Legislature Should Act to Ensure Banks Can Verify the Identity of Account Holders

By Jessica M. Vaughan on March 7, 2006

Testimony prepared for:

Joint Financial Services Committee
Massachusetts General Court
State House, Boston

March 7, 2006

Jessica M. Vaughan
Senior Policy Analyst, Center for Immigration Studies

Good morning, and thank you for the opportunity to testify in connection with S. 2197, which would require Massachusetts banks to accept only verifiable identification documents from foreign citizens. It prevents financial services institutions from relaxing security standards in an effort to expand their customer base.

My name is Jessica Vaughan. I live in Franklin, Massachusetts, and I am a senior policy analyst with the Center for Immigration Studies (CIS)[1], based in Washington, DC. The Center is a non-partisan, independent research institute devoted to immigration policy research and analysis. We produce research reports and assist lawmakers at the federal, state and local levels with immigration policy matters. I have testified and worked with lawmakers and agencies in a number of other states on issues surrounding identification, licensing, immigration laws, and national security.

Why should the Massachusetts legislature act to determine which identifying documents a bank, or any financial services institution, may accept when opening an account for a new customer? When financial services transactions policies intersect with national security issues, isn't that a matter for the federal government?

Yes, it is. But in this case, the current administration is conflicted about the issue, and its agencies have issued inconsistent and incompatible opinions.

The specific document in question here is the consular identification card. This document is typically issued by foreign consulates to keep track of their own nationals who are resident in a foreign country. The version issued by the Mexican government is known as the matricula consular.

Because terrorists must have access to financial services institutions to organize and carry out major attacks, the USA-PATRIOT Act, passed soon after 9/11, imposed strict requirements on U.S. financial service providers to ensure that the identity of account holders could not be concealed. Section 326 of that Act requires providers to verify the identity of customers opening new accounts, among other precautions. At about that time, the Mexican government began actively promoting use of its matricula consular among the approximately six million Mexicans living illegally in the United States.

The leading federal law enforcement agencies, including the Federal Bureau of Investigation, the Department of Justice, and the Department of Homeland Security, have maintained that, the matricula consular is not a reliable form of identification, due to the non-existence of any means of verifiying the true identity of the card holder.[2] The FBI has warned of several problems with the cards: 1) Mexico maintains no central database to coordinate the issuance of the cards, meaning multiple cards can be issued (and have been) to the same individual; 2) the card is issued to anyone who can produce a Mexican birth certificate, which is a publicly-available document in Mexico, without verifying identity; 3) some Mexican consulates do not verify applicant claims at all.

Meanwhile, the Treasury Department, at the urging of the financial services industry, which has an interest in expanding the number of accounts and customers, has refrained from an outright prohibition on acceptance of consular identification cards. While the Department does not directly endorse acceptance of the card, it leaves it up to the individual financial services institutions to decide if they will accept the documents as proof of identity.

This is a curious approach to regulation on an issue that is key to homeland security. If the federal government feels strongly that banks need to be certain of the identity of their account holders, then it should insist that they accept only verifiable forms of identification. Permitting the financial services institutions, which stand to profit from capturing this market, to determine what constitutes a legitimate form of identification is reminiscent of the State Department's ill-fated US Visa Express program, which outsourced the screening of visa applicants to Saudi Arabian travel agencies. Three of the 9/11 hijackers obtained their visas through Visa Express.

In the absence of federal action on this question, states must rely on themselves to ensure that financial services institutions operating within their boundaries follow secure procedures.

This bill does not deny financial services to illegal aliens. It simply prevents financial institutions from relaxing their security standards in order to tap this market. Many believe that this unbanked population should have access to legitimate and regulated financial services companies, rather than keeping money under mattresses or relying on black market lenders. If this bill is adopted, illegal immigrants will still be able to open accounts if they can obtain a passport from their consulate. The standard of issuance for passports is much higher than for the matricula consular.

While homeland security is perhaps the most important federal responsibility, it is not solely a federal responsibility. The states have a have a big role to play, and a legitimate interest, in addressing potential problems in the absence of federal legislation. Maintaining prudent and sensible regulation of financial services is one of the most important things a state can do to contribute to the effort to help prevent future terrorist attacks.

Attached are three reports that provide more a more detailed treatment of the security, financial, and immigration policy issues:

IDs for Illegals: The Matricula Consular Advances Mexico's Immigration Agenda, by Marti Dinerstein, Center for Immigration Studies, January, 2003.

Testimony of Steven McCraw, Office of Intelligence, Federal Bureau of Investigation, before the House Judiciary Subcommittee on Immigration, Border Security and Claims, June 26, 2003.

Consular Identification Cards Accepted within United States, but Consistent Federal Guidance Needed, Government Accountability Office, GAO-04-881, August, 2004.

I would be pleased to answer any questions you may have.

Respectfully submitted by:

Jessica M. Vaughan
Senior Policy Analyst, Center for Immigration Studies


[2] Statement of Steve McCraw, Office of Intelligence, Federal Bureau of Investigation, before the House Judiciary Subcommittee on Immigration, Border Security and Claims, June 26, 2003. http://jucidiary.house.gov/OversightTestimony.aspx?ID=240.