Mexico, virtual paradise for money laundering

Translated by Otis B Fly-Wheel for Borderland Beat from a Proceso article

Subject Matter: Money laundering in Mexico
Recommendation: No prior subject matter knowledge required

The poor identification of "final beneficiaries", i.e. the real operators of companies and bank accounts, added to the poor results of the fledgling criminal justice system and the high levels of corruption, make Mexico the perfect place to money launder, according to a report published today by the Financial Action Task Force.

Reporter: Mathieu Tourliere
"Mexico does not have a comprehensive policy that prioritizes financial investigation and the pursuit of money launderers as a crime in and of itself", states the Mutual Evaluation Report on Mexico.

The document highlights that money laundering takes three different aspects in Mexico: some launder money from organized crime, others hide corruption operations, e.g. the multi million dollar deviations made during the administration of the PRIista Javier Duarte in Veracruz, and others resort to tax evasion, which the FATF defined as "generalized" in the country.

The report highlights with alarm the lack of resources of the Tax Administration Service, which in the last three years only audited 0.2 % of the 64,000 companies whose activities represent a risk of money laundering. "Generally and to date, sanctions are not applied in an effective, proportionate and dissuasive manner", he adds.




In addition, "products and instruments of crime are seldom confiscated", among them the "suspect" and undeclared cash, the document insists.

And he notes: "With the high rates of regional migration, an important informal economy (23.6% of GDP), low financial inclusion, weak border controls and a high volume of dollars, Mexico faces a significant challenge to detect criminal money within the legal flows ".

One of the main failures of the Mexican system in the fight against money laundering is the limited identification of the so-called "final beneficiaries", that is, the people who actually operate companies and bank accounts, and particularly in cases where the beneficiaries  are "politically exposed characters" (PEP).

This deficiency allows the criminals to hide their identity behind paper companies and strawmen, with which they invest money of illicit origin in the real estate sector, restaurants, stores and other businesses, generally in Mexico and the United States.

According to the Gafi, the obstacles to efficiently identify the final beneficiaries are found throughout the anti-money laundering chain: banks and other financial institutions, for example, often blindly rely on their clients' statements, while companies whose activities are susceptible to laundering money - casinos, real estate or jewelry stores, among others - do not identify the final beneficiaries of the operations.

In addition, "(financial) entities are not obligated to determine whether the final beneficiary of a client is a PEP, whether national or foreign," the document said, adding shortly afterwards that it "makes it difficult for financial institutions to identify to the PEPs that use their names and to monitor their activities ".

From the administrative side, much of the work of identifying the final beneficiaries falls on the notaries public, which have a "weak" degree of compliance with this task, according to the Gafi. Coupled with this, Mexican law does not oblige companies to notify a notary when a change of shareholder occurs - as long as the capital and the bylaws of the company remain unchanged.

Financial institutions and companies engaged in "risky" money laundering activities do not measure the "threat" of corruption, and have a "limited understanding" of the more complex methods employed by the washers, such as "misuse of the moral people ".

In a joint statement, the Ministry of Finance and Public Credit (SHCP) and the Attorney General of the Republic (PGR) congratulated each other on their successes in money laundering, citing the positive parts of the report. However, in a discrete paragraph they recognized that "there are areas of opportunity".

They explained: "It is key to prioritize the investigations in the matter, the forfeiture of illicit goods, as well as the distribution of resources and attention for the supervision of vulnerable non-financial activities; that there must be greater training for the relevant authorities and intensification of the identification and access to information of the final beneficiaries of assets and companies".

The Gafi report notes the "low degree of efficiency" of the PGR in terms of investigating and prosecuting money laundering, which explains the "extremely low" number of convictions for the crime. The agency regrets, for example, that the unit "does not investigate or pursue money laundering proactively and systematically, but on a reactive basis, case by case."

And there is plenty that, in the PGR, "there are no standard operating procedures that define when a money laundering investigation should be launched, which means that very few units (specialized in financial crimes) open a parallel investigation (...) to an investigation into predicate offenses such as drug trafficking, corruption or organized crime. "

Not only this: it also underlines that "the level of corruption that affects security agencies, particularly at the state level, reduces their capacity to investigate and prosecute serious crimes."

In its report, the Gafi recognizes that Mexico improved in the legislative and legal part, as well as in the "understanding" of money laundering, however, stressed that much remains to be done in the investigation and prosecution of crimes .

Categories: mexico, Money Laundering