Sen. Paul Sarbanes (D.-Md.) seems determined to retire from the Senate next year leaving the American economy an unprecedented legacy of huge costs.
His Sarbanes-Oxley “corporate reform” law, which Republicans latched onto in a panic in 2002 after the Enron and WorldCom bankruptcies, is costing American businesses $35 billion a year, according to the American Electronics Association. The average public company is also spending more than 70,000 man-hours devoted to complying with new accounting mandates, according to Financial Executives International, rather than creating productive ventures and new jobs. Even Sarbanes’ former boss, ex-Senate Democratic Leader Tom Daschle (D.-S.D.), recently wrote in the Wall Street Journal that the law goes too far.
Undaunted, Sarbanes defends the law as protecting American shareholders, and is on the hunt for those who more who need “protection”—with massive new mandates. His latest target is the money remitter or wire transfer industry. But this new legislation has the twin sin that in addition to imposing costs that will be passed on to consumers, it also further balkanizes American culture by requiring businesses to service their customers in a variety of languages.
Says Jim Boulet, executive director of English First and an expert on multilingual mandates, “The cost of complying with this is going to make Sarbanes-Oxley seem like chicken feed.”
Sarbanes is mad because he thinks money transfer fees to foreign countries are too high. “It has been estimated that 15%-20% of the money being sent back to loved ones abroad is being lost in fees and other transaction costs,” he exclaims in a press release. He calls this “abusive,” not recognizing that the “fees” are for an efficient service that navigates through the difficulties of countries that often don’t have sophisticated banking or telecommunications infrastructure. And like Sarbanes-Oxley, his bill will most likely raise costs even further to many of those he claims to be helping.
Backed by fellow Democrat Senators Hillary Clinton and Chuck Schumer of New York and Senate Minority Leader Harry Reid of Nevada, Sarbanes’s International Remittance Consumer Protection Act of 2005 (S 31) requires any business that offers international wire transfers—which includes grocery and convenience stores—to make consumer fee and exchange rate disclosures in the “same languages principally used” by customers at the business establishment.
The impact of this mandate would be huge. Money transfers from services like Western Union and MoneyGram are available at millions of retailers in neighborhood throughout the United States. Many different languages are spoken in these neighborhoods. To even determine which language is “principally” spoken among the customers of a store that offers money transfers would be an arduous task. Then there would be the burden of constantly printing brochures in multiple languages as exchange rates change.
And there are not just languages, but dialects. “Store owners may know Spanish, but “they may not speak Castillian Spanish,” Boulet points out.
One result may be that that large money transmitters may simply stop servicing some ethnic neighborhoods where a minority language is spoken. This would leave residents of those neighborhoods with less choice and competition and may force them to rely on shadowy underground networks to send money to their families abroad.
In addition to the costs on businesses and consumers, Sarbanes’ bill would also exact a toll on a toll on the civic virtue of assimilation. The immigrants who worked hard and learned English—as well as others, like parents sending money to their children studying abroad—would be penalized with higher costs, while those who wanted to come to America without assimilating would be given another message to go right ahead. “We might as well be saying, ‘Don’t bother to learn English, we’ll tell you what you need to know,’” Boulet remarks.
Sarbanes’ bill has other booby traps that will make it difficult, if not impossible, for businesses not to comply with. The bill requires remitters in their mandated disclosure statements to compare the exchange rates they use to a benchmark exchange rate from the Treasury Department. But the Treasury Department hasn’t set any exchange rates since President Richard Nixon took the U.S. off the international gold standard in 1971. As anyone who has tried to change American money while visiting a foreign country knows, rates can vary from hour to hour and location to location.
Sarbanes’ bill is a solution in search of a problem—or if there is a problem, it is largely due to other regulations that Sarbanes is responsible for. A study by the Inter-American Development Bank found that remittance fees for transfer to Latin American countries have decreased by almost half in the past five years, due to robust competition. “Charges have decreased with greater competition and use of technology,” the study says.
Sarbanes complains that banks aren’t offering money transfers, but that might be because neighborhood banks are some of the businesses most burdened by the regulations of Sarbanes-Oxley.
According to the Independent Community Bankers Association, “For community banks, [Sarbanes-Oxley] has resulted in a major diversion of the attention of company management away from operational activities and the business of banking.”
So if Sarbanes really wants to bring down the costs of money transfers and other items in the economy, he should introduce a new bill—with a bilingual title. The Mea Culpa Sarbanes-Oxley Repeal Act!