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Mexico's government announced last month that it was compiling a drug-kingpin list that will bar financial institutions from doing business with anyone named on it. (Photo: ICE)
Wednesday, May 21, 2014

Mexico Money Laundering: Little Change

Mexico’s new blacklist is
unlikely to have a significant impact on how banks fight money laundering in the short term, experts say.


Inter-American Dialogue 


Mexico's government announced last month that it was compiling a drug-kingpin list that will bar financial institutions from doing business with anyone named on it. The list is not being made public, but it will be available to authorities and financial institutions. Will the new initiative mean big changes for banks and others in fighting money laundering in Mexico? What things have Mexican authorities been doing right and wrong in their latest anti-money laundering efforts? What more can or should Mexico's government and financial firms do to crack down on the practice? 

Adalberto Palma Gómez, senior partner at Aperture in Mexico City and executive president of the Union of Mexican Financial Institutions (UNIFIM): 
At first, the news of the Treasury and Finance Secretary's issuance of the blacklist, which will be reserved for financial institutions' use, seemed like just one more list that the institutions can use for the services they provide. For users, however, this is radically different from the cases that currently occur as it will complicate operations involving clients who are not part of the blacklist. From this standpoint, we can see the risk that financial institutions are expecting. It is necessary to understand that financial institutions are not only victims of money laundering but also parties to be protected from it. They should not be demonized, given the role that they play in the economy and in society. In order to ensure the safety of the financial system, it is necessary to strengthen all financial institutions and avoid the propensity for police harassment of financial institutions' executives. Additionally, if the goal is tracing money involved in money laundering, instead of dissuading the use of financial services, it would be more effective to design mechanisms to enable effective monitoring, without affecting operations, so that there are clues for authorities to pursue.

Tapen Sinha, professor of risk management at the Instituto Tecnológico Autónomo de México: More than 80 percent of financial transactions in Mexico today take place through foreign banks--most of them American. So, whatever money laundering regulations that are supposed to cover them are already in place through the Financial Action Task Force. However, there is an incentive problem for the financial institutions. They profit handsomely from such deals. The list of American banks that have allegedly violated anti-money laundering laws is long. It includes institutions like Bank of America, Citigroup, HSBC, J.P. Morgan, Wachovia and Western Union. All of them paid fines but hardly anybody has gone to jail. Yet, we know from indirect sources that billions of dollars have been laundered. So, we would expect banks to do the bare minimum, if that, to reduce money laundering. Mexican drug lords learned long ago that the best way to transfer money is through 'ant carriers' who carry amounts that are slightly less than what would be illegal to carry (that limit today stands at $10,000). There are gaping loopholes. For example, if somebody has a large amount of money in his favor on his credit card, it does not have to be reported. People use that facility to launder money. Banks would rather not say anything about that because it amounts to free cash for them. In this day and age, banks should be required to report all transactions of all clients. It is cheap to warehouse such data. Governments should be routinely cross-checking data across people with the same names, similar names, same addresses, similar addresses, repeated transactions and other identifiable characteristics. They should be routinely checked through automated processes. For example, if somebody repeatedly transacts $9,999, it should flag the system. Without this kind of continuous monitoring, money launderers will always be one step ahead of the government. 

Jan Smith, partner at KoreFusion in Mexico City: Mexican Finance Minister Luis Videgaray revealed plans to create a list of criminal suspects whose bank accounts and front companies will be frozen. There is less corruption in the Finance Ministry's Department of Finance and Tax than in police forces and in the Attorney General's office, raising hopes about the blacklist's effectiveness. However, this hope is offset by not making the list public. There is open speculation this implies more high-profile names are on the list than the Mexican government is comfortable in openly confronting. Furthermore, there is no announced increase in investigative bandwidth within the government. It is therefore unlikely the list will have a significant impact on how banks fight money laundering in the short term. For that to happen, the Mexican government has to make financial institutions more accountable and increase its investigative reach.  

Andrés Rozental, member of the Advisor board and president of Rozental & Asociados in Mexico City and senior fellow at the Brookings Institution: Any procedures and information that help Mexican banks combat money-laundering will be welcome as a way to ensure that organized criminals and others who engage in illicit financial transactions find it increasingly difficult to do so. Financial regulators have by and large transferred much of the responsibility for anti-money laundering measures to banks and other financial institutions, but without reliable information on who the potential actors are and how to detect their operations, it's extremely difficult to find the needles in the haystacks that effectively bar these transactions from taking place. Since several banks in Mexico and the United States have been fined for ineffective monitoring of suspect financial transactions, both the Mexican government and the institutions have been much more diligent in working toward eliminating such operations. Unfortunately, given limited human and technological resources and the sheer volume of international money flows, it is nearly impossible to guarantee that nothing slips through the cracks. However, I believe that both the government and the institutions are deploying all the strategies available to them to make sure that banking does not provide an easy route for criminals to pursue their illegal activities.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor 

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