AZ: Joint Industry Letter in Opposition of SB 1421

Dear Members of the Arizona Legislature:

On behalf of a broad coalition of industry, financial services associations, and public policy organizations, we urge you not to advance Senate Bill 1421 (SB 1421). Our organizations’ collective memberships encompass hundreds of companies engaging in money services and payments activity throughout the United States, including in Arizona.  

While we share your objective of protecting the financial system this proposal would not meaningfully advance that goal and would instead push transactions into unregulated channels, reducing transparency and making law enforcement jobs harder, further reduce the state banking networks by driving consumers to national banks, and harm small businesses with overburdensome operations By conditioning access to lawful financial services on verification of immigration or work-authorization status, the bill deputizes private financial companies to enforce federal immigration law—an authority they do not have and are not required to exercise under federal Anti-Money Laundering (AML) rules. If enacted, the law would subject Arizona consumers and businesses to increased surveillance, significant compliance risk, and operational burdens, while ultimately impeding law enforcement efforts.

Licensed remittance providers already operate under one of the most stringent compliance frameworks in the financial system. They are licensed, examined, and supervised at the state level, and at the federal level they are subject to the Remittance Transfer Rule, which mandates detailed disclosures and error-resolution procedures, as well as U.S. sanctions requirements and the Bank Secrecy Act (BSA), which requires extensive Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT), recordkeeping and reporting requirements, including Know Your Customer (KYC) requirements. Providers invest heavily in these programs and work closely with law enforcement agencies to detect and disrupt illicit finance. Imposing a parallel, state-specific verification regime on top of existing federal AML obligations would create conflicting compliance requirements, confuse customers, and increase the likelihood that customers seek out unregulated channels that fall entirely outside BSA oversight.  

The proposal also raises unnecessary privacy and data-security risks. Licensed providers already collect and secure the information regulators need to monitor cross-border transactions. SB 1421 would require the collection, retention, and transmission of additional highly sensitive personal information unrelated to AML risk, effectively creating a government-directed database to track who sends money abroad, despite no allegation of wrongdoing. Expanding the number of entities handling this data increases cyber and misuse risk without improving enforcement outcomes. This approach moves beyond risk-based oversight into monitoring ordinary, lawful behavior, without clear limits or demonstrated enforcement benefit. Over time, such systems invite scope creep, erode trust in regulated financial services, and push lawful users away from the transparent channels law enforcement relies on.

Importantly, there is no lawful or appropriate way for money transmitters to verify citizenship or work authorization. These providers already collect information to comply with AML and KYC requirements, but identity verification is not citizenship verification. Standard AML data cannot distinguish between citizens and lawfully present non-citizens, as both groups possess valid IDs and Social Security numbers Federal citizenship and work-authorization databases are intentionally restricted under privacy laws, including the Privacy Act of 1974, and are not designed for access by private financial companies. Requiring private-sector providers to perform this verification would either force them to over-collect highly sensitive documents, deny service to lawful users, expand surveillance without adequate protections, or require the creation of a national database linking lawful remittance transactions to immigration or work-authorization status. While the bill notes that the Department of Insurance and Financial Institutions will identify acceptable documentation to verify lawful status, this additional step further burden consumers by requiring them to present specific identification that they may not normally have on their person and cause operational confusion for money transmitters who must comply with unique requirements.

Rather than deterring illicit activity, increased barriers to access will push customers into unregulated channels. When remittance providers are required to verify immigration or work-authorization status—something federal AML law does not require—lawful users face higher friction and risk of denial. Many respond by turning to informal or unregulated alternatives, where there is little or no oversight. Once activity leaves the regulated system, law enforcement visibility is lost. Licensed money transmitters provide law enforcement with audit trails, transaction monitoring, and Suspicious Activity Reports. Informal networks provide none of these. Mandates that push users away from licensed providers directly reduce law enforcement visibility. The U.S.

Government Accountability Office has previously warned that similar state-level restrictions risk pushing transfers into unregulated methods, directly undermining their intended purpose. The Financial Action Task Force (FATF) has likewise cautioned that informal networks are far more vulnerable to money laundering, sanctions evasion, and terrorist financing.

SB 1421 would also harm small businesses and consumers. Many licensed money transmitters offer services through a network of retail agent locations such as grocery stores, pharmacies, and other small businesses. These locations would face increased compliance costs, operational complexity, and legal exposure as a result of state-mandated verification requirements, despite lacking the infrastructure or expertise to administer them. Reduced access would lower foot traffic and ancillary sales, ultimately reducing income and sales tax revenue for the state. Additionally, small businesses could be disproportionately impacted by this legislation as it would apply to instances where they remit money on behalf of their businesses for goods or services.  

Notably, SB 1421 applies to ALL senders. Many Arizonans—including seniors, military families, missionaries, and Americans living or working abroad—may not readily have passports, birth certificates, or similar documentation available for routine transactions. In fact, only half of Americans hold a valid passport, underscoring how uncommon these documents are in daily life. Conditioning access to lawful financial services on the presentation of such documents will deny service to lawful users and push them toward informal alternatives. We are unaware of any other area of the American economy where law-abiding individuals must repeatedly prove status to conduct routine financial transactions.

For these reasons, we urge you not to advance SB 1421. We would be happy, however, to continue facilitating discussions with key stakeholders involved in the money transmission industry, including small businesses and remittance providers, to help reach a shared understanding of the importance of this industry, the harmful effects of a new identification verification regime, and the objective of a safe and secure American payments system.

Sincerely,

The concerned organizations listed above.

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