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Illegal immigrants wiring money have an amigo: the Fed

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Even as the federal government is starting to crack down on companies that hire illegal immigrants, it's been helping those same workers send money home, cheap.

Dubbed Directo a Mexico, the Federal Reserve-sponsored service allows customers without Social Security numbers to wire money through the Fed system to Mexico's central bank at little cost. In September, the Fed expanded the remittance program by allowing immigrants, legal or not, to open accounts at participating banks and credit unions in the U.S. or Mexico. About 27,000 transfers are made through the program each month.

The program has attracted the attention of conservative immigration activists and members of Congress, who say financial institutions shouldn't cater to illegal immigrants.

Rep. Brian P. Bilbray (R-Solana Beach), who leads the congressional Immigration Reform Caucus, said Directo a Mexico and programs like it should be stopped and that participating banks were "profiteering from illegal immigration."

Bilbray is also targeting Bank of America Corp., which this month announced plans to offer credit cards to immigrants without Social Security numbers, drawing complaints that the nation's largest retail bank was underwriting illegal immigration.

"It's illegal for a landlord to do it, it's illegal for an employer to do it, and it should be illegal for financial institutions to do it," Bilbray said.

Bank of America has said that it complied fully with all banking and anti-terrorism laws governing customer identification, which permit the use of forms of ID other than Social Security numbers.

Bilbray said legislators were working on proposals that would prevent financial institutions such as the Fed and Bank of America from catering to illegal immigrants, and are calling on the Bush administration to address the issue.

Elizabeth McQuerry, an Atlanta-based assistant vice president for the Fed's retail payments office, said Directo a Mexico wasn't breaking any laws. She said the program complied with the Patriot Act, the Bank Secrecy Act and other laws against money laundering. Customers must provide identification -- a consular identification card or other picture ID -- and banks regularly check the documents' authenticity, she said.

Fed staffers developed the program with counterparts at Mexico's central bank after President Bush announced it with then-Mexican President Vicente Fox in 2003. About 150 banks and credit unions participate, including 20 in California, McQuerry said.

Directo a Mexico was intended for all Mexicans living in the U.S. It did not specifically exclude those here illegally.

Only immigrants who are in the U.S. legally can get a Social Security number, but any Mexican national can get a consular ID, regardless of legal status.

Rep. Tom Tancredo (R-Colo.), an advocate of increased border security who has talked in the past of taxing illegal immigrants' remittances, said the Fed program might not be breaking any financial laws, but "there is a law against aiding and abetting illegal aliens in this country."

Conservative groups are also pressing the government to stop or modify Directo a Mexico. The Washington-based conservative legal group Judicial Watch, which says it has 400,000 members, obtained a copy of a Fed presentation about Directo a Mexico in December and posted it on its website to show that the government was not only offering a subsidized service to illegal immigrants, but actively marketing and promoting it.

"This program undermines our nation's immigration laws and is a potential national security nightmare," Judicial Watch President Tom Fitton said in a statement at the time. "In the least, the Federal Reserve must limit this program to legal aliens and U.S. citizens only."

Ira Mehlman, the Los Angeles-based spokesman for the Federation for American Immigration Reform, said Directo a Mexico not only flouted immigration law, it hurt U.S. workers by draining money from the national economy.

"This is money earned by people who have come here illegally, often earned at the expense of other Americans, and then taken out of the country and not spent here," Mehlman said.

His group -- which supports enforcement of immigration laws and reports 100,000 members, about 35,000 in California -- says the U.S. government should better regulate wire transfer companies rather than offer an alternative that "makes it easier and more attractive for people to come here and break the law."

Economists and Directo a Mexico supporters dispute claims that the program harms the U.S. economy, and say it will actually help fight crime by encouraging people to use a legal, regulated money transfer service. They also say it may stem illegal immigration by making it easier and cheaper to wire money home, lessening the need for the sender's relatives to cross the border to earn a living.

Philip Martin, chairman of the Comparative Immigration and Integration Program at UC Davis, said remittances sent to Mexico last year were just a fraction of the U.S. economy, $23 billion out of a gross domestic product of more than $13 trillion. And as businesses increasingly serve illegal immigrant customers, he said, it's in the country's best interest to monitor their activity through programs like the Fed's.

"If you don't allow people to use the banking system, the money will still go, but it will build up a transfer infrastructure that terrorists can then use," Martin said.

Rep. Eliot L. Engel (D-N.Y.), who leads the Western Hemisphere subcommittee of the House International Relations Committee, plans to hold hearings about remittances, which he said needed to be formally integrated into the U.S. banking system. "We should stop pretending that they're not there," he said.

Engel says the U.S. needs to standardize the wire system, linking the Fed to foreign central banks so that people can transfer money "without having to sneak around or do it on the sly."

"You cut down transaction costs, make it easier to do, and it helps everybody," Engel said.

The Fed offers a competitive exchange rate and charges banks 67 cents for each wire transfer to Mexico. After banks add their own fees, it usually costs customers $2 to $5 per transfer, regardless of the amount sent.

Private wire services usually charge more and add fees for larger transfers and for claiming the money in Mexico. The average cost of wiring $300 to Mexico from the U.S. was $10.40 last year, when 65.8 million of the transfers were made, according to a Bank of Mexico report.

McQuerry estimates Directo a Mexico saves its customers about $3.7 million annually.

Directo a Mexico proved popular at Mitchell Bank in Milwaukee, which remade itself as "Wisconsin's immigrant bank" during the last seven years to cater to an increasingly Mexican customer base. The bank offers the first two wire transfers free, then charges $2.50 for each additional wire -- $4 for customers without accounts at the bank.

Monthly wire transfers average about 200, totaling $200,000, said bank Chairman James Maloney. He credits Directo a Mexico with attracting 10% to 15% more customers a month.

New customers include Jose Chavez, 52, an accountant and real estate investor who immigrated to Milwaukee from Mexico illegally in 1983 and later became a citizen. Chavez opened an account at Mitchell Bank last year after he heard about Directo a Mexico, and used it to open one for his brother in his hometown in the state of Michoacan.

Every two weeks, Chavez wires $100 to his mother, saving about $8 a transfer, and he recommends the program to illegal immigrants. "They have a hard time establishing credit here, for obvious reasons," he said. "But the reality is they're here and they are not going anywhere"

Maloney has fielded criticism recently for serving illegal immigrants. But he defends Directo a Mexico, which he supplemented with mortgage loans targeting immigrants.

"We find ourselves in a neighborhood that is heavily migrants. Our job is not to determine what other people's status is," any more than it's the responsibility of a grocery or department store, Maloney said. "These people live and work in our neighborhood. It's our job as a community bank to provide them services."

molly.hennessy-fiske@latimes.com

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