Reforms to Mexico’s anti-money laundering law earlier this year injected fresh hope and marked a key step forward in the fight against organized crime, but ongoing challenges may hinder the strengthening of controls over suspicious financial transactions and the closure of legal loopholes that have facilitated money laundering.
The new reforms to the Federal Law for the Prevention and Identification of Operations with Illicit Proceeds, better known as the “Anti-Money Laundering Law,” took effect in July. One of the central pillars of the change was to address financial support for terrorism. It also expanded what activities are considered to be vulnerable to money laundering — such as real estate development, virtual assets (cryptocurrencies), betting houses, and the issuance or sale of prepaid cards — as well as the entities that must report suspicious transactions.
It also strengthened sanctions and required increased reporting requirements, such as identifying the “beneficial owner” in all transactions, or those individuals who have direct or indirect control over the company, even if they are not listed as its owners.
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The reform also aimed to increase institutional coordination at the national level between the Ministry of Finance and Public Credit, the Attorney General’s Office, the Ministry of Security and Citizen Protection, and the National Guard.
Several experts consulted by InSight Crime agreed that the reform represented progress towards more robust legislation, although creating new tools to detect money laundering linked to organized crime was still an issue in Mexico.
The stricter control requirements established by the reform for certain companies will contribute to standardizing anti-money laundering mechanisms in the country, Ellis Matteson, head for Latin America at the law firm Miller & Chevalier, told InSight Crime.
“Practices such as automated systems for detecting unusual transactions, internal and external audits, and specialized training will become more common and will help more companies identify problematic behavior,” said Ellis.
Legal Loopholes Persist
Despite this, legal inconsistencies and potential deficiencies in the implementation of these reforms could limit its impact on money laundering.
“Legislation is important but not sufficient,” according to Cecilia Farfán-Méndez, director of the North American Observatory of the Global Initiative Against Transnational Organized Crime. The few sentences handed down for money laundering crimes in Mexico underscore this point, as well as the complexity of money laundering investigations.
Furthermore, the regulations could be unevenly applied, according to Salvador Mejía, partner at Asimetrics, a firm specializing in strategic consulting to prevent money laundering. This is because they establish obligations like implementing risk matrices, which many small- and medium-sized companies may not have the resources to comply with.
In addition, some experts warned that several relevant industries remain outside the scope of the law, such as the agricultural sector, sports clubs, the entertainment industry, and the chemical industry – which is particularly vulnerable due to its role in the diversion of precursor chemicals for illicit fentanyl production.
Implementation Will Not Be Easy
Another concern among experts lies in the complexity of implementing the reform.
“While at a technical level the reform improves the government’s ability to detect cases of money laundering linked to organized crime, biased implementation could trigger surveillance without clear limits, violate banking secrecy, and militarize the tools used to detect money laundering,” Diana Paz, an international conflict specialist, told InSight Crime.
A clear example is the incorporation of “Politically Exposed Persons” (PPE), which includes any person who has been a public official, both in Mexico and abroad, as well as other individuals who meet certain conditions and characteristics.
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The reform makes it obligatory to identify and monitor the operations of all those considered to be politically exposed. Although this definition is necessary and useful, it does not clearly define the individuals who comprise it. This ambiguity creates a legal loophole that could lead to selective persecution for political purposes.
Furthermore, the National Guard — now controlled by the military — is included among the government institutions with investigative capabilities in money laundering cases. This could pose a risk of further militarizing civilian administrative roles and could violate individual rights, according to Emiliano Polo, a political risk analyst at Control Risks.
The Ministry of Finance and Public Credit will also expand its investigative powers, allowing it to obtain personal, financial, and property information without judicial authorization, increasing privacy risks, Polo added.