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James Lawlor

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James Lawlor - Certeco

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The Money Laundering challenges of the Mexican Financial System

03 August 2015  |  3427 views  |  0

It’s rare that a week goes by without seeing Mexican corruption broadcasts exposed in the media light. According to US State Department assessments, their drug trade is the principal established offense for moneylaundered funds. The presence of Mexican cartels in providing narcotics to the US marketplace makes it a bi-national sensation; the illegitimate economic impact it has on both the Mexican and US financial systems is as significant as any industrial operation.

Localised drug trafficking groups in Mexico generate illicit proceeds with diversified activities and attempt to legalise such funds through basic corporate structures at the local level. While the drug trade tends to occur on a more industrial scale, extortion and kidnapping operations are often conducted as complementary lines of unlawful business by organised crime groups in the country. Mexico serves as an important transit country for criminal groups involved in human trafficking. Organised crime groups with an operational presence along Mexico’s northern and southern borders generate revenue by trafficking migrants, especially from Central America, to the United States.

Mexico is part of a larger Latin American phenomenon in which organised crime groups take advantage of tax or control mining operations in the country. Both generate a substantial flow of illegal profits from Mexico’s mining states, such as Coahuila and Michoacán. According to the most recent Financial Action Task Force’s (FATF) evaluation of Mexico, the national Anti-Money Laundering (AML) framework complies with FATF requirements. However, its application is currently limited and, as a consequence, this framework has not had a notable impact on the financial operational capacity of organised criminal groups in Mexico.

The Regulatory Environment

An AML law was approved in October 2013. The legislation obliges Designated Non-Financial Businesses and Professions (DNFBP) to identify their customers and report suspicious actions or transactions beyond chosen thresholds to the Secretariat of Finance (Mexican Finance Ministry). The thresholds vary by sector. The legislation establishes a Specialised Financial Analysis Unit in the office of the Attorney General; restricts cash operations in Mexican pesos, foreign currencies and precious metals for a variety of the new legislation. The following are under the above regulations:

  • Casinos
  • Lawyers, notaries and accountants
  • Jewellers, precious metals and precious stones dealers
  • Real estate agents
  • Non-profit organisations
  • Armoured services (most commonly car transport companies)
  • Construction companies
  • Art dealers and appraisers
  • Non-bank institutions providing credit cards or pre-paid cards.

Mexico is an affiliate of the Financial Action Task Force (FATF) and the Financial Action Task Force for Latin America (GAFILAT), a FATF-style regional body. This shows the Mexican government’s commitment to AML controls, needless to say that the authority is far from controlling the nation’s illegitimate money activity. Any of the above businesses/professions (bullet pointed) can be easily owned/financed by the Mexican cartels, meaning that the measures taken by the government are far from bulletproof.

Organisational Procedure

To ensure that the above regulations are not breached is rather a large challenge for the practitioners. All businesses that are susceptible to the Money Laundering Regulations 2007 are required to have systems and controls to avoid or identify money laundering. These systems and controls are to recognise, evaluate and screen money-laundering risk. On top of this, Customer Due Diligence (CDD) ensures the necessary procedures and monitoring is taking place to manage the risks acknowledged. CDD certifies that an organisation have the necessary data about a consumer before they can use the businesses services/products. The level of CDD measures and monitoring must determine the amount of risk they are subject to; this is typically dependent on the type of customer, business relationship and product or transaction they use. With an estimated $1.6 trillion laundered through the financial institutions in 2011 alone, it’s easy to see that international government legislation and organisational infrastructure is far from sufficient just yet.

Does the UK play a big part in the movement of illegal capital?

Although the UK is notorious for its stiff regulatory character, it is frequently shown to be subject to Money Laundering crimes. The amount of money laundered through the UK each year is estimated to be £48 billion. This contradicts the public belief that countries such as Mexico are to blame for corruption, this is understood by the financial regulation authorities who have defined Britain as a preferential destination for overseas fraudsters and criminals to hide their ill-gotten cash. This being said, the regulation pressures and IT improvements in recent years can only mean that the financial industry will gain momentum in the AML battle and see the alarming statistics decline.

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job title Analyst
location London
member since 2014
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Since joining Certeco I have been a part of two AML (Anti-Money Laundering) & Sanctions Enterprise Wide Risk Assessment projects. On both I was required to use the information provided by the client (...

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