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The Financial Action Task Force is correct in saying Mexico is reactive in investigating and prosecuting money laundering, experts say.  (Photo: UNODC)
Wednesday, February 21, 2018

Mexico: The Money Laundering Challenge

Are Mexico’s anti-money laundering efforts inadequate?

Inter-American Dialogue

Mexican officials are failing to proactively and systematically investigate and prosecute cases of money laundering, the Financial Action Task Force said in a Jan. 3 report, which added that efforts to fight money laundering in Mexico are hindered by corruption within the country’s law enforcement agencies. The report led Mexico’s acting attorney general to defend the country’s efforts, saying prosecutors were already working to improve investigations of the crime. How valid are the FATF’s criticisms of Mexico’s anti-money laundering efforts? How well are Mexico’s banks and other financial services providers guarding against such crimes? What are the main ways that anti-money laundering efforts in Mexico should be improved?

Richard Fogarty, managing director at Berkeley Research Group, and Juan David Leal, associate director for Mexico at Berkeley Research Group: The FATF’s criticisms of Mexico are tough but spot-on. The 2012 HSBC money-laundering scandal in Mexico prompted the country’s banking industry to renovate its controls, widen the scope of its compliance and anti-money laundering departments, and invest a significant amount of resources in technology and systems. It is a reality that, six years later, banks and the local Financial Unit have stronger monitoring controls. However, when it comes to investigating and prosecuting these crimes, the country certainly lacks expertise and an adequate institutional framework, if not the will from officials. Even in the face of blatant AML violations, as has been the case with certain former governors who have been detained in the past months, prosecuting agencies struggle to present compelling evidence and carry out solid investigations that can lead to convictions. One explanation is that the country’s authorities are overwhelmed with the highest murder rate in its recorded history and growing crime in landmark tourist destinations in the country. Their focus primarily is on capturing ringleaders and reducing deaths, and less on attacking the financial capabilities of organized crime,or confiscating the proceeds of their illegal business activities. In a country where most housing landlords still require cash payments from tenants, rarely is an individual questioned by tax regulators for receiving unexplained money transfers or cash deposits, and many politicians leave office as millionaires. Anti-money laundering efforts need to be tackled as a real state policy, once and for all. An obvious starting point is to finally set the new National Anti-Corruption System in motion, which has been delayed inexplicably for a year.

Jan Smith, partner at KoreFusion in Mexico City: The Financial Action Task Force is correct in saying Mexico is reactive in investigating and prosecuting money laundering. It is also right in noting that Mexico’s AML/KYC systems are mature on paper. The issue is not a gating issue, but rather one of verification, enforcement and prosecution, all of which are hindered by political corruption. Mexican banks are generally effective in applying AML/KYC filters, but they are not set-up to investigate sophisticated money laundering schemes. Mexican authorities need to aid the financial system and coordinate more with their U.S. counterparts, but President Trump’s brashness hinders this. Furthermore, Mexico’s legal system is obtusely set-up for the agile confiscation of assets and needs overhauling. Political infighting and corruption hinder the introduction of laws that cast more light on financial transactions and assets, and facilitate prosecution and confiscation. Mexico’s law enforcement agencies are deeply affected by this. Mexicans are also very frustrated with the slow investigations of multiple high-profile political money-laundering crimes, and they are exasperated with the dismal levels of prosecution. Twenty-two sitting and former PRI governors are under investigation or on the lam, accused of laundering, deviating or stealing more than $14 billion in the last six years. They represent two-thirds of the states, and the totality of the governors under the PRI. The fight against money laundering requires two things to improve: the first is a transparent and democratic rule of law in Mexico; the second is a gradual decriminalizing of drug use and drug sales in the United States.

David Landsman, executive director of the National Money Transmitters Association: The FATF’s evaluation acknowledges that Mexico has a legal framework for combating money laundering that is particularly strong with regard to its criminalization, and that the Mexican financial sector has a good understanding of core risks and obligations regarding money laundering. Notably, it states that Mexican authorities—especially the Procuraduría General de la Nación (PGR) and Servicio de Administración Tributaria (SAT)—have comprehensive access to the Financial Intelligence Unit (FIU), which produces the strategic analyses and financial intelligence information needed to launch money laundering investigations. However, the FATF’s report highlights that Mexico still faces three significant impediments to enforcing anti-money laundering laws. First, the FIU does not have access to accurate information regarding beneficial owners, and basic information regarding business entities in the commercial register is not always up-to-date. Second, if the shared information is obtained from financial institutions, the PGR cannot initiate a prosecution for money laundering unless the FIU files a complaint under the Federal Civil Code. Finally, even though Designated Non-Financial Businesses and Professions, such as public notaries, accountants and lawyers, are subject to AML requirements, they rarely file Suspicious Transactions Reports, or when they do, they fail to submit them on time. In short, Mexico should do more to improve the effectiveness of its AML regime. Specially, it should provide to the authorities the proper information and tools to effectively investigate and prosecute money laundering offenses.

Adalberto Palma, president of the Union of Mexican Financial Institutions (UNIFIMEX): Another way to look at the recent FATF report on Mexico is to conclude that authorities who work in the prevention of and fight against money laundering are advancing in a heterogeneous way. At the forefront is the financial authorities’ First National Risk Survey with information from the authorities and the financial institutions. The progress that has been shown in fighting money laundering has been significant. An improvement in the transparency of trusts; an increasing amount of information exchanged between Mexican financial institutions and their counterparts abroad; and supervision based on risks are among the acknowledgements of the report. Among the tasks that are still pending are improving the identification of final beneficiaries from clients’ declarative processes, overcoming technical deficiencies in the cross-border declaration system and allocating more resources to strengthen financial research and refine the quality of suspicious operations reports. The prevention of asset-laundering in the digital financial market is the new goal of institutions associated with UNIFIMEX, over which I preside, and it is the essential theme of its ninth annual seminar on the prevention of money laundering and terrorist financing. At the seminar, international experiences on the subject will be discussed in order to identify best practices and assimilate them into a changing reality.


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


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