Financial Crime World

Mexico’s Efforts to Combat Money Laundering and Terrorist Financing Face Challenges

Mexico has made significant progress in combating money laundering and terrorist financing since its last assessment in 2008. However, it still faces several challenges in effectively detecting and disrupting these illicit activities.

Limited Identification of Beneficial Owners

One of the key concerns is the limited extent to which beneficial owners are being identified. Financial institutions (FIs) rely heavily on customers’ self-declarations to identify beneficial owners, rather than conducting thorough investigations. This has led to a significant gap in understanding who ultimately owns or controls entities, making it difficult to assess and manage ML/TF risks.

Supervision of Designated Non-Financial Businesses and Professions (DNFBPs)

Financial sector supervisors have a good grasp of the risks within their sectors, but oversight of DNFBPs is less developed and under-resourced. Sanctions have not been applied effectively, proportionately, and dissuasively to date.

Mexico has a solid legal and institutional framework in place for seeking and providing MLA and extradition, but its use of MLA is limited by the absence of a legal basis for certain investigation techniques. The country’s authorities prioritize other forms of international cooperation over MLA, which can hinder the effectiveness of investigations and prosecutions.

High-Risk Financial Sector

The financial sector remains at high risk of ML activities, with banks being the most vulnerable due to their high volume of transactions and interconnectedness to the international financial system. Brokerage firms and DNFBPs, such as notaries and real estate agents, are also exposed to ML threats.

Typical Money Laundering Methods in Mexico

Typical ML methods in Mexico include:

  • Use of shell and front companies to conceal beneficial ownership
  • Purchase and sale of real estate and high-value goods
  • Cash smuggling across the US-Mexico border

The country’s large informal economy and heavy reliance on cash transactions increase the risk that illicit proceeds may be re-channeled into the regulated formal economy.

Progress Made in Identifying and Disrupting ML/TF Activities

Despite these challenges, Mexico has made some progress in identifying and disrupting ML/TF activities. Its authorities have a good understanding of the risks within their sectors and have implemented reasonable risk-based approaches to AML/CFT supervision. The country’s financial intelligence unit (FIU) has also conducted analysis of companies with higher risk of being involved in ML/TF activities.

Recommendations

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To better combat money laundering and terrorist financing, Mexico should:

  1. Strengthen measures to identify beneficial owners, including requiring FIs to conduct thorough investigations.
  2. Improve oversight of DNFBPs, including regulation and supervision.
  3. Prioritize MLA over other forms of international cooperation when necessary.
  4. Increase resources for investigation and prosecution of ML/TF activities.
  5. Enhance entity transparency and reporting requirements.

By addressing these challenges and implementing these recommendations, Mexico can better combat money laundering and terrorist financing, protect its financial system, and strengthen its position as a major player in the global economy.