t p : / / www.s e na t e .gov/ ~ ba nki n g] .

two largest companies.⁷ Money transmission outlets were more concentrated in the
six states with the largest immigrant populations: California, New York, Texas, New
Jersey, Florida, and Illinois. In addition, the U.S. Postal Service offers international
money orders and an electronic money transfer service to Mexico called Dinero
Seguro. Although the volume of transfers by Western Union and MoneyGram has
not declined, there is evidence that their market share has declined due to
competition.⁸ The two have sophisticated and widespread company infrastructures.
Western Union has more than 117,000 agent locations in over 186 countries.
Western Union is a subsidiary of First Data Corporation; the corporation’s businesses
include payment, merchant, and card issuing services. MoneyGram, a subsidiary of
Travelers Express, provides services through approximately 50,000 agents in more
than 150 countries. Travelers Express is operated by Viad Corporation; the
corporation’s businesses include payment, convention and event, and travel and
recreation services. Agents for Western Union and MoneyGram in the United States
are often involved in a wide variety of other businesses, including supermarkets,
check cashing, gas stations, liquor stores, convenience stores, and currency exchange
offices.
Banks and credit unions have recently shown a greater interest in the business
of providing remittance services. Conventional international bank wire transfers,
available for a fairly high fee, are usually offered to corporate customers. Individual
institutions did not view low wage foreign workers as potential regular banking
customers. They were likely to return to their country or move to other parts of the
United States. Current interest stems from the growing immigrant populations in
parts of the United States and efforts by the Federal Reserve System to encourage
depository institutions to reach out to unbanked consumers.⁹ Remittance services
are a way to bring low-income immigrants into the financial mainstream, to introduce
these consumers to other financial products and services. Credit union participation
has also been encouraged by the development of the World Council of Credit
Unions’ (WOCCU) International Remittance Network (Irnet), a credit union network
for international money transfers. Participation in the remittance market by banks
and credit unions, while growing, is still limited.
Methods and Cost of Remittances
Method. Two major developments in the foreign remittance market are the
proliferation of money transmitters and the increased use of electronic transfer as a
transaction method. Although there are still paper-based and even hand-carried
remittances, today, most types of remittance transfers involve electronic technology.
This includes transfers between depository financial institutions, from NBFIs to

⁷ “Non-Bank Financial Institutions: A Study of Five Sectors for the Financial Crimes
Enforcement Network,” a report by Coopers and Lybrand for the Financial Crimes
Enforcement Network, Feb. 28, 1997, p.19.
⁸ Manuel Orozco, Family Remittances to Latin America: the Marketplace and its Changing
Dynamics, paper delivered at the Inter-American Development Bank Conference, May 17-

18, 2001.

⁹ See the Federal Reserve of Chicago Symposium on the Unbanked at
[http://www.chicagofed.org/unbanked/conferences/index.cfm], visited Dec. 9, 2002.

banks, and NBFIs to NBFIs. Mexico provides an illustration. Electronic remittance
transfers there increased from 43% in 1994 to 70% in 2000.¹⁰ Technology has
increased the speed of the transfers and expanded the products used in the money
transfer process. The great majority of sender and receiver transfer agents use
computers, linked to a central office, to process the money transfer. Bank of
America’s SafeSend program offers a reloadable debit card that can access 20,000
ATMs (automated teller machines) in Mexico. The Dinero Seguro program is an
electronic money transfer service between the U.S. Postal Service and 2,300 branch
offices of Bancomer, a retail banking institution in Mexico. Dinero Seguro’s process
time is about 15 minutes. These are a few examples of the variety of electronic
instruments used.
Paper-based money orders remain popular because in many of the recipient
countries money order type instruments are familiar ways of making certain
payments. In addition, they may be a more convenient and cheaper method of
transfer. Money orders can be delivered through the postal system to the recipients
at their local post office. The cost to transfer up to $700 to Mexico by a U.S. Postal
Service money order is $7.50.¹¹ However, theft is a major problem of remitting with
a money order because it takes such a long time for a money order to reach its
recipient. By the time the stolen money order is determined to be missing, usually
two to three weeks, it has already been cashed. The volume of remittances made
through money orders is undocumented.
Seeking to reduce the cost of sending money home, many foreign workers still
rely on hand delivery and even personal letters. Money is sometimes delivered by the
actual sender (encomendero) through frequent trips home, or by a third party
(viajero). Another way a large number of migrants avoid paying the high fees of
remitting funds safely is to form “hometown associations.” When members of these
associations are returning home, they deliver other members’ money directly to the
recipients for a nominal fee. There are reportedly more than 400 such groups from
Mexico alone in the United States.¹² The volume of remittances made by hometown
associations, letters, and other informal couriers is unknown. The cost and exposure
to fraud as a result of using couriers and letters is not known.
Cost. The price of sending a remittance can vary significantly. A number of
factors affect the transaction fee charged including operating costs, the volume sent,
the transfer mechanism, and the level of market competition (in both the sending and
receiving country). The exchange rate used in the transaction can significantly affect
the funds actually delivered to the recipient (see discussion on exchange rates that
follows). The estimated cost to remitting firms of executing a transaction is between¹³
$3 to $6 per transfer. Depository financial institutions that have an infrastructure

¹⁰ Ibid.
¹¹ Dean Owen, “Remittances to Mexico,” Banks and Money.
[http:/web.utk/~tnlatina/banksmoney.html], visited Apr. 10, 2002.
¹² “Making the Most of an Exodus,” The Economist, Mar. 12, 2002. p. 4.
¹³ Manuel Orozco, “Attracting Remittances: Market, Money and Reduced Costs,” report
(continued...)

in place in the receiving country may have lower costs. Transaction fees tend to
decline with the volume sent. Labor and capital affect the mechanism costs. The
new entrants into the business and the resulting competition have lowered the price
of sending remittances.
The general trend of the cost to foreign workers over last few years has been a
decline in transaction fees. In 1999, for example, Western Union charged $22 for
transferring up to $200 to Mexico, and by 2001, the fee had dropped to $15. In 1999,
the average charge for sending remittances to Latin American countries totaled 15%
of the amount being sent. In 2002, the average charge has dropped to 7.5% of the
amount transferred. Foreign remittances are still a very profitable business for money
transmitters. Table 2 provides an example of the relative competitiveness of
nonbank transmitters, banks and credit unions.
Table 2. Average Charge for Transferring $250
By Type of Institution
TypeAverage ChargePercent of Remittance
NBFI$18.847.54
Banks 10.604.24
Credit Unions 7.673.07
^Source:^“^Mⁱ^g^ratⁱ^oⁿ^,^Mon^e^y^,^an^{d Mark}^et^s^,^{” A}^{paper by}^Man^u^e^l^O^r^{ozco, proj}^ect^di^rect^or
^f^o^{r t}^h^{e In}^t^e^r-^A^m^eri^can^Dⁱ^al^og^u^e^{, 2001.}
Western Union defends its charges by arguing that the company provides a
premium service. It indicated its service is guaranteed in terms of location, speed,
reliability, and safety. Western Union has a large number of transfer agents and
extensive geographic locations. Some of the company’s outlets offer additional
customer services, such as notifying recipients that their money has arrived and¹⁴
providing toll free numbers to clients to check on the status of a transaction. Bank
remittance services usually are credits to a deposit account in its branch or a
correspondent bank’s branch in the recipient’s country. The recipient may or may not
be notified of the credit by the banks involved. Credit union fees are usually the
lowest, but there are very few credit unions in Latin America. Consequently, getting
the remittance in the hands of the recipient could become very expensive when time
and transportation are considered. Both banks and credit unions are expanding the
number of agents and branches of banks to which remittances can be delivered.
However, increasing the convenience of remittances may raise the banks’ and credit
unions’ prices.

¹³ (...continued)
commissioned by the Inter-American Development Bank. Jan. 28, 2002. p.15.
¹⁴ Ibid. p.16

The Exchange Rate Factor. How much purchasing power the recipient of
the money transfer gets depends on the exchange rate used by the money transmitter.
Benchmark exchange rates are set daily by the international currency markets.
Money transmitters often arbitrarily and unilaterally impose exchange rates that vary
significantly from the benchmark. The difference between the two rates is called the
spread. The spread can equate to an additional fee deducted during the transaction.
If the transmitter does not promulgate or notify the sender of the exchange rate being
used in the transaction, the sender may be unaware of this “hidden” fee when
initiating the transaction. Artificially established exchange rates can significantly
increase the profit from a transaction.
The spread can vary considerably. Table 3 provides an example of the range
of exchange rates offered by Western Union to nine countries in April 2001. The
table compares the Western Union rate with the market (benchmark) rate and profits
are calculated for a $250 transaction. There is evidence that competition in the
remittance market, both in the United States and recipient countries, has reduced
these hidden fees. Competition encourages the disclosure of exchange rates for
comparison shopping by consumers. Table 3 compares two sets of figures for
Mexico and shows a significant drop in spread profits between 1999 and 2001 which
can be linked to increased competition. In addition, dollarization, where residents
of a country use foreign currency alongside or instead of the domestic currency, has
decreased profits from exchange rate spread.
Table 3. Exchange Rates Offered to Customers Wiring Money to
Selected Countries, April 25, 2001
WesternOfficialWestern UnionProfits
CountriesUnion RateRateRate as a % of% Profitfrom
the Official Rate$250.00
Colombia 2220.0 2317.5 95.8 4.2 10.50
Cuba 1.0 1.0 100.0 0.0 0.00
Domi nican 16.3 16.2 100.6 -0.6 -1.50
Republic
Ecuador 1.0 1.0 100.0 0.0 0.00
El Salvador^a8.88.8100.00.00.00
Guatemala 7.7 7.8 99.1 0.9 2.50
Honduras 15.3 15.4 99.9 0.1 0.30
J a ma ica 44.29 45.5 97.4 2.6 6.38
Mexico 8.81 9.2 95.9 4.1 10.30
2001
Mexico 9.0 10.1 88.8 11.2 27.90
1999
^Source:^“^F^am^ily^Rem^ittan^ces^to^L^a^tin^A^m^{erica: th}^{e m}^a^rk^etp^l^{ace an}^d^{its ch}^an^gⁱⁿ^g^d^yⁿ^a^mⁱ^{cs,” a}^p^a^p^e^r
^by^Man^u^e^l^O^r^{ozco proj}^ect^di^rect^{or f}^o^{r t}^h^{e In}^t^e^r-^A^m^eri^can^D^e^v^e^l^opm^en^t^Dⁱ^al^og^u^e^{, 2001.}
^{a. Dollarization}^w^a^sⁿ^o^{t 100%; s}^o^m^e^rem^ittan^ces^{are ex}^ch^an^g^e^{d f}^o^{r C}^o^lon^s^.

Selected Countries’ Foreign Remittance
Marketplaces
Two reports were recently commissioned by the Inter-American Development
Bank to provide a greater understanding of the remittance operations between the
United States and Latin America. Both reports were written by Manuel Orozco in
January 2002. One report, Attracting Remittances: Market, Money and Reduced
Costs, analyzes the business environment of several countries’ remittance
marketplaces. The second report, Enabling Environments? Facing a Spontaneous
or Incubating Stage, examines what several Latin American governments and
businesses are doing to encourage or facilitate their countries’ remittance markets.
The reports were based on an analysis of the operations of more than 70 money
transmitters and extensive interviews conducted in the United States and recipient
countries. The following discussion of the remittance market environments of
Mexico, El Salvador, Dominican Republic, Jamaica, and Guatemala is largely taken
from the original research contained in these two reports. Table 4 provides
information on the volume of remittances sent to the five selected countries and the
range of transaction costs found. These five countries account for approximately
$14.5 billion of the estimated $18 billion that went to Latin American and the
Caribbean countries in 2001 (Table 1).
Table 4. Selected Countries: 2000-2001 Total Remittances and
the Average, Minimum, and Maximum Cost of Sending $250
(In Dollars)
Country RemittancesAverageCostMinimumCostMaximumCost
Mexico9,273,747,00013.55 9.0035.00
El Salvador1,972,000,00014.29 6.5025.00
Domi nican 1,807,000,000 21.98 20.00 25.00
Republic
J a ma ica 959,200,000 20.00 15.00 25.00
Guatemala584,000,00016.50 6.5025.00
^Source:^R^e^port^s^by^Man^u^e^l^O^r^{ozco, proj}^ect^di^r^{ector f}^o^{r th}^{e In}^ter-^A^m^erican^Dialog^u^e^.
Mexico
Mexico accounts for the largest immigrant population, over 7 million, of the
countries Orozco studied in Latin America. The remittances to Mexico from the
United States have risen to between $8 billion and a little over $9 billion annually.¹⁵

¹⁵ According to two estimates: “Mexican Remittances to Go Up 25 Percent This Year to $8
Billion,”Hispanic News, Nov. 27, 2001, p.1, and the higher estimate in Table 4 is from
(continued...)

It is also the country with the greatest range of choices for the remittance customer.
Consequently, the cost of sending remittances to Mexico is generally the lowest. The
competition ranges from a growing number of small businesses that are outgrowths
of courier services and hometown associations to large corporations. In 2001, the
major remitter in Mexico was Western Union; the company had 6,300 agents located
in Mexico.¹⁶ One estimate attributed at least 41% of the Mexican remittance market
to Western Union and MoneyGram.¹⁷ The Mexican banking industry has added
significantly to the competition. Bancomer, Banamax, and Bancomex are major
players offering direct money transfer services by establishing offices in the United
States. These banks also work jointly with other money transmitters like
MoneyGram and Ria Envia. The banks provide customer services similar to those
of Western Union; for example, they send notices to the recipient that the money is
available for pickup at the transfer agent or bank branch location. Bancomer also
works with the United States Postal Service to offer the Dinero Seguro program. In
addition, Mexican credit unions are becoming involved in remittance services. There
is evidence that Western Union has gradually lost some market share in Mexico to
the entrance of new competitors. On the other hand, the lower fees resulting from the
highly competitive market may make it more difficult for smaller and/or new entrants
to survive.
El Salvador
El Salvador was the second largest of the foreign remittance markets Orozco
studied. The Salvadoran population in the United States is estimated to be at least
1 million, and in 2001 they transferred almost $2 billion back home. In January
2001, El Salvador’s economy was dollarized; the government made the U.S. dollar
legal tender in the country while maintaining parity with the Colon (the local
currency). This action reduced the cost of remittances. In addition, competition has
kept fees lower. The two largest competitors are Western Union and Gigante
Express, each with about a 25% share of the market. Gigante Express is a courier
service company that sells and sends money orders. Salvadoran banks are active
players: four banks—BanSol, BanComercio, Banco Agricola and Banco Cuscatlan
—operate as money transmitters in the United States. The largest, Banco Agricola,
has approximately 10% of the market. A relatively small but growing competitor is
the EL Salvador Federation of Credit Unions (FEDECACES). FEDECACES works
with the Irnet system (credit unions) and three money transmitters, Vigo
International, Rapid Money, and Viamericas.

¹⁵ (...continued)
Manuel Orozco, “Attracting Remittances: Market, Money and Reduced Costs,” a report
commissioned by the Multilateral Investment Fund of the Inter-American Development
Bank, Jan. 28, 2002. p. 2.
¹⁶ Salo Eduardo Levy, “Outline of the Western Union Transfer Process,” Federal Reserve
of Chicago Symposium on the Unbanked at
[ ht t p: / / www.chi cagof ed.or g/ unbanked/ c onf er ences/ i ndex.cf m] .
¹⁷ Orozco, Manual, “Attracting Remittances: Market, Money and Reduced Costs,” p. 9.

Dominican Republic
The remittance market in the Dominican Republic is one of the least
competitive in Latin America despite having a large presence in the United States
(nearly 1 million immigrants) and a high volume of $1.8 billion in remittances. The
reason is that an association of more than 15 remittance companies dominates the
market. The association is called the Associacion Dominicana de Empresas
Remesadoras de Divisas, Inc. Members of the association generally have similar
prices. This is evident in Table 4 where the difference between the maximum and
minimum transaction cost is just $5 for the Dominican Republic, while the other
countries show a much greater range. The companies generally charge a fixed fee of
$8 for sending dollars plus 5% of the amount sent. For sending local currency, the
fixed fee is $5 plus 5% of the amount sent. Consequently, the average cost of
remittances in the Dominican Republic tends to be higher than the other countries
studied. However, the charges usually include a home delivery service; when offered
in other countries this service involves additional fees. For the most part, banks are
relatively uninvolved in the remittance business. The Dominican Republic does have
a cooperative system (similar to credit unions). The Association of Cooperatives is
working on the development of an ATM network that would be able to offer less
expensive remittance services.
Jamaica
Jamaica’s remittance market is the least competitive of the five countries.
Consequently, money transfers tend to be more expensive. The Jamaican population
in the United States is estimated to be 800,000 and in 2001 they transferred
approximately $900 million back home. One company, Western Union, dominates
the remittance market through an arrangement with a local firm, Grace Kennedy
Remittance Services Ltd. Grace Kennedy manages 65% to 70% of the 200,000
transfers per month from the United States. The major competitor is Jamaica
National Overseas, part of a building society, which controls about 10% of the
remittance market. Table 3 suggests the exchange rate spread also contributes to
high price of remittances to Jamaica. Some of the other banks in Jamaica are agents
for MoneyGram, and their transaction fees are similar to Grace Kennedy. The
Jamaica Cooperative Credit Union League is currently working with Irnet to offer
remittance services.
Guatemala
Guatemala has a relatively small immigrant population in the United States, less
than 500,000, but they sent nearly $700 million back home in 2001. The remittance
market is competitive. The large remittance companies like Western Union and
Gigante Express have a presence in the Guatemala. Banks are important players and
Irnet is working with credit unions as well. The banking industry has established
offices in the United States. Three commercial banks, G&T Continental,
Agromercantil de Guatemala, and De Occidente, have aggressively pursued
Guatemalan customers in the United States by opening branches in Los Angeles
where there is the largest concentration of Guatemalan immigrants. In addition, there

is the Guatemalan National Federation of Credit Unions (FENEACOAC) an
organization working with Irnet.
United States Regulation of Foreign Remittances
U.S. banks and credit unions are chartered by both federal and state law. The
operations of U.S. banks and credit unions are closely regulated and supervised at
both the state and federal level. Foreign bank branches and agencies are also
governed by a combination of state and federal statutes, provisions of which include
licensing requirements and permissible activities. While the actual licensing and
primary regulation of most non-bank money transmitters is a matter of state law,
federal law requires money transmitters to register with the Treasury Department’s
Financial Crimes Enforcement Network (FinCEN). FinCen requires the NBFIs to
be licensed if they operate in a state that requires licensing. Several types of federal
laws are applicable to all money transmitters. The remittance business in the U.S.
is subject to the record keeping and reporting requirements of federal anti-money
laundering laws. Remittances to certain foreign countries may be subject to sanctions
under various federal statutes administered by the Treasury Department’s Office of
Foreign Assets Control (OFAC).
Omnibus anti-money-laundering legislation was recently enacted in Title III of
the USA PATRIOT Act (P.L. 107-56).¹⁸ This legislation amends and builds on
earlier statutes dealing with international money laundering and the financing of
terrorism. The implementation of the USA PATRIOT Act could have far reaching
consequences for the remittance business and for individual immigrants seeking
financial services. Provisions of the law deal with increased cooperation by financial
institutions in responding to government requests for information and new
requirements for regulations mandating standards for identifying persons opening
accounts. In addition, the statute requires all types of financial institutions to
establish a program designed to prevent their use in money laundering or terrorist
activities.
According to the National Consumer Law Center,¹⁹ approximately 28 states
have laws requiring money transmitters to be licensed by the state banking agency.
Some of these states (usually those with significant immigrant populations) have
specific licensing requirements for transmitters sending money to foreign countries.
Individual states have passed disclosure regulation statutes that require money
transmission companies to provide customers with receipts, with the name of the
licensee, the amount paid by the consumer, fees charged and retail exchange rates
paid by consumers. However, states do not regulate the fees money transmitters
charge.

¹⁸ For more detailed information on this Act and pre-existing law, see CRS Report RL31208,
International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, Title
III of P.L. 107-56, by Maureen Murphy.
¹⁹ See [http://www.consumerlaw.org/osi/miscellaneous/wire_transfer.htm].

Government Regulation and Facilitation of the
Remittance Market in Selected Countries
The monetary regulatory authorities, led by the central banks in Latin
America and the Caribbean countries, have not greatly intervened in the remittance
market. None of the countries studied have specific regulations controlling the flow
of remittances. The central banks do track the flow of remittances and make
estimates on the total volume coming into their countries. In general, financial
authorities allow money transmitters to operate with minimal regulation, letting the
remittance market regulate itself. Some governments have established programs for
the purpose of directing a share of remittances into their economic development
plans, but there are few widespread initiatives. The following discussions of the
remittance market environments of Mexico, El Salvador, Dominican Republic,
Jamaica, and Guatemala are taken from the two Manuel Orozco studies mentioned
in the last section.
Mexico
The federal government in Mexico does not have one clear set of regulations²⁰
governing the transfer of remittances. Financial institutions in Mexico do have to
use the Banco de Mexico official exchange rate, when they handle money from
abroad. Non-financial institutions operate under their own rules and do not even
need authorization from the banking authorities to start operations. Theft has been
a rising concern with remittances sent through informal channels, such as letters and
personal couriers. A few Mexican states have started their own programs to ensure
safe, low-cost money transfers to their communities. For example, the state of
Jalisco has made an arrangement with BankAmerica to create Raza Express. A side
benefit of this program has been a reduction in transaction costs compared with other
money transmitters. The state of Zacatecas created similar mechanism called
Ivermatico-Zacatecas with three other American banks, the California Bank,
Commerce Bank, and Wells Fargo. The current Mexican government has recognized
the economic potential of remittances and established a new office to work with
immigrant associations to encourage remittance investment in their Mexican
hometowns.
El Salvador
As in Mexico, the central banking authorities exercise little regulatory control
over the El Salvadoran remittance market. The central bank’s main concern is that
institutions authorized to carry out international financial operations keep records
of incoming flows and their sources. The Salvadoran government has also
established an office to link the government with emigrants. The office works with
hometown associations on development projects. The office coordinates with other

²⁰ A paper “The case for Remittance Policy in Mexico” by German A. Zarate-Hoyos was
used in addition to the Orozco reports for Mexico. The paper can be found at
[http://www.chicagofed.org/ unbanked/conferences/remittances].

government agencies, such as the Ministry of Agriculture, to reach out to emigrants
and attract investment capital through remittance programs.
Dominican Republic
The government of the Dominican Republic has very few regulations
pertaining to the remittance market, which is dominated by the members of the
Associacion Dominicana de Empresas Remesadoras de Divisas Inc. Banks, with a
few exceptions, are relatively uninvolved in the remittance business. If the
transaction exceeds $5,000, banks and non-banks must register and report the
transaction. The central bank does track the flow of funds and estimates the total
volume of remittances into the country. These estimates have brought recognition
from government officials of the value of remittances as a resource for the economy.
The Foreign Affairs ministry created an Overseas Affairs Office, which is in the
process of developing outreach policies.
Jamaica
Currently, Jamaica has no restrictions on foreign exchange capital flows. The
main concern of Jamaica’s central bank has been monitoring the volume of
remittances. The banking authorities have been reviewing money laundering
regulations. Of the countries studied, Jamaica has the largest proportion of its
population living abroad. Although there is an awareness of the economic
importance of remittances, there are no concrete policies and programs to channel
funds into economic development.
Guatemala
Guatemala’s central bank has no restrictions that control the flow of
remittances. The Bank does track the flow and measures the volume through reports
of banks and foreign currency exchange houses. Guatemala allows transfers in
dollars, but many commercial banks require a $500 deposit before a dollar account
can be opened. Those customers must also keep an account in quetzales (the local
currency) as well, and this policy limits access. Currently there are no policies and
programs to attract remittances for economic development in Guatemala.
Legislation and Policy Issues
Legislation to facilitate fair and equitable pricing of foreign remittances from
the United States has been introduced in the 108^th Congress. H.R. 2074 would
require increased disclosure of all fees and rates involved in the transmission. Title
III of omnibus regulatory relief legislation (H.R. 1375) would permit credit unions
to offer financial services to consumers without accounts. Congressional oversight
hearings on remittance services offered by U. S. banks, credit unions, and non-banks
were held in February 2002 by the Senate Banking Committee and in October 2003
by the House Financial Services Committee. The hearings focused on the high costs
that can be a part of the remittance transmission and how to introduce unbanked
immigrants to mainstream financial services. Provisions of the USA PATRIOT Act,

enacted in response to the events of September 11, 2001 could broadly affect the
remittance business.
The International Money Transfer Disclosure Act (H.R 2074) would provide
full disclosure of all fees and costs involved in money-wiring transactions. The
legislation would direct federal agencies to jointly prescribe regulations to require
a financial institution or money transmitting business which initiates an international
transfer for a consumer to make a good faith effort to provide certain disclosures
before the consummation of the transaction. The disclosures would be required
whether or not the consumer was an account holder. Information provided would
include any fees to be charged to the recipient (including any exchange rate or
currency conversion fees), a final itemization of all costs to the consumer, and the
exact amount of foreign currency to be received by the recipient. The bill also
addresses the need for disclosure in languages other than English. The legislation
was introduced on May 13, 2003, no further action has been taken.
H.R, 1375 would alter or eliminate statutory banking provisions considered
outdated, unnecessary, or ineffective in an effort to lesson the overall burden of
regulatory compliance for banks, thrifts, and credit unions. The legislation was
introduced on March 20, 2003, and was reported from the House Financial Services
Committee on June 12, 2003, as well as, the Judiciary Committee on July 14, 2003.
Title III of H.R. 1375 would expand access to credit unions and allow credit unions
to offer wire transfers, check-cashing, and money orders to anyone in their “field of
membership.”²¹ This provision would allow credit unions to offer remittance
services to immigrants who are not account holders.
Oversight hearings in the 107^th and 108^th Congresses focused on the high
costs often associated with remittances, general concerns of the unbanked, and how
financial literacy, disclosure, and competition might address the issues raised.²²
Unbanked consumers often pay more for financial services, including remittances,
because NBFIs tend to charge more than banks or credit unions. Witnesses
encouraged banks and credit unions to use remittance services as a means to
introduce immigrants to the opportunities for saving and borrowing at mainstream
financial institutions. By educating these consumers, institutions could expand their
potential customer base. In addition, increased competition in the remittance
marketplace could lower transmission costs. The need for a regulatory framework
to provide disclosure and consumer protection was also debated. Finally, the
economic importance of remittances to home countries and how partnerships could
be established to channel these funds into development programs were discussed.
A more complete picture of the remittance business and the policies needed
to support it might be provided by a better and more comprehensive system of data
collection. A major data collection problem is that data gathered in the sending

²¹ Credit unions are granted charters on the basis of a common bond which determines their
field of membership. The common bond may be occupational, associational, or community.
²² U.S. Congress, Senate Committee on Banking, Housing, and Urban Affairs, Issues
Regarding the Sending of Remittances, 107^th Cong., 2^nd sess., Feb. 28, 2002,
[http://www.senate.gov/~banking/02_02hrg/022802/sarbanes.htm], visited Nov. 03, 2002.

countries often do not coincide with the data gathered in the recipient countries. A
significant reason for the discrepancy is the difficulty in tracking informal money
transfers from sending countries, like the United States. To overcome this problem,
data gathering institutions in remitting and recipient countries under the auspices of
the IMF or the IADB could ask uniform questions that capture the most useful
information.²³ Uniform methodologies for measuring remittance flows by recipient
countries would also be included. Finally, the growing remittance activities of U.S.
banking institutions strongly suggest that the Federal Reserve’s bank operations and
payment systems division could play a major role on the federal level in this data
gathering process.
USA PATRIOT Act
The implementation of the USA PATRIOT Act raises issues for immigrants
seeking financial services and for the financial institutions providing those services.
An overall goal of this Act is to prevent, detect, and prosecute international money
laundering and the financing of terrorism. Although immigrants sending small
amounts of money home are not directly targeted under this law, it has resulted in
increased scrutiny of the remittance market. Costs resulting from compliance with
certain provisions of the Act have proved prohibitive for smaller money transmitters.
For example, in April, 2002, the Treasury Department published an interim rule
requiring NBFIs to establish anti-money laundering programs commensurate with the
risks posed by their size, location and financial activities.²⁴ Written policies,
procedures, and internal controls must be developed. These include record keeping,
reporting, and verifying customer identification. Banks and credit unions are subject
to record keeping and reporting requirements that build on existing law. These
requirements have made it difficult or expensive for individual institutions to do
business with foreign banks and remittance companies. Despite costly examinations
by government agencies, the number of financial firms entering into the remittance
trade has been increasing which is helping to drive down the price of remittances.²⁵
The Treasury jointly with other federal regulators have issued minimum standards
for identifying customers opening accounts at depository financial institutions. These
standards have made it more difficult for immigrants to establish account
relationships with banks and credit unions, because they fear the added scrutiny of
the standards may endanger their immigration status

²³ Such an approach has been suggested by Manuel Orozco project director for the
Inter-American Dialogue.
²⁴ U.S. Dept. of the Treasury, “Financial Crimes Enforcement Network; Anti-Money
Laundering Programs for Money Services Businesses,” Federal Register, vol. 67, no. 82,
Apr. 29, 2002, p. 21114.
²⁵ U.S. Congress, House Committee on Financial Services, Remittances: Reducing Costs,
Increasing Competition, and Broadening Access to the Market, hearings, 108th Cong., 1st
sess., 2003,Testimony of Ezra C. Levine on the Behalf of the Non-Bank Funds Transmitters
Group, p. 3. [http://www.House.gov gov/~Financial services/].