The Federal Law for the Prevention and Identification of Transactions with Funds from Illegal Sources is now just over two years old. The authorities of the Financial Intelligence Unit (UIF) and the Tax Administration Service (SAT) have partnered with entities and individuals covered by the Law. The UIF hopes to encourage compliance with the identification and registration obligations for carrying out vulnerable activities. If successful, Mexico will prevent the infiltration of illicit funds into the Mexican financial system. Still, many companies covered by the obligations in the Law have not taken appropriate measures to follow them. Quite often, these companies are unaware of their obligations and make the mistake of concluding that they do not engage in high-risk transactions. This can be a dangerous mistake. Monetary penalties under the Law range from around USD 1,000 to 300K, while individuals may face imprisonment of up to eight years.
All Mexican legal entities and individuals should review the list of vulnerable activities to verify if the Law applies to them. Entities and individuals that adhere to the registration and identification obligations will avoid penalties. They will also be less likely to commit a substantive money laundering offense. Determining your obligations under the Law starts with the list of ‘vulnerable activities’. Vulnerable activities fall into two main categories: per se vulnerable activities; and vulnerable activities above a monetary threshold. There is a third category of vulnerable activities applicable only when performed by individuals holding offices of ‘public trust’ (e.g., notaries, customs brokers). The vulnerable activities, broken down by category, are as follows:
|VULNERABLE PER SE
|VULNERABLE > $ THRESHOLD
|Non-banks issuing travelers checks
|Gambling, contests, or price drawings
|Lending/secured transactions by non-banks
|Issuing/marketing of cash cards (e.g., prepaid cards)
|Real estate development by sellers of land
|Dealing in precious metals/stones or art
|Professional transportation or custody of cash/securities
|Sale/marketing of new and used vehicles
|Professional services provided outside of a labor relationship
|Armoring services for vehicles and premises
|Receipt of donations by non-profits
|Leasing of real estate
Entities or individuals engaged in vulnerable activities must follow reporting obligations under the Law: register on a government AML website; file monthly reports on clients/users; appoint a compliance officer; and prepare a compliance handbook. The Law permits the authorities to conduct on-site compliance inspections. Thus, entities and individuals should maintain organized records of their compliance.
Initial Implementation Issues
The Mexican authorities have faced some difficulties in the early implementation of the law. For example, the AML website often malfunctioned in the early stages of operation. As of now, the authorities seem to have resolved the technical issues with the website, although the processing speed is slower during deadlines for filing notices due to high volume. To its credit, the UIF has been receptive of the feedback from those covered by the Law. In several cases, the UIF issued rulings clarifying the definition of vulnerable activities. The UIF also identified common concerns and in July 2014 issued modifications to the Law’s implementing regulations. The modifications aimed to simplify meeting the Law’s obligations, defined concepts for interpreting the Law, and reduced the administrative burden of the Law’s recordkeeping requirements.
The cooperation among the Mexican regulators and those covered by the Law has eased its early implementation. This working relationship ensured that the regulators received information on potential money launderers. Nonetheless, much road lies ahead on the path to rooting out the pervasive laundering of illicit cash in Mexico.