Punishing workers who send remittances overseas is bad policy

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As we conclude another election season, deeply divided on many issues, one thing we should all agree on is the significant benefits of remittances to American economic, national security and foreign policy goals. As detailed below, well-regulated remittance payments from the U.S. support Main Street and our national economy, facilitate more effective law enforcement in targeting financial crime and reduce the impact of economic adversity abroad that so often drives increased illegal immigration to our shores. Because a well-regulated remittance industry is in the nation's best interest, policymakers should pursue pragmatic, bipartisan initiatives to support further growth.

For decades, the U.S. has consistently been the top remittance-sending country in the world. These remittance payments represent a critical source of support for many overseas communities and are used to pay for food, day-to-day costs and emergency expenses, including following a natural disaster. In fact, remittances have become the largest category of external finance flows to low- and middle-income countries (excluding China), even surpassing official government aid. They are, quite simply, the most substantial system of cross-border funding in the world and they are completely financed by the personal contributions of private individuals — not the public sector. In this way, remittances are effectively exports derived from and reflective of the prosperity generated by our economic and democratic system. 

With respect to the U.S. economy, a well-functioning remittance system is attractive to the global talent that people across the political spectrum agree we need to come to our country. This also includes the foreign-born entrepreneurs and small-business owners who create a substantial percentage of American jobs — in fact, 18% of businesses with employees in America are owned by foreign-born individuals. Additionally, nearly half of all Fortune 500 companies in 2023 were founded by immigrants or their children, demonstrating lasting impact on the U.S. economy. It also includes foreign born workers who are invited to our country in order to fill critical labor gaps in industries such as health care, agriculture, food and hospitality, which are collectively essential to the continued competitiveness and expansion of the U.S. economy.

For both groups, a reliable remittance system is invaluable. While foreign born workers typically keep the vast majority (85%) of their earnings in the domestic economies where they live, remitting up to 15% abroad to support loved ones is an important driver for their mobility. The ability to support their networks of origin ensures that both domestic economic activity is spurred, and families abroad are supported. The efficiency and reliability of remittance services are an important incentive in maintaining the U.S. as a hub for talented, hard-working individuals who contribute to our economic growth and innovation. 

With respect to national security, U.S. remittance activities have proven durable despite economic shocks and are subject to robust state and federal regulation, including licensure, supervision and examination by the Consumer Financial Protection Bureau, and intricate reporting requirements with the Treasury Department's Financial Crimes Enforcement Network. Regulated remittance providers are responsible for monitoring for potential financial crimes, including money laundering and terrorist financing, and reporting suspicious activity to law enforcement. Remittance providers are increasingly using sophisticated technologies to identify financial crime in support of national security objectives. 

Because of the regulatory requirements that they are subject to, U.S. remittance providers are well situated to help aid law enforcement in identifying financial crime in cross-border payments, consistent with robust consumer privacy protections. Therefore, it is essential that policymakers do not inadvertently push payments activities into the shadows where unregulated and criminal networks operate. 

More specifically, some have recently called for imposing taxes on individuals using regulated remittance services in the U.S. as a way to combat financial crime through channeling the tax receipts to local law enforcement. While well-regulated remittance providers share concerns regarding cross-border financial crime, imposing punitive taxes on individuals who use legal, regulated channels to send remittances will only incentivize a shift to unregulated ones. These unregulated and frequently criminal money transfer services circumvent financial crime laws and monitoring, and often deal in hard-to-trace physical cash. Sound policy should instead support well-regulated remittance services and enhance collaboration and information-sharing between the industry and law enforcement, consistent with consumer privacy protections.

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Finally, with respect to key foreign policy objectives, including maintaining stability in foreign countries and reducing economic pressures that incentivize illegal immigration, the well-regulated remittance industry can play a critical role. To this end, the U.S. frequently provides aid, grants or emergency funding to foreign countries facing economic hardship, armed conflict or natural disasters. In 2022, the U.S. sent more than $70 billion abroad in foreign aid, with 86% of that amount focused on economic relief. As previously noted, private remittances sent from the U.S. now surpass public money expenditures and can increasingly serve many of the economic purposes of such public funding. Put simply, growth in private remittances sent from the U.S. can reduce the burden on the U.S. government and help limit the impact of such aid on public finances. In this way, remittances are a private sector solution to limitations on government foreign aid, and help project soft diplomatic power on behalf of the country.

Given the clear economic, national security, and foreign policy benefits of a growing and robust remittance industry in the U.S., there are a few steps policymakers can take to support development.

First, policymakers should reject calls to impose punitive taxes on individuals in the U.S. using remittance services and instead should look for ways to increase public-private collaboration and information-sharing focused on combating financial crime. Developing digital identity standards would further support know-your-customer efforts and reduce illicit finance.

Second, policymakers can further reduce the cost and increase the efficiency of such services by granting well-regulated remittance providers with direct access to the Federal Reserve's payment systems, like FedNow, so that such providers are not forced to act through an additional bank intermediary which adds costs and complexity.

Third, policymakers should encourage adoption of leading-edge technologies that can improve financial crime monitoring, including those underpinned by AI. 

And, finally, policymakers should look for ways to leverage private remittance services to supplement public sector foreign aid programs, reduce the burden on public funding, and project U.S. soft power abroad. 

Policymakers on both sides of the aisle now have the opportunity to come together to advance solutions that benefit our country. Supporting the well-regulated remittance industry can have a substantial impact on our economy, national security and foreign policy objectives.