It's inside their throat I'm pretty sure. I've run into some in the Philippines while diving and I was told not to panic if they get too close. They have huge mouths but their throat is only a few inches wide.l and all the fish get kinda funneled in there.

I was also told not to touch them or there was a fine, and one of them thought that scuba divers were just the neatest thing and kept trying to investigate us.