'The numbers don't square.' Record remittances under scrutiny as suspicions of money laundering mount
Mexico received more than $58 billion in remittances last year. But a Reuters report shows drug cartels laundering ill-gotten gains through channels for migrants sending money back to Mexico.
Mexico registered record remittances of more than $58 billion last year – more than the earnings it received from international tourism and oil revenues. But those numbers could be boosted by more than hard-working Mexicans sending home support from the United States. Reuters interviewed recipients (not tied to migrants) who allowed drug cartels to employ a criminal scheme, which “piggybacks on the vast legal network of money-transfer firms that help migrant labourers send money home to their families.”
The Reuters investigation showed drug cartels using remittances to launder money:
“The cartels are awash in cash from U.S. sales of fentanyl, cocaine, heroin, methamphetamines and marijuana. Presently, up to 10% of all Mexico-bound remittances may be drug money moved by criminal organizations like the Sinaloa Cartel and the Jalisco New Generation Cartel, according to a U.S. government official who works on illicit finance and asked for anonymity because he is not authorized to speak publicly on the subject.”
The Reuters investigation followed a report from the Mexican think tank Signos Vitales, which estimated 7.6% of all remittances in 2022 – roughly $4.4 billion – came from organized crime.
In a letter defending its findings, Signos Vitales’ said its report raised uncomfortable questions about he pattern of remittances on the Mexican municipal level. It asked a number of uncomfortable questions, including:
“Why in 227 municipalities, why did all households on average receive more than one monthly remittance? Why, if the amounts of income from remittances are analyzed in many municipalities, is extreme poverty due to income still rampant despite these additional incomes (from remittances) that would take 100% of the population above the poverty line?”
“Why are there significant receipts of money from municipalities that do not have high levels of migration of their inhabitants? …
“Why have remittances rapidly increased from U.S. states not previously identified (as remittances senders) that reached nearly $1 billion in 2022?”
Signos Vitales also pointed to the most recent edition of The Annual Threat Assessment of the U.S. Intelligence Community, published by the Office of the Director of National Intelligence, which stated:
“TCOs move and launder illicit proceeds through bulk cash smuggling, exploitation of legitimate remittance channels, purchase of U.S. real estate, structured deposits, trade-based money laundering, and wire transfers.”
Minnesota sends massive remittances, despite minuscule Mexican population
In its report, Signos Vitales pointed to the curious case of Minnesota as an increasingly common source of remittances to Mexico – despite a small Mexican population of 345,000. Remittances from Minnesota to Mexico grew by 585.3% in recent years, according to Signos Vitales, using information from Mexico’s central bank, placing it behind only California and Texas as the top remittance-sending states.
Remittances paying for migrant smuggling?
Equally curious for some observers was the destination of the remittances. San Cristobal de las Casas in southern Chiapas state – population 215,000 – received more remittances in 2022 than any other Mexican municipality. Comitán de Domínguez, also in Chiapas and transited by migrants having been smuggled across the border from nearby Guatemala, also ranked in the top ten municipalities. Human rights lawyer and activist Jacobo Dayan observed of rapidly increasing remittances to Chiapas:
“This growth is likely due to transfers to pay criminal groups that engage in human trafficking. This increase occurs at the same time as the increase in people trying to immigrate to the United States.”
The velocity of remittance growth has been staggering in San Cristobal de las Casas. The Banco de México reported remittances of $227 million in the second quarter of 2023 – compared with just $32.8 million in the same quarter of 2020.
Comitán de Domínguez, population 166,000, reported remittances of $132 million in the second quarter of 2023 – compared with $23.2 million in the same quarter of 2020.
Remittances unseen in local economy
Chiapas registered an average per capita monthly salary of 4,630 pesos ($290) in the first quarter of 2023, according to the state statistics service INEGI. With the volume of remittances, Dayan writes:
“If it were just worker transfers, how can it be explained that in San Cristóbal de las Casas each inhabitant has received close to $2,000 from January to June of this year and those of Comitán approximately $1,450. Something extremely strange is happening in these municipalities.”
Business consultant and columnist Jorge Andrés Castañeda pointed to a similar situation of the “numbers not squaring” in the western state of Michoacán – long marked by outward migration and deeply rooted drug cartel conflicts, but also home to a very lucrative avocado-growing region. Castañeda told Forbes Mexico in 2021 that official remittances to Michoacán were worth 10% of state GDP meaning, “If all this money were really arriving in households, if it were arriving in savings and spending, it would be seen in the local economy and it isn’t.”
Castañeda returned to the topic of remittances this month. He highlighted in a column for the newspaper El Economista that a recent survey from the INEGI on household income (used to measure poverty) showed only 1.7 million households received remittances. He continued:
“Contrasting that (INEGI) number with the $58.5 billion (in remittances) from Banxico in 2022, you could deduce that the average remittance household received $34,000 dollars. This would position them among richest households in Mexico, which is not the case.”
The Centre for Latin American Monetary Studies (CEMLA) also picked up on that theme. The INEGI survey – much ballyhooed for showing decline in poverty between 2018 and 2022, despite the pandemic and a sluggish economy – claimed that only 8.4% of Mexicans’ earnings came from remittances.
In an August report on remittances, CEMLA also noted that 53.2% of earnings from other countries (remittances) went to households in the four wealthiest deciles – meaning the poorest, whose relatives are usually among those who migrate, received the least. CEMLA wrote of the findings:
“Such results are absurd and would imply that the bulk of undocumented Mexicans in the United States, who are important senders of remittances. are people whose relatives in Mexico are in the upper income deciles.”
AMLO reacts angrily to accusations against drug cartels
President Andrés Manuel López Obrador (AMLO) predictably reacted angrily to the Reuters story, accusing the news agency of acting in cahoots with opponents he alleged were behind the Signos Vitales report to sully the image of migrants – and, by extension, his own government. He called Reuters “liars” who took information from Signos Vitales to “punch” us.
Reuters retorted: “We stand by our reporting.”
The response continued the president’s pattern of attacking reports on the activities of drug cartels – be it from journalists, the DEA or think tanks and academics. At the beginning of the pandemic, he urged Mexican migrants to support the communities they left behind through remittances – which they did.
The increased remittances to Mexico came as AMLO promoted a policy of fiscal austerity – with the president spending less than 1% of GDP on the pandemic response, but continuing to plough public money into the state oil company Pemex, (a perpetual money pit) and his pet projects such as a railway circling the Yucatán Peninsula.
Remittances propping up rogue regimes?
Mexico isn’t the only country receiving record remittances. Remittances have surged across Latin America, according to the Yearbook of Migration and Remittances, Mexico 2023 from BBVA bank. (See chart above).
The Wall Street Journalist also recently documented how rising remittances are favouring rogue regimes – which are fomenting migration as a means of weakening internal opposition and lowering social pressure at home, while benefitting economically from a steady inflow of foreign funds.
As a 2020 report on Central American migration from the Texas Public Policy Foundation noted:
“Migration, in many ways, underpins Central American economies and provides an escape valve for these countries. Remittances sent from the United States prop up households, provide stability to national economies, and spur consumption. Migration has provided some ambitious Central Americans with an escape from poverty. But it has also enabled elites, who see no need to slow migration, as it is a status quo which works for them—and they are content to keep it intact.”