WASHINGTON — A plan by GOP presidential front-runner Donald Trump to block remittance transfers to Mexico as a tactic to force the country to pay for the candidate's proposed border wall is receiving heavy blowback from the financial services industry.

The Washington Post reported Tuesday that Trump plans to use Patriot Act authority to compel Mexico to pay $5 billion to $10 billion to erect the wall, a central piece of his immigration platform. If the country pays for the construction, a Trump administration would suspend plans to stop money transfers. By many estimates, Mexico receives about $24 billion a year in remittances from the U.S., the most of any recipient.

But banking industry representatives immediately raised significant questions about the plan, including the appropriateness of using financial institutions as a tool to carry out immigration policy, as well as how the policy would be executed.

"It is an absurd proposal that would use a good statute to protect our country to force the banks to achieve a foreign policy goal," said Francis Creighton, executive vice president of government affairs for the Financial Services Roundtable. "This is not just bad foreign policy, this is bad banking policy. It's not about protecting the banking system, it's not about eliminating money laundering, this is about pushing American financial institutions into the middle of a completely unrelated issue, making them an instrument of government policy."

According to a memo from the Trump campaign to the Washington Post, which the newspaper posted on its website, the policy would be carried out under the "Know Your Customer" provision of the Patriot Act.

The memo says a Trump administration would propose rules declaring, among other things, that "no alien may wire money outside of the United States unless the alien first provides a document establishing his lawful presence in the United States." Yet the memo suggests that a Trump administration would not finalize such a rule if Mexico provided funding for the wall.

"It's an easy decision for Mexico. Make a one-time payment of $5 [billion]-$10 billion to ensure that $24 billion continues to flow into their country year after year," the memo said.

But one banking industry representative, speaking on the condition of anonymity, said implementing such a proposal would be challenging, considering Mexico's size as well as how many agencies in the government coordinate policies related to money transfers.

"I don't know what provision in the Patriot Act would grant that authority and before anything was done it would require input from the departments of Justice, State, Homeland Security and Treasury. I don't know how the mechanics would work," the representative said. "There are ways to cut off all transactions to a country, but how do you do that with a country like Mexico, which is a significant trading partner?"

Creighton said banks may react similarly as they have to other situations in which financial institutions were given unwanted roles to achieve policy objectives other than stopping money laundering or the flow of terrorist money. He pointed, for example, to the Department of Justice's Operation Choke Point, which scrutinizes banks affiliations with payment processors and merchants perceived by some as unseemly in an effort to target fraud.

"If a Trump administration could do this with Mexico, how else would they force the banking sector to achieve their other public policy goals?" Creighton said.

He noted, for example, Trump's proposal to ban Muslims from entering the U.S. "Would a Trump administration require financial institutions to ascertain what religion people are before opening accounts?"

Staci Warden, the executive director of the Center for Financial Markets at the Milken Institute, said the laws dealing with anti-money-laundering and combatting terrorism finance were not meant to be used this way.

"The point of that tool is we are protecting the integrity of the global financial system. It's not used as a vindictive foreign policy tool," said Warden, who formerly worked at JPMorgan Chase in London. "People can argue that the AML/CFT policy goes too far, but nobody is suggesting that we use this as a tool to punish our neighbors."

Others expressed concern that the remittance proposal would compel banks to further engage in de-risking: exiting whole lines of business over a perceived legal or regulatory risk.

"As the financial community continues to be exhorted to be more transparent, this proposal does the opposite and would clearly cause U.S. banks to de-risk all Mexican accounts and harm financial inclusion," said John Byrne, executive vice president at the Association of Certified Anti-Money Laundering Specialists.

Firms like Western Union, MoneyGram, PayPal and Euronet Worldwide would immediately be hurt by the plan, Isaac Boltansky, an analyst with Compass Point Research & Trading, said in a note to clients. Many big banks — including Bank of America, Wells Fargo, U.S. Bank and Regions — also offer international remittance services.

"The Trump campaign's proposal to threaten a prohibition on remittances to Mexico by illegal immigrants poses political, practical, and legal concerns," Boltansky said. "Our assessment is that it would be difficult to implement, largely ineffective, and almost certainly face legal opposition from nearly all corners of the market."

Several large banks and trade groups contacted about Trump's plan declined to comment.

But critics also pointed to the likelihood of remittance flows continuing — through more secretive unregulated channels — if the Trump plan were implemented.

"If you outlaw this activity, obviously legitimate companies won't participate in it. But that doesn't mean the remittances won't get sent. You just run the risk of driving them into the black market," said Brian Knight, a senior research fellow with the Financial Markets Working Group at the Mercatus Center at George Mason University.

Creighton agreed, saying that "it would find some other way to happen."

"I don't think that this is a product that, for most banks, is such a significant moneymaker that it would have a big impact on the overall banking sector," he added. "But it would force more people at the bottom end of the income spectrum out of the banking system, because this is a service that they use. As a public policy, we want people to be using the regulated financial system because of consumer protections and money laundering protections."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.