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Fighting money laundering and terrorism finance

Rodrigo Conesa

In August 2010, Mexico's President, Felipe Calderón, unveiled the government's new strategy to fight and prevent money laundering and terrorism financing. A few days later, the President sent a bill to Congress introducing changes to statutes such as the Federal Criminal Code, Tax Code, Credit Institutions Law, Securities Market Law, Organised Crime Law, among others. The President also introduced a bill to pass a new statute called the Law for Preventing and Identifying Transactions with Funds from Illegal Operations and Terrorism Financing.

In its new strategy, the government identified as a key element in the war against organised crime the need to prevent criminal organisations from disposing of their illegal profits as well as the need to bring those persons guilty of money laundering and terrorist financing to justice.

In Mexico, the main source of money laundering is associated with the production and trafficking of illegal drugs. Because the main market for drug consumption is the American market, the bulk of the illegal money laundered in the Mexican economy is in the form of US currency. Hence, most of the measures proposed to Congress are aimed at restricting the use of dollar currency in the territory of Mexico. It is estimated that every year, in excess of $10 billion in cash passes southbound from the US. Given the significant flow of vehicles crossing into Mexico, authorities estimate that it takes approximately 0.15% of the more than 66 million vehicles crossing every year to move that kind of money. Therefore, detecting the money in the border crossing is an extremely difficult task.

If the new measures are adopted, it will become illegal to purchase any real property in Mexico using cash (either Mexican currency or foreign currency) or precious metals. Notary publics will not be allowed to notarise a deed transferring title to real property unless they can ascertain that the transaction was not settled in cash. Other transactions involving the purchase of goods such as airplanes, boats, cars, jewelry, stock transactions and lottery tickets for a value in excess of Ps$100,000 (approximately, $7,500) will be forbidden if settled in cash.

The new legislative changes also impose reporting obligations on persons who regularly engage in activities such as gaming, issuance of stored value cards, granting of loans, selling real estate, vehicle dealerships, jewelry sale, legal services, notary services, among others.

In addition, confidentiality restrictions imposed on financial intermediaries (bank secrecy) are now being loosened in order to force intermediaries to share information directly with the office of the Attorney General (Federal and State), with the taxing authorities and with other authorities engaged in the war against organised crime without the need to first obtain an order from a competent judge.

It is proposed that the Federal Criminal Code is to be amended, both to increase penalties for those engaged in money laundering and also to penalise those who design structures aimed at concealing the true origin of monetary resources and those who allow their name to be used in monetary, real estate and other transactions with the intention of laundering money or financing terrorist activities.

The Organised Crime Law is also being amended in order to provide an adequate legal framework for what is called special investigation techniques. These techniques involve engaging in covert operations, infiltrating agents into criminal organisations and allowing agents to operate under assumed identities in the course of an investigation. The law will now allow for special treatment of the information obtained in the course of an investigation, including reserving key information in the criminal process.

These proposed changes, if enacted and enforced, will severely limit the ability of organised crime to funnel illegal money into the legal economy. They will also modernise the framework of operation of the various agencies involved in the fight against crime and drugs, which today cruise in a sea of ambiguity often at times leading to acquittals based on legal technicalities. Further, along with other previously enacted reforms (ie, restrictions applicable to banks and foreign exchange companies for converting dollars into pesos, a law allowing the government to swiftly acquire title to assets used by criminals in the commission of crimes, among others) they will give law enforcement agencies more tools to work with in the fight to reduce criminal activity. The reforms will also help improve the government's ability to efficiently tax the economic activity in Mexico, which today, has one of the lowest tax bases of Organisation for Economic Co-operation and Development countries.

Rodrigo Conesa

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