• Attacking the Money-Laundering Problem in Mexico
  • January 13, 2015 | Author: Barbara Altimus Shreero
  • Law Firm: Sheppard, Mullin, Richter & Hampton LLP - San Francisco Office
  • According to the Los Angeles Times, Mexican officials have estimated the amount of laundered money in the Mexican economy at $50 billion annually—three percent of the legitimate Mexican economy. The CIA World Fact Book labels Mexico as a “major drug-producing and transit nation”, as well as a “significant money-laundering center”. Illicit cash flows from cartels have affected nearly every corner of the Mexican economy.

    On October 17, 2012, Mexico passed the Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita (the “AML Law”), a new federal law aimed at identifying and preventing the use of illegal proceeds and terrorism financing. The AML Law became effective on July 17, 2013. The AML Law created an investigative unit within the Mexican Attorney General’s office, tasked with investigating transactions involving illegal proceeds. It also provides for monetary and administrative sanctions, as well as criminal liability.

    To attack the money-laundering problem, the AML Law bans certain cash transactions (such as the purchase or sale of real estate property valued over a certain threshold) and imposes reporting requirements on certain transactions deemed vulnerable because of their likelihood of involving money-laundering and organized crime. These vulnerable transactions include certain (1) financial-related transactions (such as issuance of traveler’s checks and granting of loans, when not issued or offered by financial institutions), (2) commercial transactions (such as gaming, purchase and sale of cars, and trading of jewelry, precious metals and stones, watches and artwork), (3) reception of donations by non-profit associations or civil associations, and (4) rendering of armoring services or armored truck transportation services. Requirements vary by sector, but for vulnerable transactions, businesses are required to report the identities of their customers and the monetary values of the transactions to the Mexican Government. Business and financial institutions must also implement know your customer policies and retain relevant documentation for periods of five or ten years.

    The Washington Post reports that art dealers and auction houses are experiencing dramatic declines in business—up to thirty percent—as a result of the AML Law. While some gallery owners and art dealers believe the declines are a result of their clients’ fear that corrupt government officials may leak or sell their information, the declines may be an indication the AML Law is effectively addressing a major problem. It still remains to be seen whether the AML Law will reduce the impact of money-laundering on the Mexican economy. Stay tuned.