A Big, Beautiful Financial Weapon Against Illegal Immigration
A Big, Beautiful Financial Weapon Against Illegal Immigration
The U.S. is finally poised to take advantage of remittances.
Buried in the Big, Beautiful Bill is a weapon Trump can use against illegal immigration, disincentivizing working illegally in the United States while at the same time cutting into money laundering by Mexican and other drug cartels.
The weapon is a one percent remittance tax on money sent by aliens in the U.S. home to their country. Small change? By the end of 2023, remittances sent by workers in the U.S., many illegal, to other countries reached approximately $93 billion dollars—about 14 percent of total remittances across the globe. Main recipient countries include India, Mexico, Guatemala, and Venezuela. Mexico currently receives money tax-free. U.S. law makes that possible, and it needs to be changed. The tax is expected to collect $10 billion for the U.S. in revenues.
“Directo a México” is the official remittance program of the Federal Reserve Bank, facilitated through the FedGlobal service, which allows illegal immigrants to transfer money to Mexico’s central bank at no additional fee. Since 2003, after an agreement was signed by George W. Bush, users of U.S. financial institutions subscribed to Directo a México can send payments to any bank account in Mexico at no cost. New Yorkers can see such services advertised in Spanish on the subway; in smaller cities the transfer work is done by Wells Fargo, Moneygram, and check-cashing storefronts. States with large populations of illegal Mexicans, such as California and Texas, rank highest in remittance outflows.
It is a well-used system—in 2022, Mexico received $56 billion in remittances from the U.S., establishing the country’s position as the second-largest destination for such funds worldwide. Remittances from abroad accounted for roughly 4.5 percent of Mexico’s total GDP in 2022 (in some poorer Mexican states remittances comprised 15 percent or more of their GDP) and form the largest single source of foreign income for Mexico, outstripping the income brought in by any other source, including foreign direct investment from the United States, tourism, and manufacturing exports. The total value of remittances increased by roughly 32 percent between 2019 and 2023, rising by an average of five percent per year. Mexico does not just send hundreds of thousands of illegal workers to the U.S.; its domestic economy outright depends on them working in el Norte. Much the same for the other leading countries, such as India, though much of its remittances come from H1-B visa holders.
Mexico’s President Claudia Sheinbaum knows the value of the program and showed just how desperately her country relies on these remittance payments in a statement that “fanned the flames of the LA riots.”
“Mexican citizens in America work hard to pay their bills. We don’t want this tax to affect the remittances of our countrymen,” Sheinbaum said. “If necessary, we will mobilize. We will not allow them to punish those who help the least fortunate.”
Sheinbaum may be focused on more than the “least fortunate of her country.” According to the Center for Strategic and International Studies (CSIS),
The expanding volume of remittance transactions provides more than economic benefits to regular Mexicans; it also presents ample opportunity for exploitation. Criminal organizations take advantage of the small-increment nature of remittance transactions to evade oversight regulations and launder money related to drug trafficking and other illicit income streams, a practice which has increased in frequency since the Covid-19 pandemic disrupted cross-border movement and the associated traditional methods of bulk cash smuggling.
As the fentanyl crisis, illegal immigration, and cartel-related violence become increasingly prominent flash points in the United States-Mexico relationship, the expanding flow of remittances between the two countries should face increasing scrutiny from policymakers. Mexican cartels are awash in cash from U.S. sales of fentanyl, cocaine, heroin, methamphetamines, and marijuana. Presently, up to 10 percent 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 Reuters. A report by the Mexican think tank Signos Vitales estimated at least $4.4 billion in remittances sent to Mexico last year could come from illegal activity.
Sadly, from 2017 to 2022, the U.S. Department of Justice successfully prosecuted only seven drug trafficking cases involving misuse of remittances. Yet taken together, even those handful of cases still involved the laundering of more than $100 million. Cases typically involved criminals owning a crucial element of the supply chain, the remittance storefronts.
What can be done to slow the flow of remittances, maybe the profits of drug cartels, into Mexico? One bill, a proposal by Rep. Kevin Hern (R-OK) and then-Sen. J.D. Vance (R-OH) sought to impose a 10 percent fee on remittances sent abroad. This initiative, entitled the Withholding Illegal Revenue Entering Drug Markets (WIRED) Act, was used as a guide for the text in the One Big, Beautiful Bill Act to add a one percent tax on remittances into Mexico.
Meanwhile, Sen. Eric Schmitt (R-MO) wanted to increase the remittance tax in the Big, Beautiful Bill to 15 percent following Sheinbaum’s threats. “I’m introducing legislation to quadruple the proposed remittance tax. America is not the world’s piggy bank. And we don’t take kindly to threats,” Schmitt said on X. “As I’ve said many times before: America isn’t an economic zone. It isn’t an airport with a shopping mall attached. It’s our country.”
Given the involvement of the Mexican drug cartels, it is clear more than a tax is needed. President Trump must immediately empower the Department of Justice to aggressively investigate remittances into Mexico. The Department should also look into the storefront remittance centers in America which are the source of much of the money flowing southward. According to CSIS, in several of earlier indictments, individuals indicted “systematically opened several branches of remittance providers to be able to process the high volume of remittances necessary to launder money.”
While handling such volume single-handedly would be a daunting task, collectively, these networks facilitated the movement of illicit money without raising any alarms.” Tighter background checks on potential branch owners could be a first step. Identification requirements for transfers are currently more relaxed than those needed to set up a formal bank account or to wire significant sums of money. Reuters interviewed two dozen Mexico residents who said they had been paid by the Sinaloa Cartel to act as conduits for remittances, turning the money over to cartel operatives after receiving it.
“Follow the money,” says the old adage, and following the flow of cash into Mexico is a twofer: make it less profitable for illegal aliens to work in the U.S. while at the same time cutting into the money laundering networks set up right under American authorities’ noses. This represents a natural next move in Trump’s immigration crackdown, and another justification for the Big, Beautiful Bill.
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