Potential Effect of a Fine on Remitters without Legal Status Is Uncertain and Depends on a Variety of Factors

A proposed fine on immigrants unable to show proof of legal status who  send money through remittance transfer providers covered under EFTA  could raise money for border protection, but the potential amount of  revenue to be generated is unknown. Net revenue from the fine—the total  of all fines collected less CFPB’s administrative and enforcement costs— would depend on several key factors, namely the dollar amount of  remittances sent by those without legal immigration status, changes in  remitter behavior because of the fine, including a potential reduction in  remittances through regulated providers, and the cost of enforcement. The revenue raised by the  proposed fine would first be used to pay CFPB for enforcement costs. Lastly,  providers told us the fine could have consequences for them, and one  provider said that smaller providers would likely be affected the most. Given the uncertainty related to these important factors, we constructed a  scenario analysis to illustrate how the revenue generated for border  protection could vary based on the values we assume for the following,  given our starting assumptions about the total volume of remittances and  proportion of those in the formal sector:  1.  the dollar amount of remittances sent by immigrants without legal  2.  the reduction in remittances through regulated providers in response  to the request to show proof of legal status or pay a fine, and  3.  the magnitude of administrative and enforcement costs to CFPB. However, BEA’s methodology for estimating  remittances is not consistent with government-wide policies and guidance  on statistical practices or with BEA’s own best practices and thus  produces unreliable estimates. However, BEA’s estimate is cited by national and  international organizations and in some cases is incorporated into the  estimates of these organizations, including the World Bank. BEA’s Estimates of Remittances from the United States

BEA’s estimate of remittances from the United States (which it reports as  personal transfers) totaled approximately $40 billion in 2014. BEA’s Methodology Resulted in Unreliable Estimates, Partly Due to its Failure to Follow Best Practices and Guidelines for Federal Statistical Agencies

We found several issues with BEA’s methodology that resulted in  unreliable remittance estimates. BEA Did Not Follow Its Own Best Practices for Documenting Its Procedures

Despite OMB and agency guidance and best practices that would provide  that BEA should document its procedures for developing its new model  for estimating remittances, BEA did not prepare adequate, transparent  documentation of its efforts to develop its new model. Such events would include supervisory  review of methodological changes to BEA’s estimation model. Conclusions

BEA’s updated model for estimating remittances produces unreliable  results due to underlying issues with the data, such as missing  information and measurement problems. Although BEA officials discount the importance of remittances as a  component of international transactions statistics, the inability of BEA’s  new model to produce more accurate remittances estimates is  consequential, as BEA’s estimate is the official remittance estimate of the  United States and is cited by both national and international  organizations, and in some cases incorporated into the estimates of these  organizations. Recommendations for Executive Action

We recommend that the Secretary of Commerce direct the BEA Director  to take the following actions:  To improve the reliability of the annual official U.S. estimate of  remittances, conduct additional analyses of BEA’s estimates using  estimation techniques appropriate for dealing with the shortcomings of the  data. However, we maintain that our findings related to the reliability of BEA’s  remittance estimates and documentation of the methodology to produce  such estimates are valid and support the recommendations we made in  the report. Regarding our conclusion that BEA did not follow the best practices,  policies, and guidance to which it is subject for documenting its methods  and analyses, BEA stated that the documentation provided to GAO was  fully adequate. BEA also rejected the statement that it did not follow best practices  because it did not consider remittances to be influential. Appendix I: Objectives, Scope, and Methodology

This report (1) discusses the potential effects of collecting information  from and imposing a fine on remitters unable to provide proof of legal  U.S. immigration status, and (2) examines the Bureau of Economic  Analysis’ (BEA) remittance estimate and the extent to which the revised  estimation methodology met government-wide policies and agency best  practices. We also reviewed laws and regulations relevant to  remittance transfer providers.
Why GAO Did This Study

For many countries, remittances represent a large and stable source of foreign currency. Remittances have received increasing attention from policymakers as the volume of funds transferred has increased over the years. Despite the global significance of remittances, much remains unknown about the actual volume of remittances and the methods used to remit them. GAO was asked to study the potential effects of a fine on certain remitters and estimates of U.S. remittances. GAO examined (1) the potential effects of a fine on remitters unable to provide proof of legal immigration status, and (2) BEA's remittance estimate and the extent to which its revised estimation methodology met government-wide policies and best practices. GAO constructed a hypothetical scenario analysis to show the uncertainty associated with the effects of a fine. GAO interviewed, among others, BEA, International Monetary Fund and World Bank officials, and researchers. GAO also analyzed BEA's estimate of U.S. remittances and documentation of its methodologies.

What GAO Found

The Remittance Status Verification Act of 2015, S. 79, would require remittance transfer providers to request that all senders of remittances to recipients outside the United States provide proof of their legal status under U.S. immigration laws and impose a fine on those unable to provide such proof. The funds collected would be submitted to the Consumer Financial Protection Bureau (CFPB) to pay for its administrative and enforcement costs in carrying out the act, and any remaining funds would be used to pay expenses related to border protection. The fine may raise money for border protection, but the exact amount is unknown and would depend on several factors, including
the dollar amount of remittances sent by those without legal status,
changes in remitter behavior due to the fine, such as using unregulated transfer methods, and
CFPB's administrative and enforcement costs to carry out the act.
The first two factors above affect the volume of remittances that would be subject to a fine. The third factor affects the amount of net revenue from the fine remaining for border protection. Finally, remittance transfer providers told GAO that the fine could have consequences for them, including potentially disproportionate costs for small providers.
The Bureau of Economic Analysis (BEA) estimated that remittances from the United States were approximately $40 billion in 2014. However, BEA's methodology for estimating remittances is not consistent with government-wide policies and guidance on statistical practices or with BEA's own best practices and thus produces unreliable estimates. GAO identified several weaknesses in BEA's estimation methodology, illustrated by the following examples.
BEA failed to use appropriate methodology that addressed questionable aspects of the data, such as missing information and measurement problems. This is inconsistent with National Research Council of the National Academies of Science guidelines for federal statistical agencies and government-wide policies.
BEA also calibrated the output of the new model to match the estimate produced by BEA's previous model. BEA did this because according to officials the new model produced substantially lower results than BEA had previously estimated. In a 2006 report GAO had questioned the reliability of BEA's previous model; as a result BEA's actions raise further concerns about the reliability of the new model's results.
Moreover, BEA could not provide adequate, transparent documentation underlying its methodology or reviews of its methods and data. According to BEA officials, BEA did not adhere to its own best practices for changing its methodology because they did not consider the remittance estimate to be influential information. However, BEA's estimate is influential, as it is cited by national and international organizations and in some cases is incorporated into the estimates of these organizations, including the World Bank.

What GAO Recommends

GAO recommends that BEA conduct analyses to improve the reliability of its estimate and follow established policies for documenting its methods and analyses. BEA agreed to implement the recommendations but disagreed that its estimates are unreliable and not adequately documented. GAO disagrees and maintains that BEA's revised estimation model produces unreliable estimates and BEA could not provide adequate documentation of its methodology.